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U.S. Treasury and Commerce Increase Cuba Sanctions Rules

June 4, 2019 by Bruce Zagaris Leave a Comment

Today, the Department of the Treasury’s Office of Foreign Assets Control (OFAC)issued amendments to the Cuban Assets Control Regulations (CACR) to further implement the President’s foreign policy on Cuba. These amendments complement changes to the Department of Commerce’s Bureau of Industry and Security (BIS) Export Administration Regulations (EAR), which Commerce is also unveiling today. These regulatory changes were announced on April 17, 2019 and include restrictions on non-family travel to Cuba.

These actions continue to strengthen sanctions against Cuba in the implementation of the National Security Presidential Memorandum (NSPM) signed by the President on June 16, 2017 titled “Strengthening the Policy of the United States Toward Cuba.” These policies continue to work to channel economic activities away from the Cuban military, intelligence, and security services. The Treasury changes will take effect on June 5, 2019 when the regulations are published in the Federal Register.

The Treasury regulations, which can be found at 31 Code of Federal Regulations (CFR) part 515, are here.

The State Department also issued a press release on the new sanctions.

The Commerce regulations, which can be found at 15 CFR parts 730-774, are here.

Major elements of the changes in the revised regulations include:

ENDING GROUP PEOPLE-TO-PEOPLE TRAVEL

OFAC is amending the regulations to remove the authorization for group people-to-people educational travel hat was conducted under the auspices of an organization that is subject to U.S. jurisdiction and that sponsors such exchanges to promote people-to-people.

There is a “grandfathering” provision, which provides that certain group people-to-people educational travel that previously was authorized will continue to be authorized where the traveler had already completed at least one travel-related transaction (such as purchasing a flight or reserving accommodation) prior to June 5, 2019.

Travel-related transactions continue to be permitted by general licenses for certain categories of travel and certain authorized export transactions. For more on authorized travel to Cuba, please click here.

A general license permits travel-related transactions for certain travel related to the following activities, subject to the criteria and conditions in each general license: family visits; official business of the U.S. government, foreign governments, and certain intergovernmental organizations; journalistic activity; professional research and professional meetings; educational activities; religious activities; public performances, clinics, workshops, athletic and other competitions, and exhibitions; support for the Cuban people; humanitarian projects; activities of private foundations or research or educational institutes; exportation, importation, or transmission of information or information materials; and certain authorized export transactions.

In accordance with the NSPM, OFAC is adding a new prohibition to restrict certain direct financial transactions with entities and subentities identified on the State Department’s Cuba regulations.

ENDING EXPORTS OF PASSENGER VESSELS, RECREATIONAL VESSELS, AND PRIVATE AIRCRAFT

BIS, in coordination with OFAC, is amending the EAR to make passenger and recreational vessels and private and corporate aircraft ineligible for a license exception and to establish a general policy of denial for license applications involving those vessels and aircraft.

ANALYSIS

The new sanctions will eliminate most of the travel authorized by the Obama Administration. Since the Obama administration had authorized 12 general categories of travel, a new travel industry has arisen in the U.S. for persons wanting to travel to Cuba, including direct flights from various U.S. cities by various airlines, passenger ferries, and a number of boutique travel groups mainly offering trips about Cuban culture. Although it purports to target the Cuban government, it will hurt the middle-class Cubans who sponsored many of the people-to-people exchanges through hosting U.S. travelers in bed- and -breakfasts from converted homes and participated in U.S. tourism.

The sanctions will further isolate the U.S. government in the Western Hemisphere, since opposition to U.S. unilateral sanctions against Cuba have been the most important policy matter in the region.

It will increase opposition in much of the world, especially Western Europe to U.S. unilateral sanctions.

Coming only a few days after the threatened tariffs on Mexico for immigration reasons, the raised sanctions further undermine trade and investment in the Western Hemisphere. Since the sanctions take effect June 5, essentially immediately although with a grandfather for people who have already put into place certain travel by air, the new regulations will disrupt and cause losses for airlines, cruise lines, and travel industry persons who have invested substantially in Cuba travel. The lack of a transition for the sanctions is a blow to this part of the U.S. economy. Yesterday Goldman Sachs downgraded their Q2 2019 economic growth forecasts for the U.S. due to risks stemming from trade conflicts with China and Mexico. JP Morgan said the probability of a U.S. recession in the second half of this year had risen to 40% from 25% a month ago.

