Archive for the ‘Iraq’ Category

Treasury Fingers Countries Enforcing the Arab League Boycott of Israel

Monday, October 16th, 2017 by Danielle McClellan

Editorial By: John Black

Note:  I love this list.  It gives me a chance to say tertiary.   As my career winds down its things like this that I will miss.

N.B.:  I don’t remember ever seeing anybody write an editorial piece about Treasury publishing this list, probably for good reason.  If I don’t do this now, nobody ever will. 

Once again the Treasury Department has published its list of countries that more or less enforce certain aspects of the Arab League Boycott of Israel. Or, as Treasury clearly states, they are countries “which may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).”

You see, way back whenever, the US Congress decided it doesn’t like US persons cooperating with the secondary and tertiary elements of the Arab Boycott of Israel so it told the Treasury Department to put something in the tax code so that US person who illegally cooperate can’t claim foreign tax credits. Congress also told the Commerce Department to put something in its export control regulations so the Commerce rules make such cooperation illegal without telling anybody which countries it applies to.

You see, Congress and the US Government don’t want to have actual rules that say Arab League Boycott of Israel to make it clear that US person can’t cooperate with the unmentionable boycott on the unmentionable close ally of the United States.  Because, what the wizards* in Washington figured out is, if they don’t write little known rules that ban cooperation with the “Arab Boycott of Israel,” nobody will know that US foreign policy in many ways has long favored Israel over the Arab League.

(*Sorry, I did not mean to disparage indirectly the Washington Wizards NBA basketball team but this raises an important issue.  Years ago the Washington Bullets NBA team decided to change their name to the Washington Wizards. I always knew that they dropped the Bullets name to reduce violent crime in the capital city (how is that working?)  But, after wondering for years why the Washington team chose “Wizards,” I just now realized it is because most of the people in Congress and the US Government are wizards—either, if you are old like me, the type of wizards who wear pointy hats and robes with stars on them and have a magic wand or, if you are not old, those in Harry Potter movies; or, if you ask Congress, the type of wizards who are generally highly adept at what they do.  Now that’s another life knowledge breakthrough thanks to export regs.)

Treasury noted that this list is “based on currently available information,” which, I personally found to be a great relief because if the list had been based on only information available prior to 1975, it would have looked quite different.  And who knows what the list would have looked like if it were based on information that is not currently available—We could have ended up with Mexico and China on the list, seriously.

FYI, this paragraph contains information that is important:  Treasury listed these countries:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

The Commerce Department traditionally does not publish a similar list of countries for its antiboycott rules in Part 760 of the Export Administration Regulations (“EAR”).  EAR 760 prohibits a US person from cooperating with (or agreeing to do so) the secondary and tertiary elements of the Arab League boycott of Israel.  Instead of ever mentioning the Arab League or Israel, Commerce and the EAR brandish the terms “boycotting countries” and “boycotted countries” to adeptly hide the US pro-Israel foreign policy bias.

A reasonable person might assume that since the Commerce and Treasury rules have the same objective and are implemented by the same US Government, the Commerce Department considers its rules are applicable to the same countries as Treasury.

Editorial Note: I am not saying that the EAR rules are limited to the list of countries Treasury published. I am merely pointing out what a reasonable person might assume.

Useful Information:  In any event, when you do a risk based assessment of your EAR compliance issues and, based on that, decide how to allocate your limited compliance resources, it may be cost-effective to focus your EAR antiboycott rules compliance on the countries on the Treasury list.  And while you are doing risk assessments and deciding how to cost-effectively allocate your limited resources for EAR compliance, you may decide to allocate only a small portion of your total EAR compliance resources to compliance with the EAR antiboycott rules.  That is because antiboycott EAR fines are frequently well under $100k.  I recommend you allocate most of your EAR compliance resources to focus on compliance with the standard EAR export controls where it is not unusual for Commerce (along with OFAC) to impose fines of hundreds of millions of dollars, or in the case of ZTE, $1 billion and membership on an export denial list.

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2017-08-02/pdf/2017-16290.pdf

Illegal Exporting of IED Components Lands Singapore Native in Prison

Thursday, June 8th, 2017 by Danielle McClellan

By: Ashleigh Foor

Illegal exporting of goods lands Singapore native, Lim Yong Nam (aka Steven Lim), 43, in a lot of trouble. Forty months in prison kind of trouble to be exact. On December 15, 2016 Lim plead guilty to charges of conspiracy to defraud the US.

The conspiracy involved Lim’s and others’ involvement in the shipment of thousands of radio frequency modules from a Minnesota-based company to Iran.  The frequency transmitting technology used in these modules is related to that which connects office computers and printers wirelessly. The same technology is also used for remote detonation systems. Connected with the right antenna, the wireless capabilities can stretch 40 miles. But this technology was not shipped with the intention of setting up networks in an office building. Of the 6,000 modules shipped from Minnesota to Iran, 14 were later found in Iraq in unexploded improvised explosive devices (IEDs). According to case files, IEDs were the main source of American casualties in Iraq from 2001-2007.

Charges were first filed against Lim in June 2010, when he plead guilty to falsifying documents and breaking US law in order for 6,000 modules to ship from Minnesota to Singapore and finally to Iran through 5 shipments.  Lim admitted that he and his co-conspirators were aware of US restrictions on shipments to Iran and made false statements to indicate Singapore as the final destination.

After reaching Singapore, these shipments were combined with other electronic devices and stored with a freight forwarding company before being re-exported to Iran. There is no evidence of Lim having any physical contact with the modules.

From 2008 to 2009 several of these modules originating from Minnesota were found in Iraq being used for the remote detonation system for IEDs. With US request for extradition, Indonesia detained Lim in 2014. After being extradited to the US in 2016, Lim plead guilty to charges of conspiracy against the US and will be deported after his sentence.

Interestingly, the Minnesota supplier has not been charged for any violations related to the exports in question.

Pay the Government on Time…or Pay Even Sooner

Thursday, May 11th, 2017 by Danielle McClellan

By: Danielle McClellan

In September 2015, Streit USA Armoring, LLC entered into a Settlement Agreement with the Bureau of Industry and Security (BIS) that imposed a civil penalty of $1.6 million ($850 million in installment payments and $750,000 suspended). The company violated the regulations after it reexported armored vehicles to Iraq, Nigeria, and the Philippines. Full article available at http://learnexportcompliance.bluekeyblogs.com/2015/10/01/bis-nails-mid-and-high-level-company-officials-but-not-export-administrator-in-addition-to-company/.

During settlement negotiations Streit USA specifically sought for the ability to pay the $850,000 in installment payment of $170,000. Under this plan, the company was required to make all payments on time; it was found that their November 2016 payment was not made in a timely fashion so the Final Order has been amended to move the due date forward for the final two remaining payments. Streit USA will now owe its final payment son May 2017 and September 2017 compared to the original June 2017 and January 2018.

Amended Order: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2015/1111-e2498/file

U.S. Antiboycott Compliance: New Federal List Published

Tuesday, January 31st, 2017 by Danielle McClellan

By: Melissa Proctor, Polsinelli PC

Companies doing business in the Middle East take note: The Treasury Department recently published its quarterly list of countries that currently require participation or cooperation with an international boycott, such as the Arab League‘s boycott of Israel.

Even though many of these countries are WTO members and were required to shut down their Arab League offices as a condition of membership, many boycott-related requests are still being issued by government agencies and companies in these countries. The countries that are designated on this list, which by the way are the very same countries that were listed in the Third Quarter list, are:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

To view the list, click here.

If you are not familiar with U.S. antiboycott requirements, Part 750 of the Export Administration Regulations (EAR) prohibits U.S. companies and their foreign affiliates from complying with requests related to a foreign boycott that is not sanctioned by the U.S. Government. Specifically, U.S. companies and their overseas affiliates are prohibited from agreeing to:

  1. Refuse to do business with or in Israel or with blacklisted companies
  2. Discriminate against other persons based on race, religion, sex, national origin or nationality
  3. Furnish information about business relationships with or in Israel or with blacklisted companies, or
  4. Furnish information about the race, religion, sex, or national origin of another person

Foreign boycott-related requests can take many forms, and can be either verbal or written. They can appear in bid invitations, purchase agreements, letters of credit and can even be seen in emails, telephone conversations and in-person meetings. Some recent examples of boycott-related requests include:

  • “Provide a certificate of origin stating that your goods are not products of Israel.”
  • “Provide the religion and nationality of your officers and board members.” 
  • “Suppliers cannot be on the Israel boycott list published by the central Arab League.”  
  • “Provide a signed statement from the shipping company or its agent containing the name, flag and nationality of the carrying vessel and its eligibility to enter Arab ports “

In addition, implementing letters of credit that contain foreign boycott terms or conditions is also prohibited under the EAR.

Antiboycott compliance is a key issue for U.S. companies doing business in the Middle East, and personnel on the front lines with customers and supply chain partners in these countries should be trained to identify potential foreign boycott-related requests and escalate them to senior compliance personnel or in-house counsel to determine the applicable OAC and IRS reporting requirements.

Companies that receive boycott-related requests must submit quarterly reports to the Office of Antiboycott Compliance (OAC) unless an exemption applies. Failing to timely report a boycott request or complying with the request itself can lead to the imposition of civil penalties by the OAC. The IRS also requires U.S. taxpayers to report their operations in countries that require participation or cooperation with an international boycott on IRS Form 5713 (International Boycott Report) – the forms are submitted annually with U.S. tax returns.  Failure to comply with the Internal Revenue Code’s antiboycott requirements can lead to the revocation of certain international tax credits and benefits.

© Polsinelli PC, Polsinelli LLP in California

Singaporean Extradited for Illegal Exports Later Found in IEDs

Thursday, May 5th, 2016 by Danielle McClellan

By: Danielle McClellan

Lim Yong Nam (known as Steven Lim), a citizen of Singapore, has been extradited from Indonesia to stand trial in Washington, DC on charges of conspiracy.  He allegedly caused 6,000 radio frequency modules to be illegally exported from the US to Iran. Over the course of May 2008 and July 2010, sixteen of the modules were found in unexploded IEDs recovered in Iraq by coalition forces.

Between 2007 and February 2008 Lim and others in Singapore purchased 5 shipments of radio frequency modules from a Minnesota-based company by falsifying documents that stated the modules would stay in Singapore. When the modules were purchased they were always destined for Iran, however, Lim and his Singapore counterparts knew this would not be approved by the US government so they concealed the ultimate origin from the US manufacturer.

In 2009, when Lim was questioned by US authorities he was adamant that he never participated in any illicit exports to Iran. Communications were later found between Lim and several others regarding the US export rules and the issues with sending the modules to Iran.

Lim is currently facing the following charges:

  • One count of conspiracy to defraud the US
  • One count of smuggling
  • One count of Illegal export of goods from the US to Iran
  • One count of making false statements to the US Government
  • One count of making false statements to law enforcement

More details: https://www.justice.gov/opa/pr/singapore-man-extradited-united-states-connection-plot-involving-exports-iran-us-components

BIS EAR Licensing Requirements for EAR-Controlled Items Destined to ISIL-Controlled Facilities or Territory

Wednesday, April 6th, 2016 by Danielle McClellan

(Source: Commerce/BIS)

BIS prohibits the shipment of items subject to the Export Administration Regulations (EAR) to the Islamic State of Iraq and the Levant (ISIL) absent a license in conjunction with regulations administered by the Department of the Treasury’s Office of Foreign Assets Control (OFAC). OFAC has designated ISIL as a Specially Designated Global Terrorist (SDGT) and the Department of State has designated ISIL as a Foreign Terrorist Organization (FTO).

As part of its efforts against ISIL, the U.S. Government is targeting not only ISIL’s abilities to raise revenue but also its purchase and use of U.S.-origin items.  BIS is committed to preventing ISIL from procuring U.S.-origin items, like oilfield equipment, that generate wealth as well as components useful for improvised explosive devices to support terrorist activities.  Our goal is to provide industry with information on potential diversion risks to safeguard the export, reexport, and transfer (in-country) of U.S.-origin items and protect national security.

ISIL controls facilities located in the areas which it controls and uses the facilities to generate revenue; some of these facilities require U.S.-origin parts and accessories to operate.  A list of ISIL-controlled facilities in Iraq and the addresses thereof is incorporated into Attachment A of this notice (see below).  BIS advises persons exporting or reexporting U.S.-origin items to Iraq to review Attachment A on a regular basis; it will be updated as necessary.  BIS also reminds persons exporting or reexporting U.S.-origin items to Syria of the existing license requirements for all items subject to the EAR, other than food or medicine classified as EAR99.  The full text of BIS’s licensing requirements and policy specific to Syria is found here.

Exporters/reexporters are advised that sanctions administered by other agencies, including those administered by OFAC, may also impact transactions in the region.  Exporters/reexporters should note that U.S. entities/persons are generally prohibited from engaging in activities with any entities/persons who are on the OFAC administered Specially Designated Nationals and Blocked Persons List.

Pursuant to Section 744.12  of the EAR, BIS requires a license for the export or reexport to an SDGT of any item subject to the EAR.  However, to avoid duplication, U.S. persons are not required to seek authorization for an export or reexport to an SDGT of an item that is subject to both the EAR and OFAC’s regulatory authority from both OFAC and BIS.  Rather, if OFAC authorizes an export from the United States or an export or reexport by a U.S. person to an SDGT, no separate authorization from BIS is necessary.  However, U.S. persons must seek authorization from BIS for the export or reexport to an SDGT of any item subject to the EAR that is not subject to OFAC’s jurisdiction and non-U.S. persons must seek authorization from BIS for any export from abroad or reexport of any item subject to the EAR to an SDGT.  BIS will generally review license applications for exports or reexports to SDGTs under a policy of denial.  No license exceptions or other BIS authorizations are available for the export or reexport to an SDGT of an item subject to the EAR.   Additionally, the EAR does not make contract sanctity available for export or reexport license applications to SDGTs.

BIS’s license requirements for shipments of items subject to the EAR to FTOs are found in Section 744.14 of the EAR.  Note especially the guidance in Section 744.14(e), which is specific to FTOs that are also designated as Specially Designated Terrorists (SDTs) or SDGTs, and directs that the guidance specific to SDTs or SDGTs, as applicable, will apply instead.

BIS also notes that an export, reexport, or transfer (in-country) to geographic areas controlled by ISIL carries a “red flag” and suggests that you exercise caution and strong oversight if you opt to engage in an EAR transaction within these areas. A list of geographic areas known to be under ISIL control is contained in Attachment B (see below).

For additional information on this FAQ or attachments, please contact the Office of Enforcement Analysis at the following: EEinquiry@BIS.DOC.GOV or 202-482-1881.

BIS Nails Mid and High Level Company Officials (But Not Export Administrator) in Addition to Company

Thursday, October 1st, 2015 by Danielle McClellan

By: Danielle McClellan

Quote of the day not to make in writing prior to violating the EAR:  “if we follow the rules…we have to stop sales.”

Be warned.  That recent promotion, in addition to giving you a nice office and a raise,  makes you a more likely target of BIS penalties when BIS nails your company for export compliance violations.   Two officials of Streit found out the hard way that BIS is happy to penalize mid-level and higher company officials while not going after lower level export administrators.

Gurman Goutorov, chairman, chief executive officer, and sole/majority owner of the Streit Group entities (Streit Middle East, Streit USA Armoring LLC (Streit USA), and Streit Group FZE) has been fined $250,000 for the unlawful reexports of armored vehicles. Streit USA’s vice president, Eric Carlson, was fined $50,000 for his involvement with Goutorov. Streit USA Armoring, LLC was penalized $1.6 million and Streit Group FZE and Streit Group FSCO were fined $850,000. All parties involved above have also been debarred for 3 years beginning on September 1, 2015.

These violations begin with an approved BIS license for the reexport of US-origin vehicles that were retrofitted with ballistic steel and bullet proof glass (ECCN 9A018). The vehicles were exported to Streit Middle East (located in UAE) by Streit USA pursuant to a BIS License dated December 7, 2007. The license stated that Streit Middle East was designated as the authorized intermediate and ultimate consignee and specified the maximum number of armored vehicles that could be exported. The license also included a condition that the vehicles could not be resold, transferred or reexported without US government approval. Goutorov was aware of this license condition.

In July 2009 (the license expired December 31, 2009) the Streit USA’s export licensing coordinator sent out an email  asking that a “Streit USA Armoring End User Request Form” be completed and read:

“Please provide the following information to Streit USA Armoring for submission to the DOC (Department of Commerce), and wait for approval prior to any sale, transfer, or reexport of US produced armored SUVs. Only after approval has been given, in writing, to Streit USA Armoring from the DOC for an approved sale, may the sale proceed.”

Not long after this email, the export licensing coordinator sent another email stating that there were no exceptions to this condition.

In August 2009, Streit Group FZE reexported 8 armored vehicles to Iraq. The Streit USA’s export licensing coordinator once again reiterated via email to Goutorov, as well as to Eric Carlson, Streit USA’s Vice-President, and to Streit Group FZE’s director of sales and marketing that, “The license states that the resale/reexport of these vehicles must be approved by the Department of Commerce in the USA.” The export licensing coordinator applied for a reexport license for the transaction but it had not yet been approved as of August 2009. Streit Group FZE’s director of sales and marketing replied to Carlson and Goutorov via email, “Eric, Guerman – if we follow the rules…we have to stop sales.”

A few days after the sale to Iraq, Streit Middle East reexported two armored vehicles to Nigeria and then in September 2009 Streit Group FZE reexported a vehicle to the Philippines. In September 2009 Streit Group FZE contracted for the sale of 4 vehicles for reexport to Singapore. Finally on November 2009, Streit Middle East reexported six of the vehicles to the Philippines.

At no time was US government authorization ever obtained for any of the above transactions which is why the companies, along with Goutorov, have been debarred for 3 years and fined over million dollars amongst them.

Charging letter: http://efoia.bis.doc.gov/index.php/electronic-foia/index-of-documents/7-electronic-foia/227-export-violations

Treasury Identifies Countries Requiring Cooperation With an International Boycott

Thursday, January 17th, 2013 by Danielle McClellan

By: John Black

Once again the Treasury Department has identified the countries cooperating with an international boycott that raises issues related to claiming foreign tax credits under the Internal Revenue Service (IRS), specifically section 999(a)(3) of the IRS Code of 1986. The countries are:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

The IRS antiboycott rules come into play in many of the same situations in which the antiboycott provisions in Part 760 of the Export Administration Regulations (EAR) come into play. While the Commerce Department does not publish a list of countries for its EAR Part 760 antiboycott rules, as a practical matter the IRS list certainly represents many of the highest risk countries for EAR purposes so it is a good starting point for the focus of your EAR antiboycott compliance program. For EAR compliance purposes, US persons should also be aware that certain other Moslem countries cooperate with the Arab League boycott of Israel and present antiboycott compliance issues. These other countries include Bangladesh, Malaysia, Indonesia and Pakistan.

For the actual Federal Register notice go to http://www.gpo.gov/fdsys/pkg/FR-2012-11-16/html/2012-27737.htm

Treasury Department Announces Countries Requiring Compliance with Arab Boycott of Israel

Tuesday, September 4th, 2012 by John Black

In the August 13, 2012 Federal Register the Treasury Department announces, that for purposes of compliance with the antiboycott provisions of the IRS code, the list of countries which “require or may require participation in, or cooperation with, an international boycott.   This notice refers to the countries that require cooperation with the Arab League’s secondary and tertiary boycotts of Israel.  Under  the IRS rules a company may not claim foreign tax credits if it cooperates with such boycotts.

Part 760 of the Export Administration Regulations (EAR) also prohibits US persons from complying with certain aspects of unsanctioned foreign boycotts.  It has been a long time since the Commerce Department announced which countries require cooperation with boycotts for EAR purposes.  Even though the IRS list is not officially endorsed by the Commerce Department, it certainly makes a good list to use as a basis for deciding how to spend your antiboycott compliance resources.

The countries are:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

http://www.gpo.gov/fdsys/pkg/FR-2012-08-17/html/2012-20182.htm

Treasury Lists – Countries Requiring Cooperation with an International Boycott

Wednesday, October 5th, 2011 by Holly Thorne

The Department of the Treasury has published a current list of countries which require or may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).

The countries are:

  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

Republic of Iraq is not included in this list, but its status with respect to future lists remains under review by the Department of the Treasury.

While this list officially applies to the Internal Revenue Service (IRS) antiboycott rules, it is a reasonable indicator of the high risk countries for the EAR antiboycott regulations.