U.S. Sentencing Guidelines and Export Control Laws: How to Equate a Credit Card Transaction with a Violation of National Security Controls or Sselling 400 grams of Heroin

AuthorJ. Triplett Mackintosh and Danielle R. Voorhees
PositionPartner and Associate at Holland & Hart, LLP, in Denver, Colorado

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    J. Triplett Mackintosh is a partner at Holland & Hart, LLP, in Denver, Colorado, where he specializes in federal regulation of international business and white collar defense. Danielle Voorhees is an associate at Holland & Hart, LLP, in Denver, Colorado, where she focuses on federal regulation of international business and commercial litigation.

The Department of Justice ("DOJ") and several federal courts have held that criminal violations of the U.S. Treasury Department's Office of Foreign Asset Control ("OFAC") regulations governing embargoes produce a per se base level 26 offense under section 2M5.11 of the U. S. Sentencing Guidelines ("USSG").2 If sustained as law, this position would put a prohibited credit card transaction, travel related expense, or any other violation of the OFAC regulations on the same penalty level as a scheme to provide financing to a terrorist-supporting state. An analysis of the OFAC regulations, their underlying policies, and section 2M5.1 suggests that the DOJ, and the courts that agree with the DOJ, simply have it wrong.3

This Article outlines the law governing transactions with embargoed nations (and their nationals), as well as application of the USSG to violations of those laws.4 The discussion highlights various concerns behind trade embargoes and section 2M5.1. Finally, this Article asserts that the severity of a base offense level of 26, the relevant policy considerations underlying the regulations, and the malum prohibitum nature of export laws, lead to the conclusion that section 2M5.1 cannot be applied, as a matter of course, to all alleged criminal violations of these OFAC regulations.

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I The legal landscape
A U.S. Treasury Prohibitions Against Engaging in Transactions with Certain Foreign Nations and Nationals

The International Emergency Economic Powers Act ("IEEPA") grants the President broad authority to regulate or prohibit "transaction[s] in foreign exchange"5 and "transactions involving . . . any property in which any foreign country or a national thereof has any interest . . . ."6 To trigger this authority, the President has to declare an emergency with respect to the national security, foreign policy, or economy of the United States.

OFAC is charged with issuing regulations implementing presidential executive orders issued under the IEEPA. Pursuant to executive orders and OFAC regulations, the United States currently maintains embargoes on several countries, including Cuba,7 Iran,8 and Syria.9

The OFAC regulations governing these embargoes proscribe various transactions with embargoed nations and their nationals. The sanction regimes vary depending on the country and conduct targeted by the U.S. government. For example, the Cuban sanctions apply to any Cuban national, located anywhere in the world. The Iranian sanctions are targeted at the Iranian government, exempting the Iranian diaspora from the controls. This means that Iranian nationals owning a company in Iraq and working in Iraq would have no problem contracting with U.S. companies in Iraq. U.S. companies can and do deal with Iranians outside of Iran. Cuban nationals, however, face a different set of rules.

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The OFAC prohibitions are as broad as they are varied. They are aimed at reaching all forms of commerce and apply extraterritorially. For example, the Cuban Assets Control Regulations ("Cuban Regulations") prohibit, among other things, payments to Cuba or a Cuban national and "all transactions in foreign exchange by any person within the United States" when Cuba or a Cuban national is involved.10

A recent example of the far-reaching Cuban embargo was recently offered when, in February 2006, the Mexico City Hotel Sheraton Maria Isabel evicted sixteen Cuban oil executives for meeting with American energy executives.11 The expulsion came after OFAC contacted Starwood Hotels and Resorts Worldwide, the parent company of Sheraton Hotels, and ordered that the Cuban nationals be evicted.12 "OFAC justified their action by stating 'the hotel in Mexico City is a U.S. subsidiary, and therefore prohibited from providing a service to Cuba or Cuban nationals.'"13

The Iranian Transaction Regulations ("Iranian Regulations") also have far-reaching implications. The Iranian Regulations prohibit "the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any goods, technology, or services to Iran or the Government of Iran."14 The Iranian Regulations also prohibit any U.S. person, wherever located, from participating in any transaction that involves the export of an item to Iran, regardless of the national origin of that item.15 To illustrate the effect of this prohibition, a U.S. executive cannot legally assist in the export of Korean power generators to Iran, even if the U.S. person is working in Korea for a Korean company and the transaction is legal under Korean law.

