T

funds that is disclosed in the course of a census of blocked accounts. Since a census may be conducted considerably more than two years after any particular transaction has taken place, it is advisable to keep records of transactions involving blocked accounts considerably longer than the two-year minimum. This is particularly important in the case of transactions conducted under a general license. In such cases, the Treasury Department will have no record of the transaction," and accordingly, the burden of proving that the transaction qualified under a general license is placed on the holder of the blocked account. Any transaction entered into in violation of those Regulations promulgated under the authority of the Trading With the Enemy Act 22 is void and unenforceable in the United States.23 But such transactions may be validated under certain circumstances, even after they are completed, if an appropriate license or authorization is issued.24

Section 5(b) of both the Trading With the Enemy Act, as amended, and the United Nations Participation Act provide that persons who knowingly violate the provisions of the Acts or Regulations promulgated thereunder are subject to a fine of up to $10,000. Natural persons may also be imprisoned for up to 10 years.25

I-7.2 FOREIGN ASSETS CONTROL REGULATIONS

26

28

The Foreign Assets Control Regulations were issued on December 17, 1950, as a result of the emergency declared by the President on December 16, 1950, following the entrance of armed forces of the People's Republic of China into the Korean War.27 They were amended in 1964 to apply to North Vietnam and were further amended in 1975 to include Cambodia and South Vietnam.30 These Regulations are directed at certain transactions involving the People's Republic of China, North Korea, Vietnam, and Cambodia, the nationals of those countries or the property belonging to such countries or their nationals. Specifically, the Regulations act to block all assets within U.S. jurisdiction in which these countries of their nationals have any interest, to prohibit the purchase or importation of their goods by persons under U.S. jurisdiction,32 to prevent the export of foreign origin goods or component parts from third countries to any of the listed countries, and to prohibit the use of U.S. financial and commercial facilities in transactions with such countries or their nationals.34

A number of important general licenses have been issued that have limited the impact of the Foreign Assets Control Regulations. For example, most transactions with the People's Republic of China are authorized by general licenses that

21 This is so because persons engaging in transactions authorized under a general license need not inform the Treasury Department of any such actual transaction. See Part I, 87.1(c) supra.

22 50 U.S.C. App. § 5 (1970).

23 31 C.F.R. §§ 500.203 (a)-(b), (c); 515.203 (a)–(b), (c) (1975). This provision in the Regulations enables the Treasury Department to require any participant in the illegal transfer of funds from blocked accounts, with or without knowledge of the illegality of the transfer, to reimburse the blocked account for the full amount of the transfer. See Orvis v. Brownell, 345 U.S. 183 (1953); Propper v. Clark, 337 U.S. 442 (1949); Schumacker v. Brownell, 210 F. 2d 14 (3d Cir. 1954). See also United States v. Alcatex, Inc., 328 F. Supp. 129 (S.D.N.Y. 1971).

24 31 C.F.R. § 500.203 (1975).

25 50 U.S.C. App. 85(b) (1970); 22 U.S.C. 287c (b) (1970). See United States v. Quong, 303 F. 2d 499 (6th Cir. 1962); Woo Nai Chan v. United States, 271 F. 2d 708 (9th Cir. 1960); United States v. China Daily News, 224 F. 2d 670 (2d Cir.), cert. denied, 350 U.S. 885 (1955); United States v. Broverman, 180 F. Supp. 631 (S.D.N.Y. 1959); United States v. Wagman, 168 F. Supp. 248 (S.D.N.Y. 1958); United States v. Weishaupt, 167 F. Supp. 211 (E.D.N.Y. 1958).

28 31 C.F.R. pt. 500 (1975). For recent cases rejecting Constitutional challenges to the Foreign Assets Control Regulations, see Veterans & Reservists for Peace in Vietnam v. Regional Comm'r of Customs, 159 F. 2d 676 (3d Cir.), cert. denied, 109 U.S. 933 (1972); Cheng Yih-Chun v. Federal Reserve Bank, 412 F. 2d 160 (2d Cir. 1971): Teague v. Regional Comm'r of Customs, 404 F. 2d 441 (2d Cir. 1968), cert. denied, 394 U.S. 977 (1969). For a detailed discussion of the Foreign Assets Control Regulations as they relate, in particular, to the People's Republic of China, see Bayar, The Blocked Chinese Assets: Present Status and Future Disposition, 15 Va. J. Int'l. L. 959 (1975).