The next issue of the IELR will discuss the developments further.

The US Takes Action against North Korea over Alleged International Sanctions Violations, Seizing a Shipping Vessel

May 16, 2019 by Evan Schleicher Leave a Comment

On May 9^th, the United States seized a North Korean shipping vessel, the Wise Honest. Supporting this action, the FBI’s New York Field Office and the Attorney General’s office filed a civil forfeiture complaint against the ship, citing violations of international sanctions and international law. According to a press release by the US Department of Justice, from approximately November 2016 through April 2018, the Wise Honest was used by Korea Songi Shipping Company, an affiliate of Korea Songi General Trading Corporation (a.k.a. “Songi Trading Company”), to export coal from North Korea to foreign purchasers and to import machinery to North Korea in clear violation of US and UN sanctions regimes. North Korea responded to these claims on May 14th with a statement calling the seizure of Wise Honest a “flagrant act of robbery” that violated the informal agreement reached by President Trump and Kim Jong Un last year.

There are a number of complicating political, economic, and social factors in this case, but, for the purposes of clarity, this post will look exclusively at the legal aspects of the ship seizure. Specifically, it will try to establish whether the US has a legitimate legal basis to seize North Korean property or whether this is, in fact, a “flagrant act of robbery”.

The first potential complicating factor in determining the legality of US actions is the fact that the ship was interdicted by Indonesian authorities and then transferred to American Samoa by US authorities. Given the cooperation of the Indonesian government in handing the ship over, this is actually not a terribly complicating factor. The only sovereignty issue arises from the seizure of a North Korean vessel without Democratic People’s Republic of Korea (DPRK) permission, but this point is moot if there is a proven violation of international sanctions. This is so because 28 U.S. Code § 1355(b)(2) allows district courts within the United States the authority to bring an action or proceeding for forfeiture of vessels or cargo held in foreign countries if those vessels or cargo enter a “port of entry closed by the President in pursuance of law”. Because there is clear evidence that this ship helped to violate the international sanctions regime by exporting coal to foreign ports of entry “closed by the President”, this section of US code applies, giving the US government the authority to interdict Wise Honest, despite DPRK protestations.

Next, the tactics used by the US government are not unique to international sanctions enforcement and are commonly used in connection with unilateral sanctions regimes. In fact, the use of civil asset forfeiture complaints to enforce sanctions regimes has been common in US policy, though this situation represents the first time that a physical asset has been seized from the DPRK. However, despite the commonality of this approach in such cases, application of civil asset forfeiture complaints to sanctions violations remains extremely complex, given that US law on civil forfeiture specifies that complaints filed in the United States must be based on some underlying crime that violates specifically enumerated US laws. The question becomes: have US laws been violated?

To answer this question it must first be noted that the US has imposed unilateral sanctions which are often stricter than those imposed by the UN Security Council, making it very likely that DPRK actions violated US-specific laws and codes, in addition to those imposed by the international system. Three American banks were complicit in transmitting payments around the world for maintenance, equipment, and improvement of the Wise Honest, and thus assisted in the violation of sanctions. According to the Justice Department, such transfers constitute a specific provision of services by U.S. banks and longstanding U.S. law prohibits banks from providing such services to North Korean parties. The specific sections of US code that restrict services to North Korean parties can be found in the North Korean Sanctions and Policy Enhancement Act of 2016 and in the Countering America’s Adversaries Through Sanctions Act of 2017. Given that there is a direct connection between these US institutions, the Wise Honest, and the violation of sanctions, there is certainly standing both to seize the ship and to hold these financial institutions legally accountable, although they were “unwitting” actors.

In conclusion, despite the obviously political nature of the US government’s move to interdict the Wise Honest, it is important to note that there is a strong legal basis for the action. However, there is a looming danger that the overlap between legal and political realities could easily lead to the misuse of legal systems in pursuit of broader political aims. Specifically, there are already murmurings from within the US government that have indicated a desire to seize many other ships and assets, which could lead to increasingly dubious legal arguments being used to attack DPRK assets. In the coming months, as this story develops, it will be important for those interested in international legal issues to keep an eye on this situation to ensure that legal standards are upheld and that the legal system is not hijacked in the name of a political agenda.

