Finance & Banking

Canada has released the implementation to the Special Economic Measures (Burma) Regulations applying sanctions against Burma.

The main measures taken by Canada prohibit:

1. The export from Canada to Burma of any goods, excepting only the export of humanitarian goods
2. The export of technical data
3. The provision of financial services to Burma

Canada implemented the new sanctions in light of resolutions by both the United Nations Commission on Human Rights and the General Assembly who condemned the human right violations in Burma at this time.

More information:

dfait-maeci.gc.ca/trade/eicb/notices/Ser155-en.asp

In 2006, the U.S. National Security Strategy stated that the United States was facing challenges from Iran and its efforts and involvement in international terrorism. The GAO has since reviewed U.S. sanctions against Iran and the impact it has had and reviewed numerous data relating to Iran’s economy and energy sector.

After conducting research, the GAO concluded that Congress should consider requiring the National Security Council and key agencies to:

1. Assess data on Iran sanctions and complete an overall baseline assessment of sanctions
2. Develop a framework for ongoing assessments
3. Periodically report the results to Congress

Officials did report that U.S. sanctions involving Iran has slowed foreign investment in the country’s petroleum sector, however other evidence indicates that the extent of the reported impact. Read More

On December 14, 2007, Minister Maxime Bernier, Minister of Foreign Affairs, announced that Canada’s economic sanctions against Burma entered into force on December 13, 2007. Read More

As of October 25, 2007 all U.S. persons are prohibited from engaging in any transactions with Bank Sepah, Bank Mellat, and Bank Saderat and each of the banks’ subsidiaries. Persons holding valid OFAC licenses are also prohibited from exportation or reexportation of agricultural commodities, medicine or medical devices to Iran or Sudan that would directly or indirectly involve the above listed banks.

In January 2007 Bank Sepah and its subsidiary Bank Sepah International PLC were designated pursuant of “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters”.

In October 2007 Bank Mellat and its branches and subsidiaries, Mellat Bank SB CJSC, Persia International Bank PLC, Bank Melli, Bank Kargoshaee, Bank Melli Iran Zao, Melli Bank PLC, and Arian Bank were also found pursuant of “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters.”

During October 2007 Bank Saderat and its branches were designated pursuant to “Blocking Property and Prohibiting Transactions With Person Who Commit, Threaten to Commit, or Support Terrorism.”

More information:

Executive Order: Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters

OFAC news release

It has been decided that lending company, Keltic Financial Partners, cannot sue their lawyers, Day Pitney, in a case regarding a loan to a man convicted of exporting arms illegally.

Daniel Malloy was found guilty in 1997 of the attempted sale of 20 Phoenix missile-battery components to Iran. He was fined $750,000, forfeited an additional $1,888,705 to the government, and was sentenced to 28 months in jail. Upon his release from jail he had to serve 3 years of supervised release during which he would be barred from dealing in certain defense and technology related items.

When Malloy was released in May of 2002, he and his wife applied to Keltic Financial Partners for a $3.75 Million credit line to pay their creditors and the government. Keltic hired Day Pitney to represent them in the loan transaction. During the closing was the first time that Keltic had been informed of the Commerce Department ruling preventing Malloy from conducting business as usual. The closing was postponed so that Keltic’s lawyers could investigate further. Keltic also consulted an export regulations expert (Margaret Gatti of Haddonfield’s Gatti and Assoc.) to get an opinion on whether Malloy and his companies were in compliance with the law. Gatti’s opinion was that they were. The closing on the loan went ahead in December of 2002.

The result of these events was that Malloy could not participate in his company to enough of an extent to make it profitable and the loan was in default by May of 2003. Malloy’s wife, who had run his company in his absence, could not get the export licenses that she needed due to her husband’s previous involvement.

Keltic filed a malpractice suit against Day Pitney and other involved law firms which was subsequently dismissed. The ruling for dismissal said that Keltic should have sued the law firms as part of its suit to settle the loan default. Ultimately, the judge felt like it was the Malloy’s fraud which caused the loss, and not malpractice by the lawyers.

Source:

• Law.com April 4, 2007, Author: Mary Pat Gallagher

Bills currently being considered in the House and Senate aimed at hitting Iran’s economy are not popular with the State Department. The intent of the bills is to force companies to stop investing in Iran - primarily the oil and gas sector which comprise the country’s biggest source of revenue.