27 Exec. Proclamation No. 2914, Dec. 16, 1950, 3 C.F.R. 99 (Cum. Supp. 1949-1953), 50 U.S.C. App. notes preceding § 1 (1970).

28 29 Fed. Reg. 6025 (May 5, 1964), amending 31 C.F.R. § 500.201 Schedule (1975).

29 40 Fed. Reg. 17262 (April 17, 1975), amending 31 C.F.R. § 500.201 Schedule (1975).

30 40 Fed. Reg. 19202 (May 2, 1975), amending 31 C.F.R. § 500.201 Schedule (1975).
31 31 C.F.R. § 500.201 (1975).

32 Id. §§ 500.201, .204 (1975).

33 Id. $ 500.201, .533, .544 (1975). The Regulations thus primarily affect those export transactions outside the jurisdiction of the Dept. of Commerce. See supra note 12, and accompanying text.

34 31 C.F.R. § 500.201 (1975).

36

were issued in 1971.35 However, Chinese property that was frozen as of the effective date of these general licenses continues to be frozen. And strategic exports from foreign affiliates of U.S. firms to the Peoples' Republic of China remain under licensing control.37

As a further example of the general licenses incorporated in the Foreign Assets Control Regulations, a variety of transactions involving blocked assets and accounts are permitted under general license. A banking institution, for example, may purchase and sell securities on behalf of a designated foreign national with the funds deposited in a blocked account.38 The securities purchased or the proceeds of sale, however, must be redeposited in the blocked account. And most payments and transfers of credit to blocked accounts are authorized provided the payment or transfer does not act to create or transfer an interest in the account to any other country or person.30

Lastly, most exports and reexports of U.S. origin goods on component parts are permitted under general license, when the particular transaction has been licensed or authorized by the Department of Commerce.40 Failure in such transactions to obtain or quality under a license issued by the Commerce Department is a violation of the Trading With the Enemy Act as well as the Export Administration Act.

I-7.3 CUBAN ASSETS CONTROL REGULATIONS

The Cuban Assets Control Regulations 41 were issued on July 8, 1963, incorporating and expanding upon a series of economic sanctions imposed against Cuba, beginning in 1960.42 These Regulations are substantially similar in scope and application to the Foreign Assets Control Regulations as now applied to North Korea, Vietnam, and Cambodia.43

The Cuban Assets Control Regulations are unique in at least one respect, however. Between 1963 and 1975, the Regulations contained a general license" authorizing U.S.-controlled firms in third countries to trade with Cuba. But U.S. citizens who were officers or directors of such firms were prohibited from any paritcipation or involvement in such transactions.45 This prohibition, coupled with the U.S. policy of dissuading foreign affiliate trade with Cuba, had the practical effect of precluding most, if not all, trade with Cuba by U.S.-controlled firms operating in foreign countries.46

In October 1975, the general license authorizing foreign affiliate trade with Cuba was revoked, as was the provision prohibiting the involvement of U.S. officers and directors in such trade. In their place, a new and more liberal section was added, which provides that specific licenses are to be issued for certain categories of transaction between U.S.-owned or controlled firms in third countries and Cuba when such transactions are favored or required by local law or policy in the third country." In order to obtain a specific license to export goods from

500.546(b) (2) (1975).
500.513 (1975).

39 Id. 500.508 (1975).

40 Id. §§ 500.533, .544 (1975).

41 Id. pt. 515 (1975). For recent cases upholding various applications of the Cuban Assets Control Regulations, see Nielson v. Secretary of the Treas., 124 F. 2d 833 (D.C. Cir. 1970); Sardino v. Federal Reserve Bank, 364 F. 2d 106 (2d Cir.), cert. denied, 385 U.S. 898 (1965): American Documentary Films, Inc. v. Secretary of the Treas., 311 F. Supp. 703 (S.D.N.Y. 1972).

