Archive for the ‘Sanctions’ Category

3 Men & Illegal Exports to Syria

Tuesday, July 12th, 2016 by Danielle McClellan

By: Danielle McClellan

In November 2012, three individuals and one company were indicted with charges of criminal conspiracy, wire fraud, illegal export of goods, money laundering, and false statements. Until now the indictment remained under seal pending the arrest of the defendants.

Between 2003 and 2012, d-Deri Contracting & Trading (owned by Ahmad Feras Diri of London) was exporting goods originally from the US from Global Parts Supply (owned by Harold Rinko of Hallstead, PA) to his brother and business partner Moawea Deri who was located in Syria.  The goods purchased from Rinko’s US company were done so based on false invoices, undervalued and mislabeled goods.  Then the purchased goods were exported by falsely listing their identity and final geographic location on all documentation. The items would be shipped from the US to Jordan, the UAE, and the UK, and finally transshipped to Syria.

The items exported allegedly included:

  • a portable gas scanner used for detection of chemical warfare agents by civil defense, military, police and border control agencies;
  • a handheld instrument for field detection and classification of chemical warfare agents and toxic industrial chemicals;
  • a laboratory source for detection of chemical warfare agents and toxic industrial chemicals in research, public safety and industrial environments;
  • a rubber mask for civil defense against chemicals and gases;
  • a meter used to measure chemicals and their composition;
  • flowmeters for measuring gas streams;
  • a stirrer for mixing and testing liquid chemical compounds;
  • industrial engines for use in oil and gas field operations and a device used to accurately locate buried pipelines

Note: Nearly all exports to Syria will be denied, other than a few items categorized under humanitarian food and medicine. The goal of the embargo on Syria is to shut down the supply chain used by the Syrian state to support terrorism and create proliferate weapons of mass destruction, and in this specific case, chemical weapons.

Fast forward to this month, Ahmad Feras Diri (age 43) of London has plead guilty to conspiracy to illegally export items used to detect chemical warfare agents to Syria. He lost his extradition fight in the UK in November 2015 at which point he was brought to the US to face the charges. Diri admitted that he conspired to export items from the US through third party countries to customers in Syria without obtaining the required US Commerce Department licenses.

Harold Rinko (age 73 of Hallstead, PA) was indicted by a grand jury in November 2012 and admitted in court that he conspired to export the items from the US through third party countries to customers in Syria without an export license.

Moawea Deri remains at large and is considered a fugitive but will likely remain in Syria as extradition is unlikely to occur.

“This extradition demonstrates HSI’s commitment to use all its resources to prevent sensitive and restricted technology from being exported to Syria through the black market,” said HSI Philadelphia Special Agent in Charge John Kelleghan. “No good comes of illegal exports to Syria, especially during this time of gross misgovernment and civil strife. As the principal enforcer of export controls, HSI will continue to do everything in its power to ensure that sensitive technology doesn’t fall into the wrong hands in Syria. I applaud our colleagues at the Department of Commerce, the U.S. Attorney’s Office for the Middle District of Pennsylvania, along with our law enforcement counterparts in the United Kingdom. This coordinated effort helped us make this complex investigation a success.”

More Information: https://www.ice.gov/news/releases/uk-resident-connected-syrian-export-scheme-extradited-us-face-federal-charges

Belgium Company Pays $350,000 after Exporting Coatings, Pigments and Paints to Iran

Wednesday, April 6th, 2016 by Danielle McClellan

By: Danielle McClellan

Chemical Partners Europe (CPE) S.A. of Brussels, Belgium has been charged with 6 counts of Evasion after exporting coatings, pigments and paints from the US to their facility in Brussels  and then to Iran. The exported items were suitable for use in nuclear facilities and had marine applications, making them subject to the Export Administration Regulations (EAR) as well as the Iranian Transactions Regulations (Governed by the Department of Treasury’s Office of Foreign Assets Control (OFAC)).

Between January 2010 and March 2011, the company purchased the coatings, pigments and paints, valued at $244,358, from a US company and concealed the fact that the ultimate destination was actually Iran. The shipper’s export declarations filed listed CPE as the ultimate consignee and Belgium as the country of ultimate destination. Once CPE received the items they transferred them directly to Iran without proper authorization.

CPE has agreed to pay $350,000 to settle the charges; they will not be debarred. Charging Letter

BIS & OFAC Slightly Relax Controls on Cuba

Wednesday, April 6th, 2016 by Danielle McClellan

By: Danielle McClellan

On March 16, 2016, the Bureau of Industry and Security (BIS) published a final rule amending the Export Administration Regulations (EAR) by allowing vessels departing the US on temporary sojourn to Cuba with cargo for other destinations to travel to Cuba under a license exception instead of having to obtain a license for the cargo. The rule also allows exports of certain items to persons authorized by the Department of the Treasury to establish and maintain a physical or business presence in Cuba. Finally, the rule adopts a licensing policy of case-by-case review for exports and reexports of items that would enable or facilitate export of items produced by the private sector in Cuba (subject to certain limitations).

Specific Changes to the EAR:

This rule revises § 736.2(b)(8) of the EAR, which prohibits shipments from transiting certain destinations, to explicitly state that the prohibition does not apply if a license or license exception authorizes the in-transit shipment.

  • This rule revises § 740.15(d)(6) of the EAR to authorize temporary sojourn to Cuba of a vessel carrying cargo destined to other countries provided that such cargo departs with the vessel at the end of its temporary sojourn to Cuba, does not enter the Cuban economy and is not transferred to another vessel while in Cuba.
  • This rule revises § 740.21(e) to remove the individual references to categories of persons authorized by OFAC to establish and maintain a physical or business presence in Cuba pursuant to 31 CFR 515.573, and to authorize exports and reexports to all such persons and to persons whose physical or business presence is authorized by a specific license issued by OFAC.
  • This rule revises § 746.2(b)(3)(i), to add a paragraph(b)(3)(i)(D), which sets a policy of case-by-case review of items that will enable or facilitate export from Cuba of items produced by the Cuban private sector.
  • It also revises Note 1 to clarify that the license condition described therein is intended to preclude use of items authorized by licenses bearing that condition from being reexported from Cuba or being used to enable or facilitate exports from Cuba that primarily generate revenue for the state.

