Ok, so you or your company has obtained a license to facilitate travel arrangements to Cuba for people to people educational exchanges. The next step is letting those licensed parties know about your services. Since both services to be provided and the travel itself are still subject to the authority of the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) it follows that advertising of travel to Cuba may have certain restrictions imposed on it as well. Indeed, it does. Luckily, last Friday OFAC released guidance on advertising people to people travel services to Cuba.
Below are two lists. One list defines what activities you can legally engage in relating to the advertising of travel to Cuba pursuant to licenses for people to people exchanges. The other list is a list of those activities which a U.S. person cannot engage in relating to the advertising of travel to Cuba pursuant to licenses for people to people exchanges. In the spirit of OFAC we will refer to the list of activities that are allowed as the Authorized Activities List and the list of activities which are prohibited as the Blocked Activities List.
*Disclaimer: These lists were not created by OFAC. They were merely compiled by me and were derived from the information contained in OFAC’s March 9, 2012 Guidance. These lists do not have the effect of legal authority. All OFAC cases are different and are considered based on their specific facts. Any questions about proposed activities should be referred to OFAC Compliance or at a minimum experienced counsel with a knowledge of OFAC regulations and OFAC’s Cuba travel policy.
AUTHORIZED ACTIVITIES LIST
1. Designing advertisement related to licensed Cuba travel;
2. Accepting advertisement related to licensed Cuba travel;
3. Publishing the advertisement in any medium;
4. Providing a link to the website of a licensed organization whose services are being advertised;
5. Posting of information related to licensed services on a website;
6. Production of a brochure advertising licensed services and distribution of that brochure to the public;
7. Promotion of licensed travel services via phone campaigns;
8. Promotion of licensed travel services at travel expositions;
9. Collection, organization, and production of contact information for prospective travelers in exchange for a referral fee or otherwise.
BLOCKED ACTIVITIES LIST
1. Registering travelers on behalf of a licensed travel provider;
2. Collecting funds from travelers for forwarding on to a licensed travel provider;
3. Advertising without including the licensed travel provider’s name;
4. Advertising using an alternate name for a licensed travel provider in the advertisement;
5. Advertising that misleads travelers into believing they will not be required to maintain a full time schedule of educational exchange activities;
6. Advertising for people-to-people travel that suggests the travel will focus on activities that may be undertaken after their daily full-time schedule of people-to-people activities;
7. Advertising activities that are primarily tourist-oriented;
8. Advertising self-directed educational activities that are intended only for personal enrichment.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or email@example.com.
One of the most public OFAC SDN reconsideration cases, that dealing with former Texas resident, Richard Chicakli, has added a new chapter. Yesterday, OFAC penalized Richland Trace Homeowners Association, Inc. of Dallas, Texas, $9,000 USD for dealing in assets in which Mr. Chicakli had an interest. Mr. Chichakli is designated as a Specially Designated National (SDN) under the Former Liberian Regime of Charles Taylor Sanctions Regulations. Mr. Chichakli has repeatedly sought reconsideration of his SDN designation, but to no avail. He maintains a website where he has chronicled these efforts.
OFAC originally proposed a penalty of $9,000 for Richland. In their response to the proposed penalty, Jack Manning, Richland’s attorney, stated that Richland had acted in accordance with their OFAC license to transact in this property and that the OFAC license authorized Richland’s sale of property which Mr. Chichakli had an interest in and the distribution of the proceeds from that sale.
OFAC differed with Mr. Manning’s interpretation of the facts finding that Richland violated 31 C.F.R. §593.201 and that Section II(b) of Richland’s License (LB-126) states that the license’s authorization excludes “any taxes, costs, or legal, administrative, or other fees incurred or accruing prior to the court authorized foreclosure of the Blocked Premises . . . .”