Nicholas Burns, US Undersecretary of State, stated Thursday, March 29th, that the State Department would not support the current legislation being discussed. This legislation would require the enforcement of penalties of companies investing in Iran. Mr. Burns said that the act as it reads currently would “turn the full weight of sanctions not against Iran but against our allies that are instrumental in our coalition against Iran.”

The bills currently under consideration would close loopholes that allow US companies’ foreign subsidiaries to invest in Iran and would require pension funds to name companies in their portfolios which are investing in Iran. US companies known to have interests in Iran include General Electric, Dresser-Rand, Xerox, Overseas Shipholding Group, Inc., and Halliburton among others. There are many companies who manage to do business with Iran and other sanctioned countries through offshore subsidiaries or with Treasury-granted licenses. These companies are getting increased criticism as tensions worsen between the US and Iran. Many of these companies state that they are severing connections, or at least will sever them when current contracts expire. The bills under consideration would ban much of this business unless a special export license was obtained.

The UN Security Council recently passed a second set of Iranian sanctions. These call for countries to be vigilant in restraining their export credit relationship but fall short of requiring a cessation of export credits. The administration continues to encourage international banks to cease transactions with Iran.

Sources:

• The Daily Bugle, March 30, 2007, Item # 12
• Beurs.NL March 29,2007
• The Wall Street Journal March 27, 2007

In mid-March 2007, the European Union adopted a proposal specifying trade restrictions on Iran. The goal is to further the restrictions placed on Iran, with emphasis on those practices which could contribute to Iran’s nuclear program. The proposal includes the following:

1. Guidelines for consistent implementation of the program
2. Specifying which goods and technology will be affected. Companies who wish to export such goods will have to apply for proper authorizations from the appropriate member state
3. Prohibition on providing technical or financial assistance to any parties listed in Annex I or Annex II of the Regulation
4. Authorization for Member States to override the above prohibition when certain criteria are met:
   1. Confirmation by the UN that transaction will not contribute to Irans’s nuclear program
   2. Appropriate end-use guarantees in contract
   3. Commitment by Iran not to use transaction for nuclear program
5. A freeze in funds or assets controlled by individuals or entities listed in Annex IV and Annex V

Penalties for violation of the regulations will be set out by individual Member States.

Source:

• Steptoe & Johnson Publications International Law Advisory:
  EU Draft Regulation Implementing Trade Restrictions on Iran March 14, 2007

Due to the results of an 18-month investigation, the US Treasury Department recently announced that as of April 14, 2007 all US banks and financial institutions will be barred from doing business with Macau-based Banco Delta Asia (BDA). BDA was designated as an institution of “primary money laundering concern” regarding dealings with North Korean clients in 2005 and, subsequently, nearly $24 million in funds were frozen pending an investigation. These frozen funds have recently become an issue as North Korea has tied the release of these funds to their willingness to enter an agreement to halt its nuclear weapons program. The conclusion of the investigation resulting in the regulations against BDA will allow overseas regulators to possibly release some of the frozen funds.

The final rule affecting BDA falls under Section 311 of the US Patriot Act. The majority of US financial institutions have already voluntarily severed ties with BDA, however, they will now have to be more careful that other foreign clients are not being used to conduct business on BDA’s behalf.

Specific abuses by BDA include involvement with US counterfeit currency, counterfeit cigarettes and narcotics.

It is noted that Macau is not targeted as a jurisdiction of concern regarding money laundering, only BDA specifically as a financial institution.

Source:

• US Dept. of Treasury Web Site March 14, 2007

In June of 2005, President Bush issued Executive Order 13382 authorizing significant financial sanctions on WMD proliferators and any firms or individuals who provided support or services to them. Upon its issuance, the President identified eight entities in North Korea, Syria and Iran for their support of WMD proliferation.

Iran’s 5th largest bank, Bank Sepah, was designated for doing business with three of those designated entities: Iran’s AIO (Aerospace Industries Organization) which oversees all of Iran’s missiles programs, the Shahid Hemmat Industries Group (SHIG) which oversees Iran’s ballistic missile program, and the Shahid Bakeri Industries Group (SBIG) which is also involved in the missile program of Iran.