42 Economic sanctions were first imposed against Cuba in 1960 when the President, acting under the authority of the Sugar Act of 1918, as amended, 7 U.S.C. § 1158 (a)-(b) (1970), directed a reduction in the Cuba sugar quota, 25 Fed. Reg. 6114 (July 7, 1960); 43 Dep't State Bull. 140 (1960). In October 1960, the United States denied export licenses for most industrial exports to Cuba. 43 Dep't State Bull. 715 (1960), and two months later the Cuban sugar quota was eliminated. 11 Dep't State Bull. 18 (1961). A complete embargo on imports from Cuba was imposed by the Treasury Department in February 1962. 27 Fed. Reg. 1116 (February 7, 1962).

43 See Part I, § 7.2 supra.

44 31 C.F.R. § 515.544 (1975).

45 Id. § 515.544 (e) (1975).

46 The Treasury Department regulation prohibiting the U.S. officers and directors of U.S. affiliates from participating in transactions with Cuba was the source of some irritation to foreign governments whose law or policy favored trade with Cuba. By observing the Treasury regulation, U.S. officers and directors ran the risk of violating such local law or policy.

47 40 Fed. Reg. 17108 (October 8, 1975), revok'g 31 C.F.R. § 515.511 and adding 31 C.F.R. § 515.559 (1975).

a third country to Cuba, the goods must be produced in the third country; they must be nonstrategic in nature; and no U.S. origin technical data, other than service and operation data, may be transferred. Furthermore, the export transactions may not involve any U.S. dollar accounts, or financing provided by a U.S.-owned or controlled firm, except for normal short-term financing. If the goods to be exported to Cuba contain U.S. origin parts or components, the transaction must first be licensed by the Department of Commerce.

The new section also permits U.S.-owned or controlled firms in third countries to import Cuban products. The sole requirement to qualify for a specific license in such cases is that the U.S. firm be located in the importing country.48

I-7.4 TRANSACTION CONTROL REGULATIONS

These Regulations 49 were issued on June 29, 1953, to supplement the export controls imposed by the Department of Commerce over direct exports from the United States to certain countries.

The Transaction Control Regulations prohibit a person within the United States 50 from participating in any transactions involving the shipment of certain strategic goods 51 located abroad to any of the following countries: Albania, Bulgaria, People's Republic of China, Cambodia, Czechoslovakia, German Democratic Republic and East Berlin, Hungary, North Korea, Outer Mongolia, Poland and Danzig, Romania, the Soviet Union, North Vietnam, and South Vietnam.52 A general license, however, has been issued that authorizes such transactions by U.S. citizens and firms where the shipment is from, and licensed by, a COCOM country, to any of the listed countries except Cambodia, North Korea, North Vietnam, or South Vietnam. Any shipment that contains component parts of U.S. origin must also be licensed by the Commerce Department.54

I-7.5 FOREIGN FUNDS CONTROL REGULATIONS

The Foreign Funds Control Regulations 5 have little current importance in East-West trade. They continue World War II blocking controls with respect to the assets in the United States of certain countries, or nationals of those countries, that were wholly blocked during the war."

The Foreign Funds Control Regulations now apply to World War II blocked assets of Czechoslovakia, Estonia, the German Democratic Republic, Latvia, Lithuania, and their nationals. The current purpose of these Regulations is to keep intact blocked assets until such time as claims settlement agreements are reached, settling private U.S. claims for uncompensated expropriations.

I-7.6 RHODESIAN SANCTIONS REGULATIONS

The Rhodesian Sanctions Regulations 58 were issued on July 29, 1968, in accordance with United National Security Council Resolution No. 232 of 1966, and No. 253 of 1968, which called upon member states to impose economic sanctions against Rhodesia. The Regulations were promulgated under Section 5 of the United Nations Participation Act of 1945.00 which provides authority for the President to implement decisions of the U.N. Security Council.

59

The Rhodesian Sanctions Regulations are basically similar to the Foreign Assets Control Regulations and Cuban Assets Regulations. However, there are some significant differences. For example, the Rhodesian Sanctions Regulations

48 31 C.F.R. § 515.559 (a) (3) (1975).

