The Foreign Service Journal, March 2005

— for the U.S. to say that the citizens, residents and companies of another country may not do so. It may be entirely permissible for the U.S. to declare that its citizens, residents and companies are prohibited from engaging in indirect transactions with a sanctions target in a third country, for example, by buying Cuban cigars in Madrid. But that policy decision does not entitle the U.S. government to decree that Spanish citizens cannot purchase the same Cuban cigar in Madrid. However, that is precisely what happens when the U.S. extends the reach of its controls, as it does with the Cuban sanctions, to cover not only the actions of U.S.-based com- panies but also the actions of foreign companies that are owned or con- trolled by those in the U.S. This, incidentally, illustrates why multilat- eral sanctions are inherently more effective — both politically and legally — than unilateral sanctions. The “Cuban Thistle Crisis” U.S. economic sanctions are also unique in effectively assigning “nationality” to objects and property instead of just targeting countries, people and companies. This is how the U.S. can declare that it is just as illegal for a U.S. citizen to buy a Spanish cigar in Madrid, when it is made with Cuban tobacco, as it is to buy a Cuban-origin cigar — a posi- tion that the Treasury Department’s Office of Foreign Assets Control reiterated last September. By defin- ing “Cuban origin” to broadly include anything that is “made in whole or in part of any article which is the growth, produce or manufac- ture of Cuba,” the U.S. exponential- ly expands the breadth of its sanc- tions. Any person subject to U.S. jurisdiction who “engages in any transaction” involving such foreign merchandise, anywhere, violates the controls just as if buying Cuban goods in Havana. These rules are not confined to cigars. Anything “made or derived in whole or in part” from any Cuban article is potentially within the sweep of the U.S. embargo. For example, at a distillery in Dufftown, in the Speyside region of the Scottish Highlands, William Grant & Sons finishes aging one of its spe- cial single-malt Scotch whiskeys in oak casks that once held Sancti Spiritus rum from Cuba. Interest- ingly, the malt master actually found that the original Cuban barrels weren’t suitable for aging Scotch. So the Cuban rum is first decanted into other casks in Scotland, before being removed once again, so that the whiskey can be placed in the Scottish casks to mature and obtain the desired rum finish. Nevertheless, since its introduction in 2002, Glenfiddich Havana Reserve Single Malt Whiskey, a Scottish prod- uct produced by a British company, has not been marketed in the United States because it is temporarily held in casks that once contained Cuban rum. Although that decision was probably driven as much by canny marketing as by any legal advice con- cerning the U.S. sanctions, the British press heralded the introduc- tion of this new Scotch as “banned in America” and with quips about the “Cuban Thistle Crisis.” Ironically, however, when OFAC issued its latest “Cuban Cigar Update Notice” in September, it showed that what is deemed to be of Cuban origin under the regulations not only warrants close examination, but is subject to change over time as the political will to enforce the let- ter of the controls changes. With its notice, OFAC reinterpreted the existing regulatory language and stated that the embargo controls are deemed to cover any cigars manu- factured in a third country from tobacco grown in Cuba. At the same time, it generously stated that it was refraining from going so far as controlling foreign cigars produced using tobacco that is grown from Cuban seeds. This is the sort of fine distinction that might well make William Grant & Sons glad that their malt master decided not to use the original Cuban rum barrels. The Bottom Line In the absence of a commonly agreed approach among govern- ments, differences in foreign policy can easily lead to the imposition of conflicting, and potentially irrecon- cilable, obligations on companies and commercial interests. A few years ago, for example, Wal-Mart’s Canadian subsidiary pulled pajamas off the shelves of all of its 136 stores when one shopper in Winnipeg noticed that they were labeled as “Made in Cuba.” This triggered an investigation by the Canadian govern- ment into whether Wal-Mart’s sub- sidiary had violated the Canadian “blocking measure,” the Foreign Extraterritorial Measures Act, and the pajamas were soon returned to the shelves. 52 F O R E I G N S E R V I C E J O U R N A L / M A R C H 2 0 0 5 U.S. economic sanctions are also unique in effectively assigning “nationality” to objects and property instead of just targeting countries, people and companies.