Also designated were Ahmad Derakhshandeh, Bank Sepah’s Chairman and Director, and Bank Sepah International Plc, a subsidiary of Bank Sepah in the UK.

On Saturday, September 30, 2006, President Bush signed into law the Iranian Freedom Support Act. In addition to codifying existing sanctions against Iran, this act added significant new ones, targeting Iran’s efforts at nuclear proliferation, as well as the companies that assist them.

The act requires the President to impose these sanctions on any company or individual who knowingly provides goods, services or technologies to Iran which would aid them in acquiring, or developing, nuclear, chemical or biological weapons.

It is mandatory that the President impose sanctions on violating companies, but he does have the flexibility to choose among six separate sanctions. They are:

1. Withholding Ex-Im Bank financing and credit
2. Denial of export licenses
3. Prohibiting loans in excess of 10 million dollars to the sanctioned party
4. Prohibiting the sanctioned person form acting as a repository of government funds or from serving as a primary dealer of US debt instruments
5. Prohibiting the US government from procuring goods and services from the sanctioned person
6. Imposing any other sanctions under the International Emergency Economic Powers Act

Offending companies must be published in the Federal Register. No company has been listed yet, but it is likely that Russian and Chinese companies who have assisted Iran with nuclear facilities and missile technology will be among the first.

On August 16, the Office of Foreign Assets Control reissued a thoroughly revised version of the Burmese Sanctions Regulations. OFAC says the extensive rewrite was needed in order to implement the Burmese Freedom and Democracy Act of 2003. One of the major provisions of the BFDA was to institute a ban on imports from Burma, a measure which remains in effect through today.

The revamped regulations do provide some important (and rather elementary) definitions, such as “exportation or reexportation of financial services to Burma” and “product of Burma”. They also codify a number of exemptions, including some for US citizens and diplomats in Burma and for certain humanitarian and publishing activities, some of which were previously permitted only under general licenses. It is also worth reminding our readers that OFAC’s sanctions on Burma remain somewhat less comprehensive than those applied to Cuba or Iran. For example, while imports and exports of financial services are generally banned, exports of goods and non-financial services are permitted, though exporters should proceed carefully to avoid transactions involving blocked property and the ban on new investment by US persons.

We continue to be surprised how few export compliance administrators are aware that the Office of Foreign Assets Control (OFAC) now publishes summary civil penalty enforcement data each month even though we first reported on it nearly two years ago.  No, they don’t splash it on their homepage like the insecure attention-seekers at BIS, but it’s still not that hard to find.  You can locate these useful treasure troves of noncompliance on OFAC’s website at www.treas.gov/offices/enforcement/ofac/civpen/penalties/.

In addition to the enormous number of settlements with individuals for travel related transactions in Cuba listed in the March report (a total of 113), we learn that the Bank of New York was penalized to the tune of $4,650 for a funds transfer involving a narcotics kingpin.  But that’s chump change compared to the $31,787.14 penalty OFAC levied on Lufthansa, who was apparently denied even the basic courtesy or rounding to a whole dollar amount.

Whether you read it for the salacious corporate details or just a sense of where OFAC’s enforcement efforts are focused (hint: it rhymes with “scuba”), be sure to read it.  New civil penalties data is usually published within the first few business days of each month.

As we reported earlier, the US Government seems to be inching closer to placing an embargo on Syria. At this time, Syria remains highly controlled under the Export Administration Regulations, with all items in a classification other than EAR99 requiring an export or reexport license. According to press reports, the House International Relations Committee recently approved the Syria Accountability and Lebanese Sovereignty Restoration Act, mostly due to concerns surrounding Syria’s support of terrorists groups, which Syria of course denies.

The bill authorizes the President to impose a ban on all US exports to and US investments in Syria.

Recent terrorist attacks against Israel point towards US imposition of sanctions, but Syria’s support of the recent United States-sponsored United Nations resolution on Iraq may be an effort by Syria to convince Mr. Bush to not impose sanctions, should Congress pass the bill.

Current Washington speculation appears to point towards Congress likely passing the Syria sanctions bill before it takes its Fall break.

In the aftermath of the September 11, 2001 terrorist attack against the United States, President Bush used export and trade controls to punish targeted “terrorists” and reward countries that have cooperated with the new US antiterrorism campaign.

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