TRADE PROHIBITIONS WITH U.S. EMBARGOED COUNTRIES

There have recently been a number of situations reported to the Club where the Member has encountered difficulties due to trade embargoes. The last “Claims Review“ reported a claim where a commercial manager instructed a newly built containership to sail from China to Taiwan. The ship was arrested because Taiwanese law prohibits ships sailing directly from China to Taiwan. More recently the use of the word “Cuba“ in a bank transaction from an European company to an Australian company, through a New York bank account, caused the monies to be seized. The purpose of this article is to alert Members to the dangers that exist.

The Congress of the United States, through the Department of Treasury, Office of Foreign Assets Control (hereinafter “OFAC“), prohibits U.S. citizens and corporations (hereinafter “entities“) from transferring goods and funds, for virtually any reason, to the following countries:

• Afghanistan
• Angola
• Burma/Myanmar
• Cuba
• Iran
• Iraq
• Libya
• Montenegro
• North Korea
• Pakistan
• Serbia
• Sudan

While there are exceptions to the embargoes which are specific to certain countries, these are often restricted to humanitarian aid, medical supplies, and the like.

Penalties for violating the embargoes may include confiscation of the goods or “freezing“ of the assets in their entirety. U.S. banks (whether located in the U.S. or elsewhere) receiving funds from any source, intended for transfer to embargoed countries, are prohibited from returning such funds to the remitter.

On the face of it, the prohibition and methods of compliance thereto seem straightforward. However, the prohibition is far-reaching, and can be unwittingly violated by even well meaning and prudent entities. While it is clear the U.S. entities may not directly transfer funds and goods to the embargoed countries, the OFAC enforces the prohibition in the following less obvious ways:

1. Branches of U.S. banks located outside the U.S. are prohibited from releasing funds to embargoed countries, even if those funds were received by the U.S. bank branch from non-U.S. nationals.

Example: A French corporation in Paris transferring funds to Angola (an embargoed country) through a branch of Citibank located in Paris, is subject to forfeiture of the funds because Citibank is a U.S. corporation.

2. Funds may not be transferred to an embargoed country through the foreign office of a U.S. ship broker.

3. A U.S. entity may not transfer funds to its own branch offices located in embargoed countries.

Example: Acme Ship Agency (a U.S. corporation), with independent offices worldwide, ma not transfer funds from any of their offices to their branch office in Pakistan (an embargoed country).

4. U.S. entities may not transfer funds to nationals of embargoed countries, even if those nationals reside in a non-embargoed country.

Example: A U.S. citizen, whether or not residing in the U.S., may not send a birthday gift to a Libyan citizen residing in London, because Libya is an embargoed country.

5. The U.S. offices of non-U.S. entities are prohibited from transferring funds or goods to embargoed countries.

Example: A German brewer whose bottler in California ships beer to North Korea (an embargoed country) is subject to forfeiture of the beer.

OFAC has identified over 5,000 organisations that are considered to be so closely related to embargoed countries that transferring funds and goods to these organisations is considered tantamount to trading with the embargoed countries themselves. These “Specially Designated Nationals“ are compiled in a list that may be obtained from the OFAC Compliance Division by telephoning (202) 622-2490 or writing to:

OFAC

U.S. Department of Treasury

1500 Pennsylvania Ave. N.W.

Washington, D.C. 20220

U.S.A.

ITIC Members, whether or not incorporated in the U.S. who operate branch offices in U.S. embargoed countries, should be particularly mindful of the nuances of these prohibitions.

Our thanks go to David Grammas for providing the above information.