As such, OFAC found that Richland’s use of $9,500 of the proceeds of the sale of the property towards reimbursing itself for past assessments and late fees was not authorized by License LB-126 because it comprised a reimbursement of fees that accrued prior to the court authorized foreclosure of the property that was expressly prohibited by Section II(b) of the license. As a result, it constituted an unauthorized dealing in property in which Richard Chichakli, an SDN, had an interest.
Even with an OFAC license in place, engaging in transactions which an SDN has its pitfalls. First, the license application must be thoroughly drafted to seek authorization for all conceivable uses or transactions that may need to be engaged in under the authorization. Second, the license must be thoroughly understood in order to ensure that the license holder is not acting outside of the authorizations contained in the license. Failure to follow either of these steps could lead one to find themselves in the same position as Richland has.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or firstname.lastname@example.org.
Last week the United States Department of the Treasury Office of Foreign Assets Control (OFAC) introduced a new search tool on their website which allows users to search for the names of individuals and entities on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List). The tool is simply called simply SDN Search. There has been a lot of buzz around this new search tool primarily because of the disclaimer OFAC issues on their webpage indicating that “The use of SDN Search does not limit or excuse any liability for any act undertaken as a result of, or in reliance on, such use.” However, aside from the fact that using OFAC’s own search tool to detect and prevent transactions with parties on the SDN List will not shield you from liability from engaging in transactions with such parties, OFAC’s new search tool has other potential issues; namely, that the information provided by SDN Search might not exactly be accurate.
How would I know whether the information is accurate or not? I happen to represent a few individuals who are on the SDN List and are seeking to have their names removed. I looked up those individuals and entities and noticed some discrepancies between OFAC’s information on my clients and what the documentary evidence, which we had provided to them, actually showed.
For example, in one case, OFAC SDN Search shows five (5) passports and passport numbers for one of my clients. However, it fails to show information on another one of my client’s passports, a copy of which was turned over to OFAC during the reconsideration process. Moreover, that same client’s date of birth on the OFAC SDN Search is twenty (20) days later than his actual birth as documented on his birth certificate. In another case, OFAC lists three (3) birth dates for the client when only one of those dates is the actual date of his birth.
So what does this mean? In my mind it means one of two things. On one hand it could mean that OFAC does not care about the information, supported by documentary evidence, that is provided to them in the reconsideration process. On the other hand it could mean that they have serious data entry and record keeping problems. Regardless, these discrepancies coupled with OFAC’s disclaimer regarding liability all amount to one thing: OFAC SDN Search may not be the best tool to use when running your SDN checks. While I do applaud OFAC for taking this step and trying to provide a tool to make SDN checks easier, I think it will take some time to work out the bugs before it comes to be on par with products offered by MK Data Services, World Check, or ATTUS.
Today there are variety of reports regarding Iranian Oil Minister Rostam Qasemi’s statement that the EU would not sanction Iranian oil exports because it would harm the global crude market. EU leaders have recently been calling for increased sanctions against Iran due to Tehran’s disputed nuclear program. This has included discussions on new sanctions targeting Iran’s energy, transport, and banking sectors.
Iran has already been targeted at least four times by U.N. sanctions and international sanctions for refusing to halt its nuclear program in the face of accusations from the United States and its allies saying its aim is to develop a nuclear weapon. Iran has denied these allegations, saying it needs nuclear technology to generate electricity. Iranian authorities say the sanctions have had no impact on Iran’s economy, who remain OPEC’s number two oil producer with 2.6 million barrels a day worth of oil exports. According to some reports, Iran’s economy is 40 percent reliant on oil revenue.
The U.S., Britain, and Canada have already announced new sanctions against Iran’s energy and financial sectors, and France is currently proposing new sanctions which would include blocking the assets of Iran’s Central Bank and suspending purchases of its oil. France is backed by Germany and Britain in this effort, however, some E.U. states have expressed reservations, because of their reliance on Iranian oil.
Both China and Russia have appealed against new sanctions which would increase the difficulty of developing Iran’s large gas reserves. Currently, Iran sits on the world’s second-largest natural gas reserves after Russia. Regardless of this, international sanctions have impaired opportunities to develop this sector.