49 Id. pt. 505 (1975).

50 Id. 505.10 (1975).

51 The U.S. index of strategic materials is enumerated in the Commodity Control List. 15 C.F.R. pt. 399 (1975). See Part I, § 5.4 for a discussion of the Commodity Control List. 52 34 C.F.R. & 505.10 Schedule (1975). Cambodia and South Vietnam were added to the list in 1976. 41 Fed. Reg. 16556 (1976).

53 31 C.F.R. $505.34 (a) (1975); COCOM is currently comprised of all the NATO countries. (except Iceland) and Japan. COCOM export controls are discussed at Part I, § 5.5. 51 31 C.F.R. § 505.34 (a) (1975).

55 Id. pt. 520 (1975).

56 Exec. Order No. 8389, 3 C.F.R. 645 (Cum. Supp. 1938-1943); Exec. Order No. 44281, 3 C.F.R. 546 (Cum. Supp. 1966-1970).

57 34 C.F.R. $ 520.404 (1975).

58 Id. pt. 530 (1975).

59 U.N. doc. s/Res. 232 and Corr. 1 (1966) (s/Res. 762/Rev. 1, as amended); U.N. doc. s/Res. 253 (1968).

80 22 U.S.C. § 287c (1970).

61 See Part I, §§ 7.2-.3.

do not prohibit transfers of property within Rhodesia by persons subject to the jurisdiction of the United States to any other person if the property is not related to the conduct of those business activities prohibited by the Regulations (such as most imports to and exports from Rhodesia or the shipment or carriage of merchandise to or from Rhodesia).62

The scope of application of the Rhodesian Sanctions Regulations is also more limited than that of the Foreign or Cuban Assets Control Regulations. The Rhodesian Sanctions Regulations do not apply to U.S. subsidiaries operating in third countries. The Regulations, however, do apply to U.S. firms located in Rhodesia or in the United States. Furthermore, the Regulations prohibit the U.S. officers and directors of any foreign firm or U.S. subsidiary in a third country from permitting or authorizing trade with Rhodesia.

The treatment applied to Rhodesian accounts in the United States under the Regulations differs somewhat from that applied to accounts under the various other Regulations. Since Rhodesian accounts are blocked only for purposes of preventing trade between the United States and Rhodesia, fewer restrictions are imposed on Rhodesian accounts than on accounts blocked under the other Regulations.65

66

The Rhodesian Sanction Regulations provide that specific licenses may be issued authorizing certain transactions. For example, a specific license may be granted authorizing the shipment from any foreign country to Rhodesia of medical supplies, educational supplies, news materials, and foodstuffs. Also, a general license has been issued in connection with the enactment of the "Byrd Amendment," authorizing the importation into the United States of certain Rhodesian materials determined to be strategic and critical under the Strategic and Critical materials Stockpiling Act; 67 chief among them are chromium ore or concentrates.68

BIBLIOGRAPHY

Editors' Note: The outstanding or the especially thorough authorities are marked with an asterisk.

* Bayar, Charles H., "The Blocked Chinese Assets: Present Status and Future Disposition," 15 Va. J. Int'l L. 959 (1975).

*Bishop, Joseph W., "Judicial Construction of the Trading With the Enemy Act," 62 Harv. L. Rev. 721 (1949).

Comment, "Blocked Assets and Private Claims: The Initial Barriers to Trade Negotiations Between the United States and China," 3 Ga. J. Int'l & Comp. L., 449, 451 (1973).

Craig, William L., "Application of the Trading With the Enemy Act to Foreign Corporation Owned by Americans: Reflections on Fruehauf v. Massardy," 83 Harv. L. Rev. 579 (1970).

'Denny, David L., and Daniel D. Stein, "Recent Developments in Trade Between the U.S. and the P.R.C.: A Legal and Economic Perspective," 39 L. & Contemp. Prob. 260, 260-66 (1974).

*Goodman, Carl F., "United States Government Foreign Property Controls," 52 Geo. L.J. 767 (1961).

McNair, Sir Arnold Duncan, The Legal Effects of War (1966).

Miller, "Statutory and Constitutional Difficulties with the Foreign Assets Control Regulations" in China Trade Prospects and United States Policy (A. Eckstein ed. 1971).

Note, "The United States and the People's Republic of China: The Blocked Assets Claims Problem," 8 Cornell Int'l L.J. 253 (1975).

Reeves, William H., "Rights of Parