Archive for the ‘OFAC’ Category

US Citizen CEO Sentenced to 57 Months in Prison for Conspiring to Export Specialty Metals to Iran

Monday, October 16th, 2017 by Danielle McClellan

By: Ashleigh Foor

On Friday, September 8, 2017, Erdal Kuyumcu, a US citizen and the chief executive officer of Global Metallurgy, LLC, based in Woodside, New York, was sentenced to 57 months in prison for conspiring to export specialty metals to Iran. The sentencing took place at the federal courthouse in Brooklyn, New York and proceedings held before Chief United States District Judge Dora L. Irizarry. In June 14, 2016, Kuyumcu plead guilty to conspiracy to violate the International Emergency Economic Powers Act by exporting specialty metals from the United States to Iran.

According to court documents, Kuyumcu conspired to export from the United States to Iran a metallic powder primarily composed of cobalt and nickel, without having obtained the required license from the US Treasury Department’s Office of Foreign Assets Control (OFAC). It was determined after a two-day presentencing evidentiary hearing that the metallic powder has potential military and nuclear uses. In order to prevent nuclear proliferation and terrorism, the US Department of Commerce requires a license to export and exporting without the required license is illegal.

In addition, Kuyumcu and others planned to obtain more than 1,000 pounds of the metallic powder from a US-based supplier, and hid the true destination of the goods by having it shipped first to Turkey and then to Iran. Coded language was used to keep this all secret, for instance, referring to Iran as the “neighbor.”  Once a shipment was sent from Turkey to Iran, a steel company in Iran would send a letter-sized package to Kuyumcu’s Turkey-based co-conspirator.

The Iranian steel company had the same address as an OFAC-designated Iranian entity under the Weapons of Mass Destruction proliferators’ sanctions program that was associated with Iran’s nuclear and ballistic missile programs.

Treasury/OFAC Announces Settlement Agreement With IPSA International Services, Inc.

Monday, October 16th, 2017 by Danielle McClellan

(Source: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/OFAC-Recent-Actions.aspx)

IPSA International Services, Inc. of Phoenix, Arizona agreed to settle its potential civil liability for 72 apparent violations of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced IPSA’s settlement of $259,200 on August 7, 2017. The apparent violations include, on 44 separate occasions, IPSA’s importation of Iranian-origin services into the United States in apparent violation of § 560.201 of the ITSR, and on 28 separate occasions, IPSA’s engagement in transactions or dealings related to Iranian-origin services by approving and facilitating its foreign subsidiaries’ payments to providers of Iranian-origin services in apparent violation of §§ 560.206 and 560.208 of the ITSR.  OFAC concluded that IPSA did not voluntarily disclose these apparent violations, and that the apparent violations constitute a non-egregious case.

OFAC’s web notice is included below.

ENFORCEMENT INFORMATION FOR AUGUST 10, 2017

Information concerning the civil penalties process can be found in the Office of Foreign Assets Control (OFAC) regulations governing each sanctions program; the Reporting, Procedures, and Penalties Regulations, 31 C.F.R. part 501; and the Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. These references, as well as recent final civil penalties and enforcement information, can be found on OFAC’s website.

ENTITIES – 31 CFR 501.805(d)(1)(i)

IPSA International Services, Inc. Settles Potential Civil Liability for Apparent Violations of the Iranian Transactions and Sanctions Regulations: IPSA International Services, Inc. (IPSA), Phoenix, Arizona, has agreed to pay $259,200 to settle its potential civil liability for 72 apparent violations of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). [FN/1] The apparent violations involve, on 44 separate occasions, IPSA’s importation of Iranian-origin services into the United States in apparent violation of § 560.201 of the ITSR, and on 28 separate occasions, IPSA’s engagement in transactions or dealings related to Iranian-origin services by approving and facilitating its foreign subsidiaries’ payments to providers of Iranian- origin services in apparent violation of §§ 560.206 and 560.208 of the ITSR.

OFAC determined that IPSA did not voluntarily disclose the apparent violations, and that the apparent violations constitute a non-egregious case. The total transaction value of the apparent violations was $290,784. The statutory maximum civil penalty amount in this case was $18,000,000, and the base civil penalty amount was $720,000.

IPSA is a global business investigative and regulatory risk mitigation firm that provides due diligence services for various countries and their citizenship by investment programs. In March 2012, IPSA entered into an engagement letter and fee agreement with a third country with respect to its citizenship by investment program (“Contract No. 1”). In October 2012, IPSA’s subsidiary in Vancouver, Canada (“IPSA Canada”) entered into a similar contract with a government-owned financial institution in a separate third country (“Contract No. 2”). While the majority of the applicants to both of these programs were nationals from countries not subject to OFAC sanctions, some were Iranian nationals. Since most of the information about Iranian applicants could not be checked or verified by sources outside Iran, IPSA Canada and IPSA’s subsidiary in Dubai, United Arab Emirates subsequently hired subcontractors to conduct the necessary due diligence in Iran, and those subcontractors in turn hired third parties to validate information that could only be obtained or verified within Iran. Although it was IPSA’s foreign subsidiaries that managed and performed both Contract No. 1 and Contract No. 2, with regard to Contract No. 1, IPSA appears to have imported Iranian-origin services into the United States because the foreign subsidiaries conducted the due diligence in Iran on behalf of and for the benefit of IPSA. With regard to Contract No. 2, IPSA also appears to have engaged in transactions or dealings related to Iranian-origin services and facilitated the foreign subsidiaries’ engagement in such transactions or dealings because IPSA reviewed, approved, and initiated the foreign subsidiaries’ payments to providers of the Iranian-origin services.

