Jan

23

OFAC Doesn’t Understand How Money Works

Posted by at 1:13 pm on January 23, 2018
Category: OFAC • Venezuela
Nicolas Maduro via https://commons.wikimedia.org/wiki/File:Nicolas_Maduro_February_2017.png [Fair Use]
ABOVE: Nicolas Maduro

Venezuelan President Nicolas Maduro in December announced his plans to have Venezuela issue a commodity-backed cryptocurrency.  Although cryptocurrencies typically have no backing, there is no reason that they could not.  In such a situation, the blockchain would take over the validation function normally performed by a central bank.  Maduro’s cryptocurrency would, he says, be backed by oil, gas, diamond and gold reserves.  The opposition dismissed Maduro’s plan and called him a “clown” for even suggesting the new currency.

Not to be out-clowned, the Office of Foreign Assets Control last week issued its own FAQ on Maduro’s vague and unimplemented plan:

551. In December 2017, Venezuelan President Nicolas Maduro announced plans for the Government of Venezuela to launch a digital currency. According to public reporting, Maduro indicated that the digital currency would carry rights to receive commodities in specified quantities at a later date. Were the Venezuelan government to issue a digital currency with these characteristics, would U.S. persons be prohibited from purchasing or otherwise dealing in it under E.O. 13808?

A currency with these characteristics would appear to be an extension of credit to the Venezuelan government. Executive Order 13808 prohibits U.S. persons from extending or otherwise dealing in new debt with a maturity of greater than 30 days of the Government of Venezuela. U.S. persons that deal in the prospective Venezuelan digital currency may be exposed to U.S. sanctions risk. [1/19/2018]

Oh dear. They really said that? Seriously??

For starters, let’s address the notion that using currency issued by a government is an extension of credit to the government. Credit is extended to a government when goods or services are supplied to that government without a requirement for immediate payment. By that common and uncontroversial definition, accepting fiat money or representative money in exchange for goods and services from a private individual is not an extension of credit by the purchaser to the government that issued the currency because no goods or services were supplied by the purchaser to the government. This is even the case even if goods and services are provided to the government because the currency obtained can be immediately used for other transactions and there is no delayed payment. If the government paid with a debt instrument, such as a bond with a future maturity, then that would be an extension of credit to the government.

It appears that the genesis of OFAC’s misconception here is that the currency can be exchanged later with the government for the underlying commodity. Even were that an extension of credit to the government, OFAC’s rules would only be implicated if that exchange was delayed for more than 30 days. But, of course, the point of commodity backed currency is that it is immediately convertible. One could take the new Venezuelan currency and immediately demand to exchange it for oil, gas, gold or diamonds, so it does not have a “maturity of greater than 30 days.”

You know, you would think that the people at the Treasury, of all places, would understand how money works.

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Copyright © 2018 Clif Burns. All Rights Reserved.
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Jan

11

BIS Website Rolls Out Exciting New Feature

Posted by at 11:22 pm on January 11, 2018
Category: BIS

Richard Luthmann via https://twitter.com/LuthmannFirm/status/685863407157952512 [Fair Use]The Bureau of Industry and Security (“BIS”), apparently concerned that its website is not quite entertaining enough, has rolled out a new feature, which we can call “When Lawyers Go Bad.” The purpose of this new feature is, apparently, to highlight criminal activity by lawyers even if that criminal activity is wholly unrelated to export violations of any kind and wholly outside of BIS’s jurisdiction.

To roll out this new feature, BIS brings us, from the front page banner of its site, the case of Staten Island lawyer Richard Luthmann.   Mr. Luthmann is pictured at left with a sword and a shield,  He used this relatively bizarre image to illustrate a Tweet where he exhorts potential clients: “Don’t be a #WIMP! Hire a #LawWarrior that will #Vanquish your legal woes.” Sadly, Mr. Luthmann has had to hire his own “LawWarrior” to vanquish his own legal woes as he was indicted in December for, among other things, wire fraud, kidnapping, identity theft, access device fraud, and money laundering (but not, oddly, export violations).

The indictment alleges that Luthmann and a client cooked up a scheme where they would sell scrap metal to various customers but pack the shipments with a little bit of scrap metal and a bunch of worthless filler. If customers complained, they would say the shipment was full of scrap metal when it left the warehouse and that some nefarious type had obviously tampered with the shipment. If that didn’t work, they planned on using the supposed organized crime connections of another one of the co-conspirators to intimidate the disgruntled customers to shut up. (You know, with horse heads in beds, threats of sleeping with the fishes and all that).

The company engaged in this sales was set up by Luthmann. He then installed another client of his, who was blind and on disability, as the alleged president of the company. When the blind guy worried he’d get in trouble, Luthmann, according to the indictment, assured him that the government would never find out. Famous last words.

Oh, and there’s more. Luthmann allegedly demanded legal fees from one of his co-conspirators in the short-fill scheme in connection with un-invoiced legal services he was allegedly providing the client. The “client” borrowed the sums to pay these fees from another of the co-conspirators who later kidnapped the “client” and threatened him with a weapon to have the loan repaid. Fun times.

As I explained above, I can’t for the life of me see what this case, however entertaining, has to do with anything within the jurisdiction of BIS. The word “export” does not appear even once in the indictment. But, as this blog has a number of readers who are much smarter than I am, I propose a contest. I will award a prize of my choosing, worth at least $2.99, to the first person who can offer a credible explanation of why BIS has enough interest in this case to feature it on its website. This offer is void in any states where it might be illegal and in any states, including Alabama and Utah, where fun is prohibited.

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Copyright © 2018 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)


Jan

4

Kadyrov’s Cat, Like Schrödinger’s, Is Both Dead and Alive

Posted by at 4:35 pm on January 4, 2018
Category: Magnitsky Sanctions • OFAC
Ramzan Kadyrov and Cat via his Instagram account [Fair Use]
ABOVE: Ramzan Kadyrov & Cat

Ramzan Kadyrov, head of the Chechen Republic, Putin toady, serial human rights violator, cat aficionado,* fashion victim and blocked person on the OFAC SDN List is upset that his Facebook account has been deleted. A spokesman at Facebook said this to the New York Times:

We became aware and have now confirmed that the accounts appear to be maintained by or on behalf of parties who appear on the U.S. Specially Designated Nationals List and thus subject to U.S. trade sanctions. … For this reason, Facebook has a legal obligation to disable these accounts.

Er, no. Kadyrov was sanctioned under the Magnitsky Sanctions, and the rules governing those sanctions, clearly set forth an informational materials exception. Section 584.206(b) of the Magnitsky Sanctions Regulations clearly states:

The prohibitions contained in this part do not apply to the importation from any country and the exportation to any country of any information or informational materials, as defined in §584.304, whether commercial or otherwise, regardless of format or medium of transmission

Moreover, if Facebook really believed, as its spokesperson asserted, that it has to disable accounts maintained by SDNs, why does Bashar Al-Assad still have an active account? Or Nicolás Maduro?

Something else is clearly going on here. So, as they say, don’t believe everything you read on Facebook.

____

*Click this link to get the backstory on Ramzan and his kitty cat.

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Copyright © 2018 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)


Jan

3

North Pole Confirms Nice Children in Cuba and U.S. Received Presents on Christmas

Posted by at 10:27 am on January 3, 2018
Category: OFAC
Santa Flanked by F-16

I have received several inquiries regarding the absence this year of the annual Santa vs. OFAC post. The reason, of course, was this press release, set forth below, from October 14, 2016.

A quick call by Export Law Blog to Elf E. McElfface, the head of Santa’s PR department, confirms that this year’s deliveries to children in Cuba and the United States went off without a hitch. Mr. McElfface did caution that there were still a number of Grinches in DC that might at any time reinstate the old rules and urged all Santa supporters to contact their representatives in Congress and the White House to urge that the amended rules stay in place.

FOR IMMEDIATE RELEASE
MEDIA CONTACT: Elf E. McElfface, [email protected] or (951) 262-3062

Santa’s Village, North Pole – Santa Claus today, on behalf of himself, Mrs. Claus and the 40,000 elfployees of the Santa Foundation, expressed his gratitude to the Office of Foreign Assets Control for its timely revision of its rules to grant Santa clear authority this year to visit children both in the United States and Cuba. For years, Santa’s efforts to bring holiday cheer to children of both countries has been thwarted by section 515.207 of the Cuba regulations which would prohibit Santa’s sleigh from landing in the United States while toys for Cuban children remained in the sleigh or in landing in the United States if those toys had been delivered to Cuban children first.