Federal Register Notice: https://www.gpo.gov/fdsys/pkg/FR-2016-03-16/pdf/2016-06019.pdf
In addition to the changes to the EAR, The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is amending the Cuban Assets Control Regulations to further implement these changes along with facilitating travel to Cuba for authorized financial transactions, and authorize additional business and physical presence in Cuba.

Specific Changes to the Cuban Assets Control Regulations:

  • OFAC is amending section 515.565(b) to remove the requirement that people-to-people educational travel be conducted under the auspices of an organization that sponsors such exchanges. This section now authorizes individuals to travel to Cuba provided that, among other things, the traveler engage while in Cuba in 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.
  • OFAC is amending section 515.571 to remove the limitation on the receipt of compensation in excess of amounts covering living expenses and the acquisition of goods for personal consumption by a Cuban national present in the United States in a non- immigrant status or pursuant to other non-immigrant travel authorization issued by the U.S. government. New section (a)(5)(i) explicitly authorizes the receipt of any salary or other compensation consistent with the individual’s non-immigrant status or other non-immigrant travel authorization, provided that the recipient is not subject to any special tax assessment by the Cuban government in connection with the receipt of the salary or other compensation.
  • New section 515.571(e) authorizes all transactions related to the sponsorship or hiring of a Cuban national to work in the United States and provides that an employer may not make additional payments to the Cuban government in connection with the sponsorship or hiring of a Cuban national. Section 515.571(e) also authorizes transactions in connection with the filing of an application for non- immigrant travel authorization. OFAC is also making conforming edits in section 515.560(d)(3) and the Note to section 515.565(a)(5).
  • OFAC is adding section 515.585(c) to authorize individuals who are persons subject to U.S. jurisdiction and who are located in a third country to engage in the purchase or acquisition of merchandise subject to the prohibitions in section 515.204, including Cuban-origin goods, for personal consumption while in a third country, and to receive or obtain services from Cuba or a Cuban national that are ordinarily incident to travel and maintenance within a third country. This provision does not authorize the importation of such merchandise into the United States, including as accompanied baggage. OFAC is making a conforming change to section 515.410.
  • OFAC is amending section 515.584(d) to authorize U-turn transactions in which Cuba or a Cuban national has an interest to be conducted through the U.S. financial system. This provision authorizes funds transfers from a bank outside the United States that pass through one or more U.S. financial institutions before being transferred to a bank outside the United States where neither the originator nor the beneficiary is a person subject to U.S. jurisdiction. Transactions through the U.S. financial system that do not meet these criteria, including all transactions where the originator or beneficiary is a person subject to U.S. jurisdiction, remain prohibited unless otherwise authorized or exempt under the Regulations.
  • OFAC is also making conforming edits to section 515.584(e), regarding unblocking of certain previously blocked funds transfers.
  • OFAC is adding new section 515.584(g) to authorize U.S. banking institutions to process U.S. dollar monetary instruments presented indirectly by Cuban financial institutions. Correspondent accounts used for transactions authorized pursuant to this section may be denominated in U.S. dollars. This section does not authorize banking institutions subject to U.S. jurisdiction to open correspondent accounts for banking institutions that are nationals of Cuba.
  • OFAC is adding new section 515.584(h) to authorize banking institutions to open and maintain accounts solely in the name of a Cuban national located in Cuba for the purposes only of receiving payments in the United States in connection with transactions authorized pursuant to or exempt from the prohibitions of this part and remitting such payments to Cuba. This provision would allow, for example, a Cuban national author located in Cuba to open an account with a bank or online payment platform in the United States to receive payments for sales of her book. This provision is in addition to the two existing authorizations for banking institutions to operate certain accounts on behalf of certain Cuban nationals. See Note to paragraph (a) of section 515.571(a)(5) and section 515.585(b).
  • To avoid confusion, OFAC also is making conforming edits to the Note to section 515.571(a)(5) to clarify that all three account authorizations extend to banking institutions.
  • OFAC is amending section 515.573 to authorize additional persons subject to U.S. jurisdiction to establish a business and physical presence in Cuba.
  • OFAC amended section 515.573 to authorize certain persons subject to U.S. jurisdiction to establish a physical presence, such as an office or other facility, in Cuba, to facilitate authorized transactions. OFAC is now expanding this authorization to include the following additional categories of persons subject to U.S. jurisdiction: entities engaging in non-commercial activities authorized by section 515.574 (Support for the Cuban People); entities engaging in humanitarian projects set forth in section 515.575(b) (Humanitarian projects); and private foundations or research or educational institutes engaging in transactions authorized by section 515.576.
  • OFAC is also adding a note to clarify that the activities that may be carried out by exporters of items exported or reexported pursuant to authorization by the Department of Commerce or OFAC, or that are otherwise exempt, at a physical presence authorized by this section include the assembly of such items.
  • OFAC is adding a new provision in section 515.565 to authorize the provision of educational grants, scholarships, or awards to a Cuban national or in which Cuba or a Cuban national otherwise has an interest. This could include, for example, the provision of educational scholarships for Cuban students to pursue academic studies for a degree. OFAC is also adding a note to section 515.575(b) to clarify that the existing authorization includes provision of grants or awards for humanitarian projects in or related to Cuba that are designed to directly benefit the Cuban people as set forth in that section. Telecommunications and internet- related services.
  • OFAC is amending section 515.578 to allow the importation of Cuban-origin software. OFAC is also making several technical and conforming edits. In particular, OFAC is correcting a typographical error in section 515.533(d)(2).
  • OFAC is also conforming the language of the general authorization in section 515.559(d) to the corresponding authorization in section 515.533(d).

Federal Register Notice: https://www.gpo.gov/fdsys/pkg/FR-2016-03-16/pdf/2016-06018.pdf

A Few Things That Can Be Exported to Cuba

Tuesday, March 29th, 2016 by Danielle McClellan

By: Danielle McClellan

BIS has released a final rule revising the licensing policy from possible approval on a case-by case-basis to a general policy of approval for exports and reexports of the following to Cuba:

  • Telecommunications items that would improve communications to, from, and among the Cuban people;
  • Certain commodities and software to human rights organizations or to individuals and non-governmental organizations that promote independent activity intended to strengthen civil society in Cuba;
  • Commodities and software to U.S. news bureaus in Cuba whose primary purpose is the gathering and dissemination of news to the general public; and
  • Agricultural items that are outside the scope of “agricultural commodities” as defined in part 772 of the EAR (such as insecticides, pesticides and herbicides) as well as agricultural commodities not eligible for License Exception Agricultural commodities (AGR) (such as those that are specified in an entry on the Commerce Control List, i.e., are not designated EAR99).
  • Items that are necessary to ensure the safety of civil aviation and the safe operation of commercial aircraft engaged in international air transportation, including the export or reexport of such aircraft leased to state-owned enterprises. Given a substantial increase in air travel to and from Cuba, BIS is making the change to emphasize the importance of civil aviation safety and to recognize that access to aircraft used in international air transportation that meet U.S. Federal Aviation Administration and European Aviation Safety Agency operating standards by Cuban state-owned enterprises contributes to that safety.

This rule also amends the exceptions to the general policy of denial by also adopting a case-by-case review policy for exports and reexports of some of the following:

  • Exports and reexports to state-owned enterprises, agencies, and other organizations of the Cuban government that provide goods and services for the use and benefit of the Cuban people.
  • Exports and reexports of items for agricultural production, artistic endeavors (including the creation of public content, historic and cultural works and preservation), education, food processing, disaster preparedness, relief and response, public health and sanitation, residential construction and renovation and public transportation.
  • Exports and reexports of items for use in construction of: facilities for treating public water supplies, facilities for supplying electricity or other energy to the Cuban people, sports and recreation facilities, and other infrastructure that directly benefits the Cuban people.
  • Additionally, it includes exports and reexports to wholesalers and retailers of items for domestic consumption by the Cuban people.

The rule also adds the term “reexport” to the existing statement of a policy of case-by-case review of applications for aircraft or vessels on temporary sojourn to Cuba. Finally, this rule will consolidate the statements of licensing policy for exports and reexports to Cuba (previously the policies were in six different paragraphs spread in different places with inconsistent wording).

Additionally, OFAC released a final rule coordinating with these changes set forth by BIS. OFAC is making amendments to the Cuba Sanctions Regulations with respect to non-agricultural export trade financing and travel and related services:

  • Section 515.533(a) will remove the former limitations on payment and financing terms for all exports from the United States or reexports of 100 percent U.S.-origin items from a third country that are licensed or otherwise authorized by the Department of Commerce, other than exports of agricultural items or commodities. As required by the Trade Sanctions Reform and Export Enhancement Act of 2000, 22 U.S.C. 7207(b)(1), such agricultural exports continue to be authorized only if one of the payment and financing terms specified in the statute are used.
  • Section 515.584 will add an authorization for depository institutions to provide financing for such authorized exports and making a conforming change to section 515.421.
  • Carrier services by air: section 515.572 will be amended to authorize the entry into blocked space, code-sharing, and leasing arrangements to facilitate the provision of carrier services by air authorized pursuant to section 515.572(a)(2), including the entry into such arrangements with a national of Cuba.
  • Temporary sojourn: section 515.533 will be amended to authorize travel-related and other transactions directly incident to the facilitation of the temporary sojourn of aircraft and vessels as authorized by the Department of Commerce for travel between the United States and Cuba, including by certain personnel required for normal operation and service on board a vessel or aircraft or to provide services to a vessel in port or aircraft on the ground.
  • Transactions related to information and informational materials: section 515.545 will be  expand the general license authorizing travel- related and other transactions that are directly incident to the export, import, or transmission of informational materials to include professional media or artistic productions in Cuba. Such productions include media programs (such as movies and television programs), music recordings, and the creation of artworks. OFAC is removing a restriction in an existing general license and explicitly authorizing transactions relating to the creation, dissemination, or artistic or other substantive alteration or enhancement of informational materials, including employment of Cuban nationals and the remittance of royalties or other payments. OFAC also is making a conforming change to section 515.206.
  • Professional meetings: section 515.564 will now authorize travel-related and other transactions to organize professional meetings or conferences in Cuba.
  • Public performances, clinics, workshops, athletic and other competitions, and exhibitions: section 515.567 will now authorize travel-related and other transactions to organize amateur and semi-professional international sports federation competitions and public performances, clinics, workshops, other athletic or non-athletic competitions, and exhibitions in Cuba. OFAC is also removing the existing requirements for certain events that all U.S. profits from the event after costs be donated to an independent nongovernmental organization in Cuba or a U.S.-based charity and that workshops and clinics be organized and run, at least in part, by the authorized traveler.
  • Humanitarian projects: section 515.575 will expand the list of authorized humanitarian projects to include disaster preparedness and response.

BIS Notice: https://www.gpo.gov/fdsys/pkg/FR-2016-01-27/pdf/2016-01557.pdf

OFAC Notice: https://www.gpo.gov/fdsys/pkg/FR-2016-01-27/pdf/2016-01559.pdf

Executive Order Revokes Iran Sanctions…but Iran Isn’t out of The Woods Yet

Wednesday, February 3rd, 2016 by Danielle McClellan

By: Danielle McClellan

On January 16, 2016, President Obama signed an executive order revoking the 20-year system of sanctions against Iran for pursing a nuclear weapons program in the past. The new Executive Order revokes the following Executive Orders: 13574, 13590, 13622, and 13645 with regards to Iran. An amendment to Executive Order 13628 was also made.

These changes come about after it was found that Iran has continued to comply with an international nuclear agreement that required them to abstain from obtaining nuclear weapons. Part of this agreement included that the US would lift sections on Iran as long as it refrained from building a nuclear program for a decade or more.

Most of the sanctions relief will apply to non-US citizens doing business with Iran; US citizens will still be unable to do business with Iran (this has not changed). The following has occurred due to the executive order:

  • Iranian assets will also be freed up and no longer held in the internarial financial system.
  • OFAC has also removed nearly 400 Iranians from its blocked persons list
  • OFAC will grant waivers for Americans to import food, carpets and other floor coverings from Iran.
  • A presidential memorandum was signed that will allow the export of a commercial passenger aircraft to Iran on a case by case basis.

Although these changes sound nice, it’s important to remember that all other US sanctions against Iran are still in place and will continue to be in place as long as Iran’s support for terrorism, regional destabilization, human rights abuses, and ballistic missile development occur.

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2016-01-21/pdf/2016-01325.pdf

US Relaxes Sanctions on Iran: Put on Your Party Hat, because You Can’t Export It to Iran

Wednesday, February 3rd, 2016 by Danielle McClellan

By: John Black

Implementation Day has arrived.  Iran reached a nuclear non-proliferation milestone and the US relaxed some of its sanctions on Iran.  As reported in the media, President Obama has removed strict US trade controls on sanctions on Iran.  As reported in other media sources, the US has capitulated and freed Iran to have an unfettered path to development of nuclear weapons.

So, US exporters, you can put on your “US hearts Iran” party hat if you want, but you may not export that party hat to Iran because it is classified as EAR99 which still requires an export license for Iran, as does nearly every other product known to man other than medicine, medical devices and agricultural products.

The Obama Administration did remove the requirement that foreign parties that are owned or controlled by US parties obtain a US Government approval  before they do business with Iran, such as sending EAR99 “US hearts Iran” party hats to Iran.  No doubt, those cone shaped paper hats with the rubber bands that always get stuck in your hair are going directly to the Iranian nuclear scientist and engineers who, upon wearing the cone hats, will be able to work faster, smarter and more effectively in developing nukes.

In the final analysis, the actual scope of the changes to US export and reexport controls is very narrow, and typically tricky.

More specifically, to make the changes President Obama issued an executive order revoking sanctions imposed under other executive orders.  Since no new regulations have been published to do this, to figure out what happened, you have to read the new executive order and see what it eliminated in the previous executive orders and subtract those from OFAC’s Iran regulations.  Before you do that, I can give you a key overview of what happened that is most important to most US parties and foreign entities owned or controlled by US parties.

To implement the executive order, the Office of Foreign Assets Control (OFAC) created a new General License H to cancel existing rules.  Here are the key aspects of the General License H for foreign entities owned or controlled by US entities, and for US entities:

General License H Authorizes Foreign Entities Owned or Controlled by US Entities To:

  • Transfer to Iran foreign made items not subject to US jurisdiction—this includes purely foreign made items and foreign made items with US content that are exempt from US jurisdiction under the EAR de minimis rules; or
  • Transfer to Iran certain US made items (mainly EAR99 items, see exclusion 6 below) as long as the transfer is not a direct or indirect export from the United States.

Excluded from those two authorizations are:

  1. Direct or indirect exports from the United States to Iran;
  2. Movement of funds involving US financial institutions
  3. Activities involving parties on the SDN or activities prohibited non-Iran OFAC rules;
  4. Activities involving any entity on the FSE list;
  5. Activities for which the Export Administration Regulations (EAR) require a license—for example, most items with an EAR classification other than EAR99;
  6. Any military, paramilitary, intelligence or law enforcement entity of the Government of Iran;
  7. Activities otherwise prohibited or sanctionable by executive orders (EO):
    1.  12938 or 13382: Proliferation of weapons of mass destruction and their delivery systems;
    2. 13224:  International terrorism;
    3. 13572 or 13582:  Syria;
    4. 13611: Yemen; or
    5. 13553, 13606 or section 2 or 3 of 13628:  Iran’s human rights abuses
  8. Certain nuclear activities

 

General License H Authorizes Parties in the US to Be Involved In:

  • Activities Related to the establishment or alteration of corporate policies and procedures to the extent necessary to allow US owned or controlled foreign entities to engage in activities that General License H authorizes for the foreign entities; or
  • Activities to make available to US owned or controlled foreign entities automated and globally integrated computer, accounting, email, telecommunications or other business support systems, platform, database application, or server necessary to store, collect, transmit, generate, or other process documents of information related to activities that General License H authorizes for the foreign entities.

In addition, to the General License H, OFAC also announced a more formal safety of flight licensing policy for Iran.  Specifically, there is a good chance OFAC will approve licenses:

  • To export, reexport, sell, lease or transfer to Iran commercial passenger aircraft for exclusively civil aviation end-use
  • To export, reexport, sell, lease or transfer to Iran spare parts and components for commercial passenger aircraft
  • Provide associated services, including warranty, maintenance, and repair services and safety inspections for the above, as long as licensed items and services are used exclusively for commercial passenger aviation.

OFAC has stated that if it approves such licenses, it will require that the licensed activities do not involve SDN listed parties.

Before you have an export control party, including “I heart Iran” party hats, remember that the US can revoke General License H and all of the changes it made at the drop of a hat for any reason whenever it wants to do so.

Secondary Sanctions:  A big part of the OFAC relaxation does not apply to export or reexport controls, but comes in the area of secondary sanctions.   For example, OFAC has the authority to penalize a foreign entity with no ties to the US who is involved in the petroleum business in Iran, even if that purely foreign party is not transferring any items subject to US jurisdiction.   For non-US parties who are not owned or controlled by US parties and are not dealing in products subject to US jurisdiction, OFAC announced that it will no longer enforce its secondary sanctions on these sectors:

  • Financial and bank
  • Petrochemical and energy
  • Gold and precious metals
  • Automotive
  • Shipping, shipbuilding and ports

For companies outside of the scope of US export and reexport controls, the OFAC secondary sanctions are important.  For example, under US secondary sanctions, a French company with no US ties, could have a French export license to send 100% French machines to an Iranian oil site and still get penalized by US secondary sanctions.  So, if the US did not lift its secondary sanctions, it could have largely cancelled out the relaxations other countries made in their trade controls on Iran.

And, before anybody in France, or anywhere else in the world, dons their foreign-made made “I heart Iran” berets, remember OFAC can re-impose any or all of its secondary sanctions at the drop of a hat for any reason whenever its wants to do so.

These dramatic, yet limited, changes have created new business opportunities, but I recommend that everybody proceed with caution.  The US Government made it clear it will continue to enforce the existing rules.  The US Government does not want to be seen as being too lax regarding Iran, and a big, new enforcement case would give the US Government the publicity it needs to continue to convince Congress and companies everywhere that it remains tough on Iran and violations carry with them huge business risks.

For further guidance from OFAC, there is a lot of information at: https://www.treasury.gov/resource-center/sanctions/Programs/Pages/iran.aspx

For the OFAC safety of flight guidance go to:  https://www.treasury.gov/resource-center/sanctions/Programs/Documents/lic_pol_statement_aircraft_jcpoa.pdf

Company Fined $38,930 for Selling Internet Security Products to Iran, Sudan and Syria

Tuesday, January 19th, 2016 by Danielle McClellan

By: Danielle McClellan

Barracuda Networks, Inc. of California and its United Kingdom subsidiary, Barracuda Networks Ltd. voluntarily disclosed violations to the Office of Foreign Assets Controls (OFAC) related to the sale of various internet security products.

Between August 2009 and April 2012 Barracuda UK sold web filtering products that are used to block or censor Internet activity along with internet security products and the related software subscriptions to entities in Iran, Sudan and entities on the Specially Designated Nationals and Blocked Persons List (SDNs). During the same time period Barracuda US provided firmware and software updates to the illegal software subscriptions. The total transaction value for these sales was $123,586.

Both companies were charged with a total of 37 violations and fined a total of $38,930. OFAC released the following factors and considerations related to the fine:

  1. Barracuda acted with reckless disregard for sanctions requirements by (a) permitting distributors and resellers to sell its products and updates to SDNs and to customers in sanctioned countries when it knew or had reason to know that the products were located in sanctioned countries or with SDNs, in potential violation of U.S. sanctions requirements, and (b) distributing its products and technology to more than 17,000 resellers and distributors worldwide without implementing any written sanctions compliance policies or procedures, and failing to provide training to its employees regarding export controls and sanctions;
  2. Barracuda knew or had reason to know that it was exporting goods, technology, and services to Iran and Sudan because IP addresses associated with those countries were used to contact the company; further, Barracuda knew or had reason to know that it was exporting technology to Syrian SDNs because the SDNs were listed on sales invoices;
  3. The exportation of the Web filtering software and hardware to Iran, Sudan, and SDNs in Syria could potentially have caused significant harm to U.S. sanctions program objectives because the technology could have been used to block or censor Internet activity;
  4. Barracuda did not screen IP addresses used to contact Barracuda’s servers because it had no OFAC compliance program in place at the time of the transactions;
  5. Barracuda has no prior OFAC sanctions history, including no penalty notice or Finding of Violation in the five years preceding the earliest date of the transactions giving rise to the apparent violations, making it eligible for up to 25 percent “first offense” mitigation;
  6. Barracuda took significant remedial steps including developing a method to disable products in sanctioned countries, prioritizing U.S. sanctions and export controls compliance by establishing an Office of Trade Compliance and hiring a general counsel with subject matter expertise in these areas, issuing company-wide a statement from the CEO about sanctions-related policy, implementing a trade compliance manual, and enhancing its sales software to include red flags for orders that may require a license; and
  7. Barracuda substantially cooperated with OFAC’s investigation, including by agreeing to toll the statute of limitations for approximately 521 days.

OFAC Notice: https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20151124_Barracuda.pdf

BIS Follows Suit with OFAC Changes and Adjusts EAR for the Cuba People

Thursday, October 1st, 2015 by Danielle McClellan

By: Danielle McClellan

Effective September 21, 2015 BIS amended the Export Administration Regulations (EAR) to expand the scope of License Exception Support for the Cuban People (SCP) and many other changes as noted below.  Although BIS made a wide range of changes, the changes did little to open up opportunities for most companies to do business in Cuba. See the full Federal Register Notice: http://www.gpo.gov/fdsys/pkg/FR-2015-09-21/pdf/2015-23495.pdf.

Expansion of License Exception Support for the Cuban People (SCP)

  • BIS revised EAR § 740.21(b) and (d)(1) to remove a requirement that items must be sold or donated when exported or reexported to authorized end-users in Cuba under License Exception Support for the Cuban People (SCP). Paragraph (b) authorizes certain exports and reexports to improve living conditions and support independent economic activity in Cuba. Paragraph (d)(1) authorizes certain exports and reexports to improve the free flow of information to, from, and among the Cuban people. When License Exception SCP was created in January 2015, BIS included text regarding sales or donations in paragraphs (b) and (d)(1) to clarify that the provisions were not limited to exports and reexports of donated items. However, the construction of the sentences addressing sales or donations inadvertently precluded other types of exports and reexports intended to be covered under the license exception, such as those involving leased or loaned items. Consequently, BIS is removing the portions of paragraphs (b) and (d)(1) of License Exception SCP that refer to sales or donations of items to eliminate those unintended restrictions.
  • BIS revised paragraph (c)(2) of License Exception SCP to authorize certain temporary reexports to Cuba. Paragraph (c)(2) previously authorized certain temporary exports of items to Cuba from the United States for use in scientific, archeological, cultural, ecological, educational, historic preservation, or sporting activities, or in the traveler’s professional research. This change authorizes travelers departing the United States or a foreign country to temporarily export or reexport authorized items to Cuba for eligible end-uses. Additionally, this rule adds professional meetings to the list of eligible end-uses in paragraph (c)(2). This rule also introduces a requirement that the items remain under the traveler’s ‘‘effective control.’’ The existing EAR definition of effective control in § 772.1 applies to this use of the term. Eligible items continue to be limited to items subject to the EAR but not specified in any Export Control Classification Number (ECCN), i.e., EAR99) or controlled on the Commerce Control List (CCL) only for anti- terrorism reasons.
  • BIS added a new paragraph (d)(4) to  SCP to authorize exports and reexports of commodities and software to individuals and private sector entities in Cuba that will be used to develop software that will improve the free flow of information or that will support the private sector activities described in paragraph (b) of License Exception SCP.  The Cuban Government and Communist Party and certain officials thereof are designated as ineligible end users for commodities and software exported under paragraph (d)(4). Existing text in paragraph (d) limits the commodities and software authorized for export or reexport under this new paragraph (d)(4) to those that are either EAR99 or controlled on the CCL for anti- terrorism reasons only. For example, to qualify for export or reexport under new paragraph (d)(4), a general purpose software development kit must be either EAR99 or controlled in an ECCN where the only reason for control that applies to that kit is anti-terrorism and the kit’s use in Cuba must be to develop software that will improve the free flow of communication and/or that will support the private sector activities described in paragraph (b) of License Exception SCP.
  • BIS added a new paragraph (e) to License Exception SCP. Paragraph (e)(1) authorizes the export and reexport to Cuba of certain items for use by United States Persons (as defined in § 772.1 of the EAR) to establish, maintain, or operate a physical presence in Cuba. Any resulting payments associated with such a physical presence, such as lease payments, are permitted only to the extent authorized by § 515.573 of the OFAC Cuban Assets Control Regulations (31 CFR 515.573). To be eligible for the exception under paragraph (e)(1), the end-users must be (1) entities organizing or conducting educational activities in Cuba authorized by OFAC pursuant to 31 CFR 515.565(a); (2) entities providing mail or parcel transmission services authorized by OFAC pursuant to 31 CFR 515.542(a) or providing cargo transportation services in connection with trade involving Cuba authorized by OFAC or exempt from the prohibitions of 31 CFR part 515 as specified in 31 CFR 515.206; (3) religious organizations engaging in religious activities in Cuba authorized by OFAC pursuant to 31 CFR 515.566; (4) persons engaged in transactions authorized by OFAC pursuant to 31 CFR 515.559(b); (5) persons that export or reexport items to Cuba that are exempt from the prohibitions of 31 CFR part 515 as specified in 31 CFR 515.206; (6) providers of travel services or carrier services authorized by OFAC pursuant to 31 CFR 515.572; or (7) persons that export or reexport to Cuba pursuant to a license issued by BIS or a license exception authorized by § 746.2(a)(1) of the EAR.
  • Items eligible for export and reexport to Cuba pursuant to paragraph (e)(1) of License Exception SCP are limited to those designated as EAR99 (i.e., items subject to the EAR but not specified in any ECCN) or controlled on the CCL only for anti-terrorism reasons.
  • Paragraph (e)(2) of License Exception SCP authorizes the export and reexport to Cuba of certain items for use by certain additional eligible end-users to establish, maintain, and operate a physical presence in Cuba. Any resulting payments associated with such a physical presence, such as lease payments, are permitted only to the extent authorized by § 515.573 of the Cuban Assets Control Regulations.  To be eligible for paragraph (e)(2), the end-users must be authorized by OFAC to provide telecommunications services and establish telecommunications facilities pursuant to 31 CFR 515.542(b)–(e) or to provide internet-based services pursuant to 31 CFR 515.578, including subsidiaries, branches, offices, joint ventures, franchises, and agency or other business relationships with any entity or individual who is a national of Cuba. The items authorized pursuant to paragraph (e)(2) are limited to those designated as EAR99 (i.e., items subject to the EAR but not specified in any ECCN) or controlled on the CCL only for anti-terrorism reasons.
  • Paragraph (e)(3) of SCP authorizes the export and reexport to Cuba of certain items to be given away for free as gifts for promotional purposes, such as pens, notepads, hats, and t-shirts. Items eligible for export or reexport to Cuba pursuant to paragraph (e)(3) are limited to those items of a type normally given away for free as gifts for promotional purposes that are designated as EAR99.
  • BIS is creating paragraph (e) of SCP to facilitate engagement between the U.S. and Cuban people; the free flow of information to, from, and among the Cuban people; and independent economic activity in Cuba generated by Cuba’s private sector.
  • This rule also creates new paragraph (f) to SCP to authorize certain temporary (not to exceed one year) exports and reexports to Cuba of EAR99 items and items controlled on the CCL only for anti- terrorism reasons. Paragraph (f) authorizes exports and reexports of the following:
  • Commodities and software as tools of trade for use by the exporters or employees of the exporters to install, service or repair items that are subject to the EAR and that have been exported or reexported to Cuba under a license or license exception, or foreign-origin items that are not subject to the EAR but are owned and used exclusively by individuals or private sector entities but not the Cuban Government, the Cuban Communist Party or certain officials thereof in Cuba;
  • Technology as tools of trade for use by certain persons for the installation, servicing or repair of items that are subject to the EAR and that have been exported or reexported to Cuba under a license or license exception, or foreign- origin items that are not subject to the EAR but are owned and used exclusively by individuals or private sector entities but not the Cuban Government, the Cuban Communist Party or certain officials thereof in Cuba;
  • Kits of replacement parts or components for items that have been exported or reexported to Cuba under a license or license exception, or foreign- origin items that are not subject to the EAR but are owned and used exclusively by individuals or private sector entities but not the Cuban Government, the Cuban Communist Party or certain officials thereof in Cuba;
  • Commodities and software for exhibition or demonstration at trade shows or to parties eligible to receive items under License Exception SCP; and
  • Containers that are necessary for shipment of commodities being exported or reexported to Cuba under a license or license exception; BIS is creating paragraph (f) of License Exception SCP to help support authorized travel and commerce.

Expansion of License Exception Consumer Communications Devices (CCD)

  • BIS revised EAR § 740.19(a) to remove references to sales or donations of eligible items authorized under License Exception CCD. License Exception CCD authorizes certain exports and reexports to improve the free flow of information to, from, and among the Cuban and Sudanese people. When BIS created CCD in September 2009 to authorize certain exports and reexports to Cuba, the license exception included a donation requirement. BIS revised License Exception CCD in January 2015 to authorize sales, in addition to donations, and to update the list of eligible items. (Sudan was added as an authorized destination in February 2015.) Instead of merely removing the word ‘‘donated’’ from paragraph (a) of License Exception CCD, the January 2015 revision added the phrase ‘‘either sold or’’ to that paragraph. That phrasing inadvertently precluded other types of exports and reexports intended to be authorized by the license exception, such as those involving leased or loaned items. Consequently, this rule removes phrase ‘‘either sold or donated’’ from paragraph (a) to eliminate that unintended restriction.

Availability of License Exception Aircraft, Vessels and Spacecraft (AVS)

  • BIS revised EAR § 746.2(a)(1)(x) to make paragraphs (b) and (d) of License Exception AVS available for Cuba.  BIS also amended EAR § 740.15(b) and (d) to add to License Exception AVS paragraphs (b)(4) and (d)(6) described below that apply only to Cuba.
  • Paragraph (b) of AVS authorizes certain exports and reexports of equipment and spare parts for permanent use on vessels and aircraft departing the United States. The paragraph also authorizes certain exports of ship and plane stores for use on board vessels and aircraft departing the United States. Paragraph (d) of AVS authorizes certain exports and reexports of vessels on temporary sojourn. Paragraph (a) of AVS, which authorizes certain exports and reexports of aircraft on temporary sojourn, was, prior to publication of this rule, available for Cuba.
  • BIS added a note to paragraph (a) prohibiting an aircraft exported or reexported to a country pursuant to that paragraph from remaining in that country for more than seven consecutive days before it departs for a country to which it may be exported without a license or the United States.
  • BIS added new paragraph (b)(4) to AVS to specify that the commodities eligible for export and reexport to Cuba pursuant to paragraph (b) are limited to those designated as EAR99 or controlled on the CCL only for anti-terrorism reasons.
  • Additionally, this rule adds new paragraph (d)(6) to License Exception AVS. Paragraph (d)(6) provides that only certain categories of vessels, when engaged in specified activities are eligible for the license exception when destined for Cuba. The types of vessels and activities eligible for temporary sojourn to Cuba are as follows.
  1. Cargo vessels for hire for use in the transportation of items.
  2. Passenger vessels for hire for use in the transportation of passengers and/ or items. Vessels used to transport both passengers and items to Cuba may transport automobiles only if the export or reexport of the automobiles has been authorized by a separate license issued by BIS (i.e., not authorized by license exception). The export or reexport to Cuba of personally owned vehicles is not normally necessary to support authorized travel. However, if the need arises, the exporter or reexporter may submit a license application to BIS for review pursuant to the licensing policy in § 746.2 of the EAR.
  3. Recreational vessels destined for Cuba that that are used in connection with travel authorized by the Department of the Treasury, Office of Foreign Assets Control (OFAC).
  • Finally, BIS added a note to paragraph (d) prohibiting a vessel exported or reexported to a country pursuant to that paragraph from remaining in that country for more than 14 consecutive days before it departs for a country to which it may be exported without a license or the United States.
  • BIS is making paragraphs (b) and (d) of AVS available for Cuba to help facilitate authorized travel and commerce. For clarity, BIS is adding notes to paragraphs (a) and (d) specifying the amount of time an aircraft or vessel exported or reexported to a country pursuant to the paragraphs may remain in that country. Previously, BIS interpreted paragraph (a) to authorize temporary sojourns consisting of only one overnight stay while in-country (see 57 FR 30899, July 13, 1992). BIS selected the time periods of seven days for aircraft and 14 days for vessels based on its experience in licensing aircraft and vessels for temporary sojourn to Cuba. The vast majority of such licenses were for stays of seven days or less for aircraft and 14 days or less for vessels.

New Licensing Policy for Civil Aviation Safety

  • BIS amended the licensing policy for Cuba in EAR § 746.2 to add a policy of case-by-case review of license applications for exports and reexports of items to ensure safety in civil aviation and safe operation of commercial passenger aircraft. Items that will be reviewed pursuant to this policy include aircraft parts and components related to safety of flight, weather observation stations, airport safety equipment, and commodities used for security screening of passengers. BIS is adding this licensing policy to support international aviation and passenger safety.

Scope of License Requirements for Deemed Exports and Reexports

  • This rule amends the license requirements for Cuba in § 746.2 of the EAR to specify that a license is required for the release of technology or source code on the CCL to Cuban nationals in the United States or a third country, but not for the deemed export or deemed reexport of technology or source code designated as EAR99.

Technical Corrections to License Exception Agricultural Commodities (AGR)

On July 22, 2015, BIS published a rule implementing the rescission of Cuba’s State Sponsor of Terrorism designation (80 FR 43314). Among other amendments, that rule removed Cuba from Country Group E:1, which changed the general de minimis level for Cuba from 10 to 25 percent. Although the rule made certain technical and conforming changes to the EAR, BIS overlooked references to the former 10 percent de minimis level in paragraph (b)(3) of License Exception Agricultural Commodities (AGR) in § 740.18 of the EAR. Consequently, this rule corrects the de minimis percentages referenced in paragraph (b)(3) of License

OFAC Makes Many Changes that Slightly Relax Some Restrictions on Cuba

Thursday, October 1st, 2015 by Danielle McClellan

The Office of Foreign Assets Controls (OFAC) has published a final rule, effective September 21, 2015, amending the current Cuban Assets Control Regulations to implement elements of the President’s policy to empower the Cuban people from December 17, 2014. Full Federal Register Notice: http://www.gpo.gov/fdsys/pkg/FR-2015-09-21/pdf/2015-23587.pdf.

Generally speaking, the changes are another measured, non-dramatic relaxation of US restrictions on Cuba.  For exporters, the main impact focuses on providing telecomm and internet services to Cuba and also importing Cuban mobile apps.  The changes also relax controls on establishing a physical presence in Cuba and exports and reexports related to EAR License Exceptions CCD and SCP.  OFAC also relaxed its rules related to travel to Cuba and related travel services.  The changes also relax the restrictions related to providing educational services to Cuba and Cuban nationals.