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In addition to country-specific embargoes, OFAC also issues the Terrorism List Government Sanctions Regulations ("Terrorism Regulations").16 Pursuant to the Export Administration Act,17 the Secretary of State is authorized to designate a nation as a country supporting international terrorism if the country's government "has repeatedly provided support for acts of international terrorism" and exporting "goods or technology could make a significant contribution to the military potential of such country . . . ."18 The Terrorism Regulations currently list Cuba, Iran, Iraq, Libya, North Korea, Sudan, and Syria as countries supporting international terrorism, and prohibit U.S. persons from "engag[ing] in a financial transaction with the government[s] of [those] countr[ies]."19

B The USSG and Export Control Violations

Section 2M5.1 provides two base offense levels for financial transactions with and evasions of export controls with countries supporting international terrorism. Section 2M5.1 reads in full as follows:

(a) Base Offense Level (apply the greater):

(1) 26, if (A) national security controls or controls related to the proliferation of nuclear, biological, or chemical weapons or materials were evaded; or (B) the offense involved a financial transaction with a country supporting international terrorism; or

(2) 14, otherwise.20

There are forty-three base offense levels in the USSG.21 A base offense level of 26 provides for a minimum prison sentence of sixty-three to seventy-eight months.22

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1. Section 2M5 1's Application to National Security Controls

In 1997, the First Circuit analyzed the "national security controls" language of section 2M5.1 in United States v. McKeeve.23 McKeeve was convicted of knowingly violating IEEPA and relevant regulations by attempting to arrange for the export of computer equipment to the Libyan government.24 McKeeve argued that he should have received the base offense level of 14, unless the government demonstrated that "the particular goods, when or if sold, constitute an actual threat to national security."25

The First Circuit disagreed. The court noted that the President had concluded that Libya was an "unusual and extraordinary threat to the national security and foreign policy of the United States"26 and that the Libyan embargo was ordered in response to this threat.27 The court then determined, "the [Libyan] embargo is intended as a national security control. That ends the matter."28 In the court's view, therefore, section 2M5.1 "applies to any offense that involves a shipment (or proposed shipment) that offends the embargo, whether or not the goods shipped actually are intended for some innocent use."29

Similarly, in United States v. Shetterly,30 the Seventh Circuit upheld the application of section 2M5.1 to the defendant's unlicensed export of a microwave amplifier to West Germany.31 While there was no embargo against West Germany, and, therefore, no executive order citing national security concerns, the court noted, "[o]ne of the bases of the Export Administration Act is to protect national security."32

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The courts have shown a willingness to look for broad language in executive orders and the Export Administration Act to find even a suggestion that a violation of an export regulation implicates "national security controls," therefore triggering applicability of section 2M5.1. The courts view section 2M5.1's applicability expansively regardless of whether national security was actually implicated.

The DOJ has taken a similar approach. At a recent sentencing hearing in the case of a defendant convicted of, among other things, violating various export regulations by exporting laptops to Libya and Syria, the government stated:

The Libyan shipments themselves trigger the national security guidelines. . . . [I]s there anything in this record that triggers the national security guidelines? The answer is yes, the fact that they made shipments to Libya.

. . ..

We are talking about the Sentencing Guidelines, and every case that has addressed this issue has said the triggering mechanism is not what the product was and not why it was controlled, but what the sanctions were and why were the sanctions imposed and all of these sanctions were imposed for national...

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