So how much truth was there Mr. Qasemi’s statement? Possibly quite a bit. It is no secret that the U.S. has been pushing for increased European sanctions against Iran for years, however, recently there has been even more pressure due to the Undersecretary for Terrorism and Financial Intelligence, David Cohen’s, recent trips to Europe calling for increased pressure on Iran. One thing that has come out of those discussions is that Europe is concerned over what sanctions on Iranian oil could mean for Europe’s economy. That gives one pause to think that perhaps the EU will not issue new sanctions against Iran, at least not on Iranian oil. However, with new proposed sanctions being debated in the U.S. Congress that would harm foreign banks that do business with Iran, Europe may soon have no choice but to move towards sanctions on Iran’s oil sector.
There has been a lot of talk over the past week about a new amendment to pending legislation that will impose new sanctions on Iran. A lot of the discussion has revolved around the Obama administration’s opposition to this latest round of sanctions. Essentially, the administration believes that imposing these sanctions at this time would lead to Iran experiencing an economic boon due to spiking oil prices. Lost in all this conversation is what the actual measures to be imposed consist of. What follows is a breakdown of the key provisions to this much discussed amendment:
1. Freezing of Assets of Iranian Financial Institutions. Under this new amendment any property or interest in property of an Iranian financial institution that comes under U.S. jurisdiction is to be blocked. This is already the case for a number of Iranian banks who have been designated under the Weapons of Mass Destruction Proliferation Sanctions or the Global Terrorism Sanctions Regulations. However, with this new amendment the property or interests in property of ANY Iranian financial institution would be blocked.
2. Sanctions Against Foreign Financial Institutions Doing Business with Central Bank of Iran. The amendment would also prohibit U.S. depository institutions from maintaining correspondent accounts with foreign financial institutions which have engaged in significant financial transactions with the Central Bank of Iran. This amendment also allows the President to impose sanctions on Central Bank of Iran under the International Emergency Economic Powers Act (IEEPA). Presumably, this allowance was offered so that the President wouldn’t have to satisfy the mandates of the National Emergencies Act to invoke his IEEPA authority.
3. Exemption for Sales of Food, Medicine, and Medical Devices. The aforementioned prohibitions would not apply to any person conducting or facilitating a transaction for the sale of food, medicine, or medical devices. As readers of this blog may be aware these types of sales are either authorized by general license (in the case of food) or eligible for specific license authorization under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA).
These new sanctions are undoubtedly restrictive and will have more than just their direct effect. Once passed into law these sanctions will have a massive chilling effect upon any Iranian financial institution’s ability to engage in transactions with any foreign banks. Effectively, Congress is throwing down the gauntlet and saying that any bank that does business with Iran cannot do business with the United States. This is not necessarily the best course of action. In addition, to the arguments already put forward by the Obama administration, there will also be the propping up of an increasingly powerful black market economy as those who deal with Iran, both legally and illegally, will be forced to turn to hawala brokers, cash smugglers, and underground money exchangers to transfer funds into and out of Iran. This will lead to tens, if not hundreds, of millions of dollars flowing through a black market economy which cannot be traced and which could potentially fall into the wrong hands. If this amendment is passed into law, we could be looking at a very precarious situation for those seeking to legally divest or trade with Iran.
It’s come to my attention as of late that there is quite bit of confusion regarding what Iran sanctions are. Some believe the sanctions are completely statutory as mandated in the Iran Sanctions Act (ISA) and the Comprehensive Iran Sanctions, Accountability, Divestment Act of 2010 (CISADA). Others focus on just the regulatory trade ban found at 31 C.F.R. Part 560, known as the Iranian Transactions Regulations (ITR). Still there are others who only focus on the blocking of certain Iranian banks under either the Weapons of Mass Destruction Proliferation Sanctions Regulations (WMDPSR) and the Global Terrorism Sanctions Regulations (GTSR). The truth is that Iran sanctions are all of these things and more.