Today’s action waives these restrictions if Santa’s sleigh only carries items that would, if they were subject to the EAR, be EAR99 or controlled only for AT reasons. This ends the long struggle over whether teddy bears and other toys — which are not food, medicine, or personal communications devices — could only be delivered to Cuban children in wrapped parcels with the child’s name and address written on the outside and with the statement “GIFT—Export License Not Required” also marked on the parcel package. Notwithstanding the diligence and timely efforts of Santa’s elfployees, compliance with these requirements for each non-naughty child in Cuba has heretofore been impossible.

News of the OFAC announcement led to loud cheers and applause throughout Santa’s Village. Elf E. McElfface, Santa’s spokeself, wiped a tear of joy from his eye as he said to the elves in one of Santa’s workshops that he never believed that this would occur in his lifetime, which was saying a lot given that the average life expectancy of an elf on the North Pole is currently just over 500 years.

As Christmas approaches, Santa said that he was looking forward to this year’s delivery of toys and goodies to the nice children throughout the world more than ever before and reminded children everywhere, both in Cuba and the United States, that they could call his hotline at +1 (951) 262-3062 to leave their Christmas wishes and toy requests.

This press release may include predictions, estimates or other information that might be considered forward-looking. While these forward-looking statements represent the Santa Foundation’s current judgment on what the future holds, they are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this press release. Please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.

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Copyright © 2018 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)


Dec

13

Do Due Diligence or Penalties May Be Due

Posted by at 7:20 pm on December 13, 2017
Category: Iran Sanctions • OFAC

Dentsply Sirona HQ via https://corporate.dentsplysirona.com/en/about-dentsply-sirona/_jcr_content/main/tilesquarecontainer/components/tilesquare_355870153/picture.img.582.HIGH.jpg/1488408622677.jpg [Fair Use]Dentsply Sirona agreed to pay the Office of Foreign Assets Control (“OFAC”) $1,220,400 to settle charges in connection with 37 unlicensed exports of dental equipment to Iran. The value of the shipments was not stated but it would have been close to the $1,695,500 that OFAC asserted was the base penalty amount.

The significant issue is that these were not exports of Dentsply Sirona, but rather of two subsidiaries of Dentsply before it merged into Sirona in February 2016. OFAC, and the other export agencies, apply a rule of successor liability and although that rule is more defensible in a merger case, such as this one, it also has been applied in asset deals. And there is some chance in this case that Sirona may not have known about this sanctions liability until OFAC came knocking on the merged company’s doors given that the matter was not voluntarily disclosed by the parties.

According to the charging documents, the Dentsply subs sold dental products from the United States to foreign distributors with knowledge that they would be re-exported to Iran.  In addition, they continued to do so even after receiving confirmation that the items had, in fact, been re-exported to Iran.

One of the aggravating factors cited by OFAC was that personnel of the subsidiaries deliberately concealed from the parent company their knowledge of and participation in sales to distributors that were going to be re-exported to Iran. Although this case, on the one hand, emphasizes the need for due diligence on sanctions violations as part of the mergers and acquisitions process, it also raises the question here as to how due diligence would have caught these violations. The company’s export records would only show exports to the distributors outside Iran and would not reveal the subsequent re-exports to Iran. And the employees who had been busy lying to the parent company could not be expected to come clean about the scheme when presented with a due diligence questionnaire or in a due diligence interview.

That raises a larger question. Why on earth is it an aggravating factor for a parent company (and a successor entity) that it had rogue employees in its subsidiaries? If the parent had a reasonable compliance program, exercised reasonable review over the sub’s hiring practices with background checks, and had no knowledge of the con game going on, why should the penalty be increased? That hardly seems fair. Rather, the appropriate response should be referring the employees’ violation to the DOJ for criminal prosecution of those employees themselves. After all, the aggravating factor here is itself fairly conclusive proof of criminal intent by the sub’s employees.

 

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Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)


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