Some of the highlights of the OFAC changes:

Telecommunications and Internet- based Services

  • Subsidiaries, joint ventures, and other business relationships with Cuban individuals and entities. In order to further enhance the free flow of information to, from, and among the Cuban people and to better provide efficient and adequate telecommunications services between the United States and Cuba, OFAC is amending sections 515.542 and 515.578 to authorize persons subject to U.S. jurisdiction to establish and maintain a business presence in Cuba, including through subsidiaries, branches, offices, joint ventures, franchises, and agency or other business relationships with any Cuban individual or entity, to provide authorized telecommunications and internet-based services. OFAC is also authorizing persons subject to U.S. jurisdiction to enter into licensing agreements related to services authorized by section 515.542(b) through (d) and section 515.578(a), and to market such services. OFAC is amending section 515.505 to unblock any entity, office, or other sub-unit established pursuant to sections 515.542 and 515.578.
  • Mobile applications. To further enhance the free flow of information to, from, and among the Cuban people, OFAC is adding a provision in section 515.578 to authorize the importation into the United States of Cuban-origin mobile applications. In addition, OFAC is authorizing the employment of Cuban nationals by persons subject to U.S. jurisdiction to develop such mobile applications.
  • Additional internet-based services and services related to additional authorized exports. In the January 2015 amendments, OFAC authorized services beyond those authorized in section 515.533 related to items exported pursuant to the EAR License Exception Consumer Communications Devices (CCD), certain non-U.S.-origin items located outside the United States, and certain software not subject to the EAR. These services include software design, business consulting, information technology management, and other services to install, repair, and replace such items. OFAC amended 515.578 to expand the permitted services to include training related to the installation, repair, or replacement of such items. OFAC also expanded the authorization to extend to services related to exports of consumer communications devices not eligible for License Exception CCD but authorized pursuant to an individual license from the Department of Commerce and to services related to exports authorized pursuant to the EAR License Exception Support for the Cuban People (SCP) of certain commodities and software that will be used by individuals or private sector entities to develop software that will improve the free flow of information or that will support certain private sector activities. OFAC also amended 515.578 to authorize persons subject to U.S. jurisdiction to provide services related to all such items that were exported to Cuba from a third country. OFAC also removed a restriction on organizations administered or controlled by the Cuban Government or Communist Party with respect to certain internet-based services (such as instant messaging, chat and email, and social networking) authorized pursuant to section 515.578(a)(1), while maintaining this restriction on provision of these services to prohibited officials of the Government of Cuba and prohibited members of the Cuban Communist Party.

Physical Presence in Cuba

  • Physical presence in Cuba for certain persons. OFAC is amending section 515.573 to authorize certain persons subject to U.S. jurisdiction to establish a physical presence, such as an office or other facility, in Cuba, to facilitate authorized transactions. This authorization covers the following: news bureaus; exporters of goods authorized for export pursuant to sections 515.533 or 515.559; providers of authorized mail and parcel transmission services and cargo transportation services; providers of telecommunications or internet-based services; entities organizing or conducting certain educational activities; religious organizations; and providers of travel and carrier services. In addition, OFAC is authorizing these individuals and entities to open and maintain bank accounts at financial institutions in Cuba for use for authorized transactions, and to close such accounts. The prior provisions in this section authorizing certain transactions by news organizations have been fully incorporated into the revised section. OFAC is also amending section 515.505 to unblock any entity, office, or other sub-unit established pursuant to section 515.573, as well as to unblock any individual authorized to establish domicile in Cuba pursuant to section 515.573(a)(4).

Other Changes

  • Educational activities. OFAC is expanding the general license in section 515.565 to allow additional educational activities that are authorized in other sanctions programs administered by OFAC, including the provision of standardized testing services and internet-based courses to Cuban nationals, as well as to authorize U.S. and Cuban universities to engage in academic exchanges and joint non- commercial academic research. Ordinarily incident transactions. OFAC is issuing interpretive guidance in new section 515.421 to clarify that, with certain exceptions, transactions ordinarily incident to a licensed transaction and necessary to give effect thereto are also authorized. In response to public inquiries, OFAC is providing a specific example in this section to clarify that ordinarily incident transactions include payments made using online payment platforms for authorized transactions.
  • Commercial Transactions Provision of goods and services to Cuban nationals located in a third country. OFAC is amending section 515.585 to expand the existing authorization to allow all persons subject to U.S. jurisdiction to provide goods and services to Cuban national individuals located in a third country. In addition, OFAC is adding an authorization to allow banking institutions to open, maintain, and close bank accounts for such Cuban nationals.
  • Air ambulances and emergency medical services. OFAC has had a favorable specific licensing policy and has authorized on a case-by-case and expedited basis air ambulances to travel to and from Cuba and to evacuate individuals requiring medical care. In such exigent circumstances, OFAC has allowed U.S. medical and other essential personnel to provide services to individual travelers in need of medical attention, regardless of nationality or the purpose of the individual’s travel to Cuba. OFAC is amending section 515.548 to generally authorize such services. To clarify the availability of nonscheduled emergency medical services in the United States, OFAC also is adding a new general license in section 515.589.
  • Humanitarian projects. OFAC is amending section 515.575 to explicitly include disaster relief and historical preservation as authorized humanitarian projects. Cuban official missions. OFAC is amending section 515.586 to authorize funds transfers on behalf of official missions of the Government of Cuba in the United States.

If OFAC Denies Your License Application…Stop!

Friday, September 11th, 2015 by Danielle McClellan

By: Danielle McClellan

Great Plains Stainless Co. (GPS) of Tulsa, Oklahoma has agreed to pay $214,000 to settle allegations that it violated the Office of Foreign Assets Controls (OFAC) regulations in 2009. GPS sold goods that its Chinese vendor shipped from Shanghai to GPS’s customer in Dubai via MN Sahand, a vessel that is considered blocked property (EO 13382). GPS also created new bogus trade documents, with references to the blocked vessel to be removed and then transferred these altered documents to its Dubai customer to facilitate the release of the goods that were held at the port in Dubai.

GPS did not voluntarily disclose these violations to OFAC, the maximum penalty could have been $500,000. The settlement amount is reflective of the following:

  • GPS acted willfully since they altered the bill of lading
  • They disregarded verbal and written guidance from OFAC stating that the company should consult with OFAC’s Licensing Division before engaging in the transaction
  • GPS had submitted a license application to OFAC seeking authorization for this transaction and was denied but followed thru with the transaction
  • They did not have a compliance program in place at the time of the alleged violations.
  • The company has not received a penalty notice or Finding of Violation from OFAC in the past five years
  • GPS had no reason to know that the blocked vessel was to be used for the shipment until the vessel’s sailing date
  • They are a small company
  • GPS took remedial measures to prevent future violations

Read the full document at: http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20150724_gps.pdf