The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. OFAC considered the following to be aggravating factors: (1) IPSA failed to exercise a minimal degree of caution or care when it imported background investigation services of Iranian origin into the United States and when it reviewed, approved, and initiated its foreign subsidiaries’ payments to providers of Iranian-origin services, and the frequency and duration of the apparent violations constitute a pattern or practice of conduct; (2) at least one of IPSA’s senior management knew or had reason to know that it was importing and/or engaging in transactions or dealings related to services of Iranian origin; (3) the transactions giving rise to the apparent violations resulted in economic benefits to Iran, and the conduct underlying the apparent violations is not eligible for OFAC authorization under existing licensing policy [FN/2]; (4) IPSA is a commercially sophisticated company operating internationally with experience in U.S. sanctions; and (5) IPSA’s OFAC compliance program was ineffective in that it did not recognize or react to the risks presented by engaging in transactions that involved Iranian-origin background investigation services.

OFAC considered the following to be mitigating factors: (1) IPSA has no prior OFAC sanctions history in the five years preceding the earliest date of the transactions giving rise to the apparent violations; (2) IPSA undertook significant remedial measures by taking swift action to cease the prohibited activities, conducting an investigation to discover the causes and extent of the apparent violations, and adopting new internal controls and procedures to prevent reoccurrence of the apparent violations; and (3) IPSA substantially cooperated with OFAC’s investigation by conducting an internal look-back investigation for potential sanctions violations and submitting an investigation report to OFAC without receiving an administrative subpoena, promptly providing detailed additional information and documentation in a well-organized manner in response to OFAC’s multiple requests for information, and entering into a statute of limitations tolling agreement.

For more information regarding OFAC regulations, please go here.

CSE Global Limited and CSE TransTel Pte. Ltd. Pay Settlement for Apparent Violations Involving Iranian Companies

Monday, October 16th, 2017 by Danielle McClellan

By: Ashleigh Foor

A solely-owned subsidiary of CSE Global Limited (an international technology group), CSE TransTel Pte. Ltd., appears to have violated § 1705 (a) of IEEPA and § 560.203 of the ITSR and has agreed to pay a $12,027,066 settlement for the apparent 104 violations of the International Emergency Economic Powers Act 1 (IEEPA) and the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). The apparent violations occurred on or around June 4, 2012 through March 27, 2013 when TransTel appears to have involved at least six different financial institutions in the unauthorized exportation or re-exportation of services from the United States to Iran, a prohibition of § 560.204 of the ITSR.

OFAC concluded that TransTel did not voluntarily make known these apparent violations, which OFAC found to be grounds for a serious case. The maximum and base civil monetary penalty for the apparent violations was $38,181,161.

TransTel first signed contracts with and received purchase orders from Iranian companies starting August 25, 2010 through November 5, 2011. The purchase orders were for multiple energy projects taking place in Iran and/or Iranian territory. In order to carry out the orders to deliver and install telecommunications equipment, TransTel hired several Iranian companies to deliver these goods and services on its behalf.

Preceding these interactions with Iranian companies, CSE Global and TransTel opened separate Singapore bank accounts (the “Bank”). Then-Managing Director and CSE Global’s then-Group Chief Executive Officer signed and sent a letter titled “Sanctions – Letter of Undertaking” to the Bank with the following statement: “In consideration of [the Bank] agreeing to continue providing banking services in Singapore to our company, we, CSE TransTel Pte. Ltd … hereby undertake not to route any transactions related to Iran through [the Bank], whether in Singapore or elsewhere.”  The Bank continued to provide financial services to the company after receiving the Letter of Undertaking and around June 2012, less than two months after the Letter of Undertaking was delivered, TransTel began transferring USD funds related to its Iranian business.

On or around the dates of June 4, 2012 to March 27, 2013 Transtel appears to have violated § 1705 (a) of IEEPA and/or § 560.203 of the ITSR when it initiated 104 USD wire transfers totaling more than $11,111,000 involving Iran. Transfers from the Bank went to several different third-party contacts including Iranian vendors. There was never any mention of Iran, the Iranian projects, or any Iranian parties on documentations involved in these transactions.

The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. OFAC considered the following to be aggravating factors:

(1) TransTel willfully and recklessly caused apparent violations of U.S. economic sanctions by engaging in, and systematically obfuscating, conduct it knew to be prohibited, including by materially misrepresenting to its bank that it would not route Iran-related business through the bank’s branch in Singapore or elsewhere, and by engaging in a pattern or practice that lasted for 10 months;

(2) TransTel’s then-senior management had actual knowledge of – and played an active role in – the conduct underlying the apparent violations;

(3) TransTel’s actions conveyed significant economic benefit to Iran and/or persons on OFAC’s List of Specially Designated Nationals and Blocked Persons by processing dozens of transactions through the U.S. financial system that totaled $11,111,812 and benefited Iran’s oil, gas, and power industries; and

(4) TransTel is a commercially sophisticated company that engages in business in multiple countries.

 

OFAC considered the following to be mitigating factors:

(1) TransTel has not received a penalty notice, Finding of Violation, or cautionary letter from OFAC in the five years preceding the date of the earliest transaction giving rise to the apparent violations;

(2) TransTel and CSE Global have undertaken remedial steps to ensure compliance with U.S. sanctions programs; and

(3) TransTel and CSE Global provided substantial cooperation during the course of OFAC’s investigation, including by submitting detailed information to OFAC in an organized manner, and responding to several inquiries in a complete and timely fashion.

This enforcement action reflects compliance obligations for all companies that conduct business in OFAC-sanctioned jurisdictions or process transactions through or related in any way to the United States. Prior to signing agreement letters, representatives should be certain they and their company are willing and able to abide by rules set forth.

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

OFAC: Specially Designated Nationals List Update

Thursday, August 3rd, 2017 by Danielle McClellan

The following individuals have been added to OFAC’s SDN List (Venezuela-related Designations):

ALBISINNI SERRANO, Rocco, Miranda, Guarico, Venezuela; DOB 06 Mar 1982; Gender Male; Cedula No. 15481927 (Venezuela); President of Venezuela’s National Center for Foreign Commerce (CENCOEX); Former Vice Minister of the State and Socialist Economy of Venezuela’s Ministry of Economy and Finance; Current or Former Principal Director of Venezuela’s National Development Fund (FONDEN) (individual) [VENEZUELA].

FLEMING CABRERA, Alejandro Antonio, Caracas, Capital District, Venezuela; DOB 03 Oct 1973; Gender Male; Cedula No. 11953485 (Venezuela); Vice Minister for Europe of Venezuela’s Ministry of Foreign Affairs; Former Vice Minister for North America of Venezuela’s Ministry of Foreign Affairs; Former President of Venezuela’s National Center for Foreign Commerce (CENCOEX); Former President for Suministros Venezolanos Industriales, C.A. (SUVINCA) of Venezuela’s Ministry of Commerce; Former Ambassador of Venezuela to Luxembourg and Chief Ambassador of the Venezuelan Mission to the European Union (individual) [VENEZUELA].

GARCIA DUQUE, Franklin Horacio (Latin: GARCÍA DUQUE, Franklin Horacio), Miranda, Venezuela; DOB 19 Aug 1963; citizen Venezuela; Gender Male; Cedula No. 9125430 (Venezuela); Former National Director of Venezuela’s Bolivarian National Police; Former Commander of the West Integral Strategic Defense Region of Venezuela’s National Armed Forces (individual) [VENEZUELA].

JAUA MILANO, Elias Jose (Latin: JAUA MILANO, Elías José), Miranda, Venezuela; DOB 16 Dec 1969; POB Caucagua, Miranda, Venezuela; citizen Venezuela; Gender Male; Cedula No. 10096662 (Venezuela); Head of Venezuela’s Presidential Commission for the Constituent Assembly; Venezuela’s Minister of Education; Venezuela’s Sectoral Vice President of Social Development and the Revolution of Missions; Former Executive Vice President of Venezuela (individual) [VENEZUELA].

LUCENA RAMIREZ, Tibisay (Latin: LUCENA RAMÍREZ, Tibisay), El Recreo, Libertador, Capital District, Venezuela; DOB 26 Apr 1959; POB Barquisimeto, Lara, Venezuela; citizen Venezuela; Gender Female; Cedula No. 5224732 (Venezuela); Passport 3802006 (Venezuela); President of Venezuela’s National Electoral Council; President of Venezuela’s National Board of Elections (individual) [VENEZUELA].

MALPICA FLORES, Carlos Erik, Naguanagua, Carabobo, Venezuela; DOB 17 Sep 1972; Gender Male; Cedula No. 11810943; Former National Treasurer of Venezuela; Former Vice President of Finance for Petroleos de Venezuela, S.A. (PDVSA); Former Presidential Commissioner for Economic and Financial Affairs (individual) [VENEZUELA].

PEREZ AMPUEDA, Carlos Alfredo (Latin: PÉREZ AMPUEDA, Carlos Alfredo), Caracas, Capital District, Venezuela; DOB 13 Dec 1966; citizen Venezuela; Gender Male; Cedula No. 9871452 (Venezuela); National Director of Venezuela’s Bolivarian National Police; Former Commander of Carabobo Zone for Venezuela’s Bolivarian National Guard (individual) [VENEZUELA].

REVEROL TORRES, Nestor Luis (Latin: REVEROL TORRES, Néstor Luis), Zulia, Venezuela; El Valle, Libertador, Caracas, Capital District, Venezuela; DOB 28 Oct 1964; citizen Venezuela; Gender Male; Cedula No. 7844507 (Venezuela); Passport A0186449 (Venezuela); Venezuela’s Minister of Interior, Justice, and Peace; Former Commander General of Venezuela’s Bolivarian National Guard; Former Director of Venezuela’s Anti-Narcotics Agency (individual) [VENEZUELA].

RIVERO MARCANO, Sergio Jose (Latin: RIVERO MARCANO, Sergio José), Caracas, Captial District, Venezuela; DOB 08 Nov 1964; citizen Venezuela; Gender Male; Cedula No. 6893454 (Venezuela); Commander General of Venezuela’s Bolivarian National Guard; Former Commander of the East Integral Strategic Defense Region of Venezuela’s National Armed Forces (individual) [VENEZUELA].

SAAB HALABI, Tarek William, Anzoategui, Venezuela; DOB 10 Sep 1962; citizen Venezuela; Gender Male; Cedula No. 8459301 (Venezuela); Passport 5532000 (Venezuela); Venezuela’s Ombudsman; President of Venezuela’s Republican Moral Council (individual) [VENEZUELA].

SUAREZ CHOURIO, Jesus Rafael (Latin: SUÁREZ CHOURIO, Jesús Rafael), Aragua, Venezuela; Caracas, Venezuela; DOB 19 Jul 1962; citizen Venezuela; Gender Male; Cedula No. 9195336 (Venezuela); General Commander of Venezuela’s Bolivarian Army; Former Commander of Venezuela’s Central Integral Strategic Defense Region of Venezuela’s National Armed Forces; Former Commander of Venezuela’s Aragua Integrated Defense Zone of Venezuela’s National Armed Forces; Former Leader of the Venezuelan President’s Protection and Security Unit (individual) [VENEZUELA].

VARELA RANGEL, Maria Iris (Latin: VARELA RANGEL, María Iris), Caracas, Capital District, Venezuela; DOB 09 Mar 1967; POB San Cristobal, Tachira, Venezuela; citizen Venezuela; Gender Female; Cedula No. 9242760 (Venezuela); Passport 8882000 (Venezuela); Member of Venezuela’s Presidential Commission for the Constituent Assembly; Venezuela’s Former Minister of the Penitentiary Service (individual) [VENEZUELA].

ZERPA DELGADO, Simon Alejandro (Latin: ZERPA DELGADO, Simón Alejandro), Sucre, Miranda, Venezuela; DOB 28 Aug 1983; Gender Male; Cedula No. 16544324 (Venezuela); Vice President of Finance for Petroleos de Venezuela, S.A. (PDVSA) ; President of Venezuela’s Economic and Social Development Bank (BANDES); President of Venezuela’s National Development Fund (FONDEN); Vice Minister of Investment for Development  of Venezuela’s Ministry of Economy and Finance; Principal Director of Venezuela’s Foreign Trade Bank (BANCOEX); Principal Director of Venezuela’s National Telephone Company (CANTV); Current or Former Presidential Commissioner to the Joint Chinese Venezuelan Fund; Current or Former Principal Board Member of Venezuela’s National Electric Corporation (CORPOELEC); Former Executive Secretary of Venezuela’s National Development Fund (FONDEN) (individual) [VENEZUELA].

Details: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20170726.aspx

Russia Will Struggle to Turn on Siemens Turbines in Sanctions-Bound Crimea

Thursday, August 3rd, 2017 by Danielle McClellan

(Source: Reuters, 19 July 2017.)

MOSCOW (Reuters) – Russia outfoxed European Union sanctions by delivering gas turbines made by Germany’s Siemens to the annexed Ukrainian region of Crimea. Now for the hard part, switching them on.

No Russian company, according to Reuters data, has ever got a Siemens turbine working without the help of the manufacturer.

In this case, Siemens said the turbines were shipped to Crimea behind its back and is refusing to be involved, leaving Moscow to work out how to start them up to fulfill President Vladimir Putin’s promise to give Crimea a stable power supply.

Siemens has filed a lawsuit against its Russian customer over the delivery of the turbines to Crimea and says it will do everything in its power to block their installation and commissioning.

If Russia can somehow get the turbines operating at the two new power plants under construction, having already irked Europe by delivering them, it will again demonstrate its ability to thumb its nose at the sanctions.

Ten industry specialists who spoke to Reuters said starting up the turbines without engineers from Siemens or its partners would be a tough test of the country’s engineering resourcefulness, fraught with technical problems, expensive and a legal minefield.

“Without Siemens it will be very hard to do it,” said an industry source.

But the majority of the specialists said it can be done — even if it has never been attempted before.

Hunt for a Contractor

A firm involved in building the Crimean power plants had hired a Russian company called Interavtomatika, which is 45.7 percent owned by Siemens, to help turn on the turbines, according to three sources familiar with the project.

Since then, Siemens said it has got a written undertaking from Interavtomatika that it will halt any activities connected to Crimea.

In an implied threat to pull out of the venture, a company source familiar with the matter has also said Siemens is reviewing its engagement in its Russian businesses. The source declined to say whether that could affect Interavtomatika and Siemens declined to comment.

EU companies are banned from transferring energy technology to Crimea under the sanctions, imposed after Moscow seized the peninsula from Ukraine in 2014. But, in a loophole Moscow seems to have exploited, their Russian subsidiaries are not directly liable.

When asked if its turbines could be assembled, installed, and commissioned without its cooperation, Siemens said it was unwilling to speculate about future developments and did not want to fuel such speculation. Russia’s Energy Ministry did not respond to a Reuters request for comment.

Several of the industry sources said a Russian firm called ROTEK had experience with Siemens turbines. It is part of the Renova conglomerate controlled by billionaire Viktor Vekselberg.

The company, along with its partners, services 13 Siemens gas turbines in Russia similar to the model delivered to Crimea, according to ROTEK’s website. The company, asked by Reuters if it has been approached to help with the Crimea turbines, declined to comment.

Some of the Siemens turbines ROTEK services are installed at power stations owned by gas giant Gazprom and ROTEK services those ones with a Gazprom-owned firm called Teploenergoremont-Servis. That company, via a representative in Gazprom’s power division, declined to comment.

High Risk

Any Russian company that agrees to set up the Crimea turbines must weigh the “very high” risk of sanctions being imposed on any EU or US business it has, according to Artyom Zhavoronkov, partner in the Russian office of law firm Dentons.

Renova has assets in the European Union and the United States. Gazprom has assets in the European Union.

Russian officials have not acknowledged shipping Siemens turbines to Crimea. They say the turbines were obtained second hand and were Russian-made. Siemens makes turbines at a factory it co-owns in Russia.

Technopromexport, the Russian company building the Crimean power plants, has also not confirmed the turbines are made by Siemens. It declined to go into detail on how they would be serviced, beyond saying it would be “by Russian specialists and contractors”.

If no firm wants to take on the job, Technopromexport and its partners could instead assemble a team of specialists themselves to get the task done, several of the industry specialists said.

One person close to the Crimea power plants project said a recruitment drive was already underway to find people in the Russian power sector who had experience of launching Siemens gas turbines.

According to one industry specialist, 18 turbines of the same model now in Crimea have previously been launched in Russian power stations. As a result, there is a pool of people who have at least observed the turbines being commissioned.

“In theory you can try to launch them without Siemens,” said one industry specialist, who, like all the other people in the sector who spoke to Reuters, requested anonymity because of the sensitivity of the subject.

The turbines can be launched if you “gather up the people and the know-how from when these turbines were already used, in Russia and abroad,” said the first industry source.

The model of Siemens turbines the German firm and the three sources close to the power plant say is now in Crimea — the SGT5-2000E — is not the latest word in turbine technology, but is highly sophisticated.

It is run by an automatic control system that uses Siemens proprietary software. It contains highly-engineered parts — such as the blades that turn the turbine — which up to now have only ever been bought from Siemens or its partners.

The blades need to be replaced after between three and four years and no home grown Russian company manufactures blades compatible with the Siemens turbines in Crimea, several of the specialists told Reuters.

Workarounds mentioned by people in the industry included sourcing non-original spare parts from manufacturers in China, Russian engineers attempting to replicate the blades themselves or trying to buy them via intermediaries.

“There are organisations in Russia that, in principle, can make the blades,” said an energy sector source in ex-Soviet Belarus who has experience of working with Siemens equipment. “How reliable they are, that’s another matter.”

Beware of Contracts Signed by Specially Designated Nationals

Thursday, August 3rd, 2017 by Danielle McClellan

(Source: Commonwealth Trading Partners)

By: Chalinee Tinaves, Esq., Commonwealth Trading Partners, ctinaves@ctp-inc.com.

On July 20, 2017, the Office of the Foreign Assets Control (OFAC) announced a $2 million penalty against ExxonMobil Corporation and two of its subsidiaries for violating the Ukraine-Related Sanctions Regulations. According to OFAC, ExxonMobil violated the sanctions when its execs dealt in services with Igor Sechin, President of Rosneft OAO, when they signed eight legal documents relating to oil and gas projects in Russia between May 14, 2014, and May 23, 2014.

If you’ll travel back in time to March 2014, as tensions were heating up regarding Russian deployment of military forces in the Crimea region of Ukraine, President Obama issued Executive Order 13661, “Blocking Property of Additional Persons Contributing to the Situation in Ukraine,” in response to actions deemed to constitute an unusual and extraordinary threat to the national security and foreign policy of the U.S. Section 1(a)(ii) authorized the Secretary of the Treasury to designate officials of the Government of the Russian Federation, block any property or interests in property, and prohibit dealing in any property and interests in property of a person listed on the Specially Designated Nationals and Blocked Persons List (SDN List). Section 4 of E.O. 13661 prohibited US persons from making “any contribution or provision of funds, goods, or services by, to, or for the benefit of any person whose property and interests in property are blocked pursuant to this order” as well as receiving “any contribution or provision of funds, goods, or services” from a designated person.

On April 28, 2014, OFAC designated Igor Sechin as an official of the Russian government, thereby generally prohibiting US persons from conducting transactions with him. Although Rosneft OAO is:

  • designated on the Sectoral Sanctions Identifications List (SSI List) pursuant to Executive Order 13662 “Blocking Property of Additional Persons Contributing to the Situation in Ukraine;”
  • subject to Directive 2 (prohibiting transacting in, providing financing for, or otherwise dealing in new debt of greater than 90 days maturity if that debt is issued on or after the sanctions effective date by, on behalf of, or for the benefit of the persons operating in Russia’s energy sector); and
  • subject to Directive 4 (prohibition against the direct or indirect provision of, exportation, or reexportation of goods, services, or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation or in maritime area claimed by Russian Federation and extending from its Territory); nonetheless, Rosneft OAO is not designated on the SDN List and is therefore not subject to blocking sanctions.

As you can see, the conflict lies in how to conduct business transactions with an organization that is not blocked with an executive who is. According to the release, OFAC rejected ExxonMobil’s position that Sechin was acting in his professional capacity as President of Rosneft OAO when they signed the legal documents. Specifically, ExxonMobil referenced comments by a Treasury Department spokesman in April 2014 allowing BP Plc Chief Executive, Bob Dudley, to remain on the board of directors of Rosneft OAO so long as he did not discuss personal business with Sechin. In rejecting this argument, OFAC indicated that statement did not address ExxonMobil’s conduct nor did the plain language of Ukraine-Related Sanctions Regulations include a distinction between “personal” or “professional.” Further, OFAC has not interpreted the Regulations to create a carve-out for designated parties acting in their professional capacity.

Interestingly, in support of its position, OFAC pointed to its Frequently Asked Question #285 published on March 18, 2013, regarding the Burma Sanctions Program. Although conveniently now removed from OFAC’s FAQs and website following the termination of the Burma Sanctions Regulations, an archived link detailing FAQ #285 captured the full text of OFAC’s response to ministry dealings with a designated Burmese Government minister. According to OFAC:

A government ministry is not blocked solely because the minister heading it is an SDN. U.S. persons should, however, be cautious in dealings with the ministry to ensure that they are not, for example, entering into any contracts that are signed by the SDN.

However, in Treasury’s restatement of FAQ #285 in the ExxonMobil announcement, OFAC indicated that US parties should “be cautious in dealings with [a non-designated] entity to ensure that they are not providing funds, goods, or services to the SDN, for example, by entering into any contracts that are signed by the SDN.”

Rejecting ExxonMobil’s rebuttal that OFAC regulations state that different interpretations may exist among and between the sanctions programs that it administers, FAQ #285 “clearly signaled” that OFAC views the signing of a contract with an SDN as prohibited, even if the entity on whose behalf the SDN signed was not sanctioned in situations where sanctions programs also involve SDNs. These reasons, in addition to the definitions of “property” and “property interest” in the Ukraine-Related Sanctions Regulations, E.O. 13661, and statements issued by the White House and the Department of Treasury, served to provide ExxonMobil with notice that signing the legal documents with Sechin would violate the prohibitions in the Ukraine-Related Sanctions Regulations.

In assessing the penalty based on OFAC’s Economic Sanctions Enforcement Guidelines, among other aggravating factors, OFAC viewed ExxonMobil’s transaction to be a show of “reckless disregard for U.S. sanctions requirements when it failed to consider warning signs associated with dealing in the blocked services of an SDN” and contributed “significant harm” to the objectives of the Ukraine-Related Sanctions Program. Following the announcement, ExxonMobil stood by its position that it acted in full compliance with the sanctions guidelines in 2014 and argued that the Treasury Department is “trying to retroactively enforce a new interpretation of an executive order that is inconsistent with the explicit and unambiguous guidance from the White House and Treasury issued before the relevant conduct and still publicly available today.”

What does all this mean for U.S. companies? While FAQ #285 was initially crafted to address contracts with a designated government official (which Sechin satisfied based on his designation as a Russian official), it is unclear whether this interpretation would also be applicable in situations involving non-government SDNs and their corporate dealings. Further, the prohibited conduct of entering into a contract signed by an SDN in FAQ #285 was listed as an example. It is entirely possible that a range of other contract activities are prohibited by SDNs like negotiating a contract. Companies must be aware of the risks associated with projects that would require authorization by an SDN. Further, companies can mitigate their risk by screening all the parties involved in a transaction to avoid potentially violating a sanctions program.

Treasury/OFAC Publishes New Cuba-Related FAQs

Wednesday, July 19th, 2017 by Danielle McClellan

(Source: Treasury/OFAC)

Frequently Asked Questions on President Trump’s Cuba Announcement

 

(1) How will OFAC implement the changes to the Cuba sanctions program announced by the President on June 16, 2017?  Are the changes effective immediately?

OFAC will implement the Treasury-specific changes via amendments to its Cuban Assets Control Regulations.  The Department of Commerce will implement any necessary changes via amendments to its Export Administration Regulations.  OFAC expects to issue its regulatory amendments in the coming months.  The announced changes do not take effect until the new regulations are issued.

 

(2) What is individual people-to-people travel, and how does the President’s announcement impact this travel authorization?

Individual people-to-people travel is educational travel that: (i) does not involve academic study pursuant to a degree program; and (ii) does not take place under the auspices of an organization that is subject to U.S. jurisdiction that sponsors such exchanges to promote people-to-people contact.  The President instructed Treasury to issue regulations that will end individual people-to-people travel.  The announced changes do not take effect until the new regulations are issued.

 

(3) Will group people-to-people travel still be authorized?

Yes.  Group people-to-people travel is educational travel not involving academic study pursuant to a degree program that takes place under the auspices of an organization that is subject to U.S. jurisdiction that sponsors such exchanges to promote people-to-people contact.  Travelers utilizing this travel authorization must maintain a full-time schedule of educational exchange activities that are intended to enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people’s independence from Cuban authorities, and that will result in meaningful interaction between the traveler and individuals in Cuba.  An employee, consultant, or agent of the group must accompany each group to ensure that each traveler maintains a full-time schedule of educational exchange activities.

 

(4) How do the changes announced by the President on June 16, 2017 affect individual people-to-people travelers who have already begun making their travel arrangements (such as purchasing flights, hotels, or rental cars)?

The announced changes do not take effect until OFAC issues new regulations.  Provided that the traveler has already completed at least one travel-related transaction (such as purchasing a flight or reserving accommodation) prior to the President’s announcement on June 16, 2017, all additional travel-related transactions for that trip, whether the trip occurs before or after OFAC’s new regulations are issued, would also be authorized, provided the travel-related transactions are consistent with OFAC’s regulations as of June 16, 2017.

Department of the Treasury Office of Foreign Assets Control (OFAC)

 

(5) How do the changes announced by the President on June 16, 2017 affect other authorized travelers to Cuba whose travel arrangements may include direct transactions with entities related to the Cuban military, intelligence, or security services that may be implicated by the new Cuba policy?

The announced changes do not take effect until OFAC issues new regulations.  Consistent with the Administration’s interest in not negatively impacting Americans for arranging lawful travel to Cuba, any travel-related arrangements that include direct transactions with entities related to the Cuban military, intelligence, or security services that may be implicated by the new Cuba policy will be permitted provided that those travel arrangements were initiated prior to the issuance of the forthcoming regulations.

 

(6) How do the changes announced by the President on June 16, 2017 affect companies subject to U.S. jurisdiction that are already engaged in the Cuban market and that may undertake direct transactions with entities related to the Cuban military, intelligence, or security services that may be implicated by the new Cuba policy?

The announced changes do not take effect until OFAC issues new regulations.  Consistent with the Administration’s interest in not negatively impacting American businesses for engaging in lawful commercial opportunities, any Cuba-related commercial engagement that includes direct transactions with entities related to the Cuban military, intelligence, or security services that may be implicated by the new Cuba policy will be permitted provided that those commercial engagements were in place prior to the issuance of the forthcoming regulations.

 

(7) Does the new policy affect how persons subject to U.S jurisdiction may purchase airline tickets for authorized travel to Cuba?

No. The new policy will not change how persons subject to U.S. jurisdiction traveling to Cuba pursuant to the 12 categories of authorized travel may purchase their airline tickets.

 

(8) Can I continue to send authorized remittances to Cuba?

Yes.  The announced policy changes will not change the authorizations for sending remittances to Cuba.  Additionally, the announced changes include an exception that will allow for transactions incidental to the sending, processing, and receipt of authorized remittances to the extent they would otherwise be restricted by the new policy limiting transactions with certain identified Cuban military, intelligence, or security services.  As a result, the restrictions on certain transactions in the new Cuba policy will not limit the ability to send or receive authorized remittances.

 

(9) How does the new policy impact other authorized travel to Cuba by persons subject to U.S. jurisdiction?

The new policy will not result in changes to the other (non-individual people-to-people) authorizations for travel.  Following the issuance of OFAC’s regulatory changes, travel-related transactions with prohibited entities identified by the State Department generally will not be permitted. Guidance will accompany the issuance of the new regulations.

 

(10) How will the new policy impact existing OFAC specific licenses?

The forthcoming regulations will be prospective and thus will not affect existing contracts and licenses.

 

(11) How will U.S. companies know if their Cuban counterpart is affiliated with a prohibited entity or sub-entity in Cuba?

The State Department will be publishing a list of entities with which direct transactions generally will not be permitted.  Guidance will accompany the issuance of the new regulations.  The announced changes do not take effect until the new regulations are issued.

 

(12) Is authorized travel by cruise ship or passenger vessel to Cuba impacted by the new Cuba policy?

Persons subject to U.S. jurisdiction will still be able to engage in authorized travel to Cuba by cruise ship or passenger vessel.

Following the issuance of OFAC’s regulatory changes, travel-related transactions with prohibited entities identified by the State Department generally will not be permitted.  Guidance will accompany the issuance of the new regulations.

For more information on the National Security Presidential Memorandum visit: https://www.whitehouse.gov/blog/2017/06/16/fact-sheet-cuba-policy.

Trump Calls for Slight Rollback on Obama’s Slight Relaxations for Cuba

Wednesday, July 19th, 2017 by Danielle McClellan

(Source: Reuters, 16 June 2017.)

President Donald Trump on Friday ordered tighter restrictions on Americans traveling to Cuba and a clampdown on U.S. business dealings with the island’s military, saying “with God’s help a free Cuba is what we will soon achieve.”

As Trump laid out his new Cuba policy in a speech in Miami, the White House announced plans to roll back parts of former President Barack Obama’s historic opening to the communist-ruled country after a 2014 diplomatic breakthrough between the two former Cold War foes. But Trump was leaving many of Obama’s changes, including the reopened U.S. embassy in Havana, in place even as he sought to show he was making good on a campaign promise to take a tougher line against Cuba. “We will not be silent in the face of communist oppression any longer,” Trump told a cheering crowd in Miami’s Cuban-American enclave of Little Havana, including Republican Senator Marco Rubio, who helped forge the new restrictions on Cuba.

Trump’s revised approach, which will be enshrined in a new presidential directive, calls for stricter enforcement of a longtime ban on Americans going to Cuba as tourists and seeks to prevent U.S. dollars from being used to fund what the new U.S. administration sees as a repressive military-dominated government.

But facing pressure from U.S. businesses and even some fellow Republicans to avoid turning back the clock completely in relations with communist-ruled Cuba, the Republican president chose to leave intact many of his Democratic predecessor’s steps toward normalization. The new policy bans most U.S. business transactions with the Armed Forces Business Enterprises Group, a Cuban conglomerate involved in all sectors of the economy, but makes some exceptions, including for air and sea travel, according to U.S. officials. This will essentially shield U.S. airlines and cruise lines serving the island. However, Trump will stop short of breaking diplomatic relations restored in 2015 after more than five decades of hostilities. He will not cut off recently resumed direct U.S.-Cuba commercial flights or cruise-ship travel, though his more restrictive policy seems certain to dampen new economic ties overall.

The administration, according to one White House official, has no intention of “disrupting” existing business ventures such as one struck under Obama by Starwood Hotels Inc., which is owned by Marriott International Inc., to manage a historic Havana hotel. Nor does Trump plan to reinstate limits that Obama lifted on the amount of the island’s coveted rum and cigars that Americans can bring home for personal use. While the changes are far-reaching, they appear to be less sweeping than many U.S. pro-engagement advocates had feared. Still, it will be the latest attempt by Trump to overturn parts of Obama’s presidential legacy. He has already pulled the United States out of a major international climate treaty and is trying to scrap his predecessor’s landmark healthcare program.

The following article provides OFAC’s recent FAQs regarding President Trump’s statement about Cuba.

OFAC Investigating Smartphone Company…Were They Working with ZTE?

Thursday, May 11th, 2017 by Danielle McClellan

By: Danielle McClellan

Huawei, one of the world’s biggest sellers of smartphones and the back-end equipment that makes cellular networks work has received an administrative subpoena from the United States Treasury Department’s Office of Foreign Assets Control (OFAC).  This subpoena was sent out in December 2016, following the Department of Commerce’s subpoena which was sent out in the summer of 2016 asking for the company to describe technology and services provided to Cuba, Iran, Sudan, and Syria over the past 5 years. North Korea was named in the Commerce Department subpoena, but not the OFAC subpoena. At this point Huawei has not been accused of any wrong doing and the subpoenas do not indicate that the company is part of any criminal investigations.

Not long ago the Chinese company, ZTE agreed to pay $1.2 billion after pleading guilty to shipping US-origin items to Iran (http://www.learnexportcompliance.com/News/The-Export-Control-Update-March-2017.aspx#ZTE). That investigation released documents that showed ZTE executives mapping out plans to work around, or break, US export control regulations. Further investigation found that ZTE learned about the plan from a company labeled as, F7, which closely mimics Huawei. Last month, ten members of Congress sent a letter demanding that F7 be publically identified and fully investigated, “We strongly support holding F7 accountable should the government conclude that unlawful behavior occurred,” read part of the letter.

It’s uncertain if the government believes that Huawei is F7 and that’s why the subpoenas were sent out or if they are just probing for other violations. Only time will tell.

More information: https://www.nytimes.com/2017/04/26/business/huawei-investigation-sanctions-subpoena.html?_r=0