Treasury Dept

In late March, 2007, the Department of Treasury released the most current list of countries which require, or may require, cooperation with an international boycott within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986.

The list includes:

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

Republic of Iraq is not on this list but its status is currently under review by the Department of Treasury and it may be added in the future.

Source:

• Federal Register - April 3, 2007 (Volume 72, Number 63, Page 15934)

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

The Office of Foreign Assets Control (OFAC) unleashed the next salvo in the US Government’s barrage of sanctions directed against Syria when it published the entirely new Syrian Sanctions Regulations (SSR) in the Federal Register on April 5. The new regulations come nearly a year after President Bush issued his Executive Order 13338 (pdf) implementing sanctions against the Syrian regime under the Syria Accountability and Lebanese Sovereignty Restoration Act (SAA), the International Emergency Economic Powers Act (pdf) (IEEPA), and the National Emergencies Act (NEA). The new SSR draw their legal authority specifically from IEEPA, not from SAA (or, as some would more festively prefer to abbreviate it, SALSA.)

OFAC’s new regulations are in addition to last year’s rule from the Bureau of Industry and Security (BIS), which banned nearly all exports and reexports to Syria and revoked existing licenses for the country. The only exceptions to the export prohibition are for food and medicine, as well as shipments eligible under certain provisions of License Exceptions AVS, BAG, GOV, TMP, and TSU.

The new Syrian regs have more in common with those applicable to Slobodan Milosevic’s cronies, narcotics traffickers, and terrorists than the more well known Cuban or Iranian sanctions. They are intended to target specific Syrian individuals, firms or other entities that support terrorists, Syrian meddling in Iraq or Lebanon, or proliferation activity. In theory, these folks would have their property blocked. We say in theory because no one has actually been designated by OFAC under the SSR. Until Treasury takes this step, the new regulations have little practical effect.

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.

Within a matter of weeks the Bush Administration made significant changes to the US export/reexport controls on Libya and Syria. The United States relaxed its controls on Libya and tightened its controls on Syria. The new controls on these countries are relatively straight-forward, despite the fact that these changes are based on a relatively large number of official document (two executive orders from the White House, a new law, several Treasury Department general licenses, and at least two Federal Register notices).

Here are the new licensing requirements and restrictions in a nutshell.

LIBYA

• Items classified as EAR99 under the Export Administration Regulations (EAR) are eligible for export/reexport as No License Required (NLR) to Libya. Items under all specific ECCNs continue to require a license.
• Libya is eligible to receive items under license exceptions TMP, GOV, GFT, TSU, RPL and AVS in limited circumstances.
• There is a somewhat favorable license review policy for exports of low-level computers, civil aircraft and parts, and certain other items t o non-military/police end-users.
• Jurisdiction for exports to Libya is transferred from the Office of Foreign Assets Control to the Bureau of Industry and Security (BIS). (BIS already had jurisdiction over reexports to Libya.
• OFAC dropped its rules that prohibit US persons from being involved in transactions involving Libya. US persons may now enter into new transactions with Libya without OFAC restrictions. OFAC continues to prohibit:
  • US persons involvement in Libyan property and property blocked by US person prior to April 23, 2004; and
  • Certain travel-related activities including carriers of the United States and Libya flying to Libya and the United States, respectively.
• The 10% de minimis level for foreign-made items with US content remains unchanged.
• If you have an OFAC license for Libya, you may continue to use it through its expiration date (May 1, 2005 if the license has no expiration date).

SYRIA

• Everything except food and medicine require a license for Syria-that is, items classified as EAR99 now require a license for export or reexport to Syria. All items that formerly required a license for Syria still require a license.
• BIS revoked all licenses that BIS issued for Syria prior to May 14, 2004.
• The new restrictions (above) do not apply to any items en route to Syria on May 14, 2004 as long as the items are exported or reexported by May 28, 2004.
• You may not use license exceptions for Syria except as follows:
  • TMP only for news media
  • GOV only for US Government
  • TUS only for operation tech data/software, sales tech data, and software updates
  • BAG only in limited cases for personally owned baggage
  • AVS only for temporary sojourn of aircraft reexported to Syria
• BIS policy is to deny all license applications for Syria. Exceptions might be made for deemed exports/reexports, items to support US Government or United Nations activities; medicines and medical devices on the Commerce Control List; aircraft parts to ensure safety of civil aviation; telecomm equipment and associated computers, software and tech data.
• The 10% de minimis level for foreign-made items with US content remains unchanged.
• OFAC did not impose any restrictions on US persons dealing with Syria.

When Did These Changes Happen?

The primary Libya change was announced in a BIS Federal Register notice on April 29 and a general license OFAC announced on its web site on April 23. The Syria change was announced in a May 14, 2004 Federal Register notice.

Why Did the United States Change Its Policies?

Several factors led the United States to significantly relax its controls on Libya: 1) Libya exposed the widespread illicit international nuclear weapons proliferation network and thereby did as much to thwart the future spread of nuclear weapons as any export control regime could ever hope to accomplish; 2) Libya promised that it has ended its weapons of mass destruction program; and 3) Libya accepted a certain responsibility for the bombing of the commercial aircraft over Lockerbie, Scotland and agreed to pay $10 million to the families of the victims.

(Interestingly, a couple of weeks after the United States ended its trade embargo on Libya, Libyan President Gadhafi announced that Libya will halt its military trade with North Korea, Syria and Iran. The White House said that Libya’s actions “have made our country and the world safer.” We have calculated that if the current rate of increasing cooperation and trade policy coordination continues at this pace, by June 17, 2006 Libya will share the same status as Canada under US trade controls!)

As for Syria, the Bush Administration was pressured to impose more trade restrictions on Syria when Congress passed the Syria Accountability and Lebanese Sovereignty Act of 2003. Congress passed the law to punish Syria for its support of international terrorism.