U.S. Announces New Sanctions against Cuba, Venezuela and Nicaragua

April 19, 2019 by Bruce Zagaris Leave a Comment

On April 17, 2019, the United States government announced new sanctions against Cuba, Venezuela, and Nicaragua.

In a Miami speech, National Security Advisor John Bolton announced the Trump administration is reimposing limits on the amount of money Cuban Americans can send to relatives in Cuba and ordering new restrictions on U.S. citizen, nonfamily travel to Cuba. In a Miami speech last November, Bolton referred to the three countries as the “Troika of Tyranny.” in his new speech, Bolton called them “the three stooges of socialism.”

Also on April 17, Secretary of State Mike Pompeo said the administration will remove restrictions that have prevented lawsuits from U.S. citizens seeking compensation for property expropriated by the Cuban governments when it came to power in 1958.

Venezuela

OFAC designated Banco Central de Venezuela, or the Central Bank of Venezuela, pursuant to E.O. 13850, as amended, for operating in the financial sector of the Venezuelan economy. Additionally, OFAC designated Josefa Ruzza Terán (Ruzza), pursuant to E.O. 13692, as amended, who is determined to be a current or former official of the Government of Venezuela. Multiple OFAC-designated individuals currently hold leadership positions with the Banco Central de Venezuela, including Simon Alejandro Zerpa Delgado and William Antonio Contreras, both of whom are Directors of the bank and were designated by OFAC pursuant to E.O. 13692 in 2017 and 2018, respectively.

Ruzza Terán is a Director of Banco Central de Venezuela. Additionally, Ruzza was appointed in July 2018 as a Director on the Board of Directors for the Venezuelan Department of Foreign Commerce, also known as CORPOVEX In May 2018, he was appointed the Vice President of Finance of Petroleos de Venezuela, S.A., which was designated on January 28, 2019, pursuant to E.O. 13850.

Nicaragua

On April 17, OFAC also designated Laureano Ortega Murillo, the son of Nicaraguan President Daniel Ortega and Vice President Rosario Murillo, as well as Nicaraguan bank Banco Corporativo SA (BanCorp). Taken pursuant to Executive Order (E.O.) 13851, the sanctions target corrupt financial operations and Ortega regime support networks. OFAC explained the individual and entity designated support a regime that, since April 2018, has cracked down on political opposition, leading to the death of 325 persons, the injury of more than 2,000, the imprisonment of hundreds of political and civil society actors, and over 42,000 Nicaraguans seeking refuge in Costa Rica.

Cuba

Pompeo explained the Trump administration will end waivers, activated by five presidents over the past 20 years, of Title III of Helms-Burton, enacted in 1996, permitting compensation lawsuits by U.S. citizens against any entity or person “trafficking” in confiscated property in Cuba. The law includes foreign companies and persons.

On April 17, 2019, a joint statement by Federica Mogherini, Minister of Foreign Affairs of Canada Chrystia Freeland and EU Commissioner for Trade Cecilia Malmström said “the EU and Canada consider the extraterritorial application of unilateral Cuba-related measures contrary to international law. We are determined to work together to protect the interests of our companies in the context of the WTO and by banning the enforcement or recognition of foreign judgements based on Title III, both in the EU and Canada.” They said their laws allow counter-claims, so the decision will lead to an unnecessary spiral of legal claims.

In a briefing the Assistant Secretary for Western Hemisphere Affairs Kimberly Breier characterized the activation of the Title III suits and reimposition of sanctions as supporting the Cuban people and denying resources to the regime, especially to the security services in Cuba. Yet, especially the travel restrictions will undermine the small amount of economic activity due to U.S. travel, much of which benefits Cubans who have operate their own bed and breakfast places, restaurants, and other Cubans that participate in the tourism sector.

The potentially challenging aspects of the new sanctions will be how to keep the support for U.S. action in Venezuela while reimposing sanctions on Cuba and allow suits under Title III of Helms-Burton, which will hurt Canada and the EU.

The next issue of the IELR will discuss in more detail these developments.

U.S. Treasury and Commerce Increase Cuba Sanctions Rules

The US Takes Action against North Korea over Alleged International Sanctions Violations, Seizing a Shipping Vessel

U.S. Announces New Sanctions against Cuba, Venezuela and Nicaragua

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