The sanctions regime targeting Iran is comprised of a variety of statutes, executive orders, and regulations. Some of these provisions call for transactions with Iran to be blocked, others enact prohibitions against dealings with Iran and Iranian entities. The following is a non-exhaustive list of the laws that comprise what we refer to as Iran Sanctions:
1. The International Emergency Economic Powers Act (IEEPA): IEEPA grants the authority to the President to impose sanctions. It is a short act that leaves a lot of discretion up to the Executive Branch on when and how sanctions can be imposed. Under IEEPA, the President can prohibit transactions, block assets, and generally impose a wide array of restrictions on dealings with a target country, entity, or individual.
2. Iran Sanctions Act (ISA): First passed in 1996, ISA calls on the President to impose certain sanctions upon foreign entities contributing more than $40 million of investment to Iran’s petroleum sector or on those parties engaging in trade with Iran in violation of U.N. Security Council Resolutions.
3. The Comprehensive Iran Sanctions, Accountability, Divestment Act of 2010 (CISADA): Under CISADA, Congress expanded the provisions of the Iran Sanctions Act (ISA) to include prohibiting investment in Iran’s petroleum production, exporting refined petroleum products to Iran, denial of foreign exchange transactions, imposing prohibitions on transfers of credit or payments between, by, through, or to financial institutions that are subject to U.S. jurisdiction, and denial of any transaction with respect to property subject to U.S. jurisdiction.
4. Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA): TSRA calls for the licensing of exports of agricultural commodities, medicine, and medical devices to Iran, Cuba, and Sudan.
5. The Iranian Assets Control Regulations: The Iranian Assets Control Regulations are the first sanctions to be imposed in relation to Iran. They were imposed during the Carter Administration and froze assets belonging to the Government of Iran that were under U.S. jurisdiction.
6. The Iranian Transactions Regulations: The Iranian Transactions Regulations (ITR) are what we commonly think of when we hear the term “Iran sanctions”. The ITR constitutes an expansive trade ban targeting Iran, the Government of Iran, and Iranian entities. In short, the ITR prohibits U.S. persons from carrying out any import or transaction related to Iranian-origin goods or services, any export to Iran of any U.S.-origin goods, services, or technology, and/or the facilitation of any of the aforementioned activities.
7. The Iranian Financial Sanctions Regulations: One of the new sanctions programs mandated by CISADA, the Iranian Financial Sanctions Regulations imposed prohibitions with respect to correspondent accounts or payable-through accounts of certain foreign financial institutions, as well as on persons owned or controlled by U.S. financial institutions.
8. The Iranian Human Rights Abuses Sanctions Regulations: Another of the new sanctions programs mandated by CISADA, the Iranian Human Rights Abuses Sanctions Regulations identified for blocking of assets any persons contributing to human rights abuses in Iran. It also prohibited U.S. persons from engaging in transactions with such targeted parties.
9. United Nations Security Council Resolution 1696: A 2006 U.N. Security Council Resolution which gave Iran one month (to the end of August 2006) to halt its enrichment of uranium and all other “research and development” activities or face the threat of sanctions.
10: United Nations Security Council Resolution 1747: A 2007 United Nations Security Council Resolution which called upon states and international financial institutions to refrain from entering into new commitments for grants, financial assistance, and concessional loans, to the government of the Islamic Republic of Iran. In addition, it imposed an arms ban on export of Iranian arms and related material.
11: United Nations Security Council Resolution 1929: The latest round of U.N. sanctions imposed on Iran. Among the many provisions of United Nations Security Council Resolution 1929, this resolution imposed bans on certain Iranian nuclear and missile development abroad, on arms sales, bunkering services, financial services contributing to Iran’s proliferation efforts. In addition, it called for the blocking of all transactions related to Iran’s proliferation efforts.
There have been a number of recent news articles describing the impact sanctions against Syria are having both on ordinary Syrians living in Syria, as well as those, living abroad. Not surprising to those of us who work in this area, the sanctions are having a serious impact on the lives of those parties that they are not necessarily meant to harm. In a recent National Public Radio article it was written that “Western sanctions are designed to target the government and pressure President Bashar Assad, but every Syrian is grappling with the punishment. For the poor, eggs and meat are now out of reach. For the well-to-do, international banks have stopped processing personal credit cards. For merchants, there is a collapse in demand….”
Part of the U.S. economic sanction program against Syria, much like the sanctions against Iran, Cuba, and Sudan, contains country based sanctions. That means they prohibit U.S. persons, wherever located, from engaging in a number of transactions with Syria or where a benefit is derived in Syria. This includes the following types of transactions:
(a) new investment in Syria;
(b) the exportation, reexportation, sale, or supply of any services to Syria;
(c) the importation into the United States of petroleum or petroleum products of Syrian origin;
(d) any transaction or dealing related to petroleum or petroleum products of Syrian origin; and
(e) Facilitating any of the aforementioned transactions.
The exportation of any services to Syria is the one that will likely put the most innocent Syrians and Syrian-Americans at risk. This is the reason why Syrian merchants can no longer use credit card processing machines, why foreign banks will shy away from providing services to Syrians, and why inflation will continue to increase as Syria’s economy suffers from difficulty in finding buyers for its petroleum exports.
While the executive order imposing this country wide band is fairly new–it was imposed on August 18, 2011–it seems to already have impacted average Syrians. Although the government agency tasked with enforcing U.S. sanctions, The United States Department of the Treasury Office of Foreign Assets Control (OFAC), has promulgated some general licenses and provided some guidance which reduces the expansiveness of these country wide sanctions, there is still exposure for those who continue to deal with Syria particularly those ordinary U.S. persons who do not realize the extent of U.S. economic sanctions against Syria. For those parties it would be advisable to seek out counsel familiar with the new Syrian sanctions to ensure full compliance with the law.
Iran is dismissing threats by the United States that sanctions would be imposed upon the Central Bank of Iran as retaliation for an the alleged “Iran Terror Plot”, Iran contends that even if the U.S. were to attempt to move forward with the designation that the United Nations would block the plan and other central banks would not accept it.
As is well known, the United States and its European allies have already pushed the United Nations to impose multiple rounds of sanctions over Iran’s nuclear program and have taken it upon themselves to impose their own unilateral sanctions programs which have had the effect of deterring investment in Iran’s oil sector and have increased the difficulty associated with moving money in and out of the country. Targeting the Central Bank of Iran for sanctions would in theory make it more difficult for Iran to receive payment for exports.
Earlier this year, such difficulties were evidence when Iran was temporarily unable to receive payment of nearly $5 billion of petrodollars from India due to that nation’s discontinued use of the payment system previously being utilized to pay Iran.
Although the U.S. has taken steps to designate some of the parties alleged to have been involved in the plot, President Obama has stated that he will act to bring international support for even tougher sanctions on Iran.
As most readers of this blog are aware, U.S. persons are already generally prohibited from doing business with any bank in Iran, including the Central Bank. However, the impact of this designation could effectively shut down all transactions with Iran that are in or will be in rials. Thus, the designation of Central Bank of Iran could have significant consequences on Iran even without international support.
Jeng “Jay” Shih, and his company, Sunrise Technologies and Trading Corporation, have plead guilty for conspiracy to illegally export United States-origin computers from the United States to Iran through Dubai, UAE. Due to charge being conspiracy, the maximum sentence is five years in prison and $1 million in criminal fines, as opposed to the traditional criminal penalties under the International Emergency Economic Powers Act (IEEPA) of up to twenty years imprisonment.
In additional to the potential criminal penalties, Shih has also agreed to forfeiture of a money judgment in the amount of $1.25 million. Finally, Shih and his company are denied export privileges for 10 years, although this penalty can be suspended if Shih and Sunrise commit to refraining from any further export violations.
Shih was originally arrested on April 6, 2011, though he and his company were not indicted until April 21, 2011. According to the facts to which he plead guilty, Shih conspired with a company operating in Dubai, UAE, and Tehran, Iran, to procure United States-origin computers through Sunrise and export those computers from the United States to Iran, through Dubai, without first obtaining a license or authorization from the United States Office of Foreign Assets Control (OFAC). Shih and his company were responsible for the illegal export of 711 units of computer-related goods to Dubai, which were later sent to Iran.
Criminal convictions under IEEPA carry a maximum of 20 years imprisonment. However, in this case Shih was convicted of conspiracy to violate IEEPA, therefore, he will only face imprisonment of up to five (5) years. With less than six months separating the arrest of Shih and his guilty plea, it seems as though the government was giving Shih a break for pleading guilty early on in the process. Indeed, the plea agreement sent to Shih’s defense counsel only kept the deal open until October 3, 2011. Although we do not have the benefit of seeing all of the government’s evidence, based on the indictment and how previous cases of this type have been prosecuted, Shih likely made the right move to plea to the conspiracy charge. If he had gone to trial and lost he would have been looking at a 20 year maximum term of imprisonment with a high likelihood that the bottom of the sentencing guideline range would be nearly five (5) years.
Yesterday, the Assistant Attorney General for National Security, Lisa Monaco, offered a statement before the Senate Judiciary Subcommittee on Crime and Terrorism. The statement discussed the combating of terrorist financing and indirectly offered insight into a side of U.S. sanctions that is not regularly discussed: criminal liability. Below I have outlined some of the more relevant comments and what it means from an OFAC sanctions perspective.
1. “DOJ currently has State Department funded Resident Legal Advisers in Bangladesh, Kenya, Turkey, and the United Arab Emirates who are focused primarily on terrorist financing. In addition, DOJ’s network of 55 RLA’s in countries around the world regularly provide technical assistance to the host government on terrorist financing laws and prosecutions.”
This is only half the story. I also have seen evidence that U.S. government officials are very active in investigating criminal and terrorist financing in foreign countries. This has been particularly true in Africa where a number of recent Specially Designated Nationals (SDN) designations involved quite a bit of direct investigation and participation by U.S. Ambassadors. From what I have seen in these SDN cases, not only are legal advisers in these countries, but the embassies themselves are very active in investigating terrorist and criminal financing in those countries.
2. “Department of Justice attorneys closely review the administrative record compiled for purposes of designating an entity as an FTO, or an individual or an entity as an SDT or SDGT, to ensure that the record adequately supports the factual findings required by the applicable authority and to assess litigation risk in the event that a designation is subsequently challenged by the designated individual or entity.”
In other words, the executive branch will compile the information necessary for the SDN designation and then their own lawyers will review it to make sure it’s ok. In essence, what this means there is no neutral judicial authority which will review the evidence used in the designation. Moreover, the question of litigation risk is often negligible as most SDNs do not have substantial connections in the U.S to have standing in a U.S. court.
3. “Persons and entities designated under those Executive Orders can challenge their designations under the Administrative Procedure Act in district courts.”
Not always. Sure, there have been high profile cases related to designations, however, those plaintiffs were U.S. based entities. The majority of parties on the SDN List are not U.S. based individuals and entities nor do they have substantial connections with the United States. As such, they do not have recourse under the Administrative Procedure Act to challenge their designation in U.S. district courts since they do not have standing.
Other than the aforementioned, Ms. Monaco discussed a number of ongoing criminal investigations and prosecutions related to providing material support to designated terrorists and terrorist organizations. It certainly seems to be an area that DOJ is taking very seriously and one that can impact anyone dealing with sanctions related issues. Those concerned about U.S. sanctions should pay attention to these prosecutions to ensure that they have not engaged in any activity for which other parties are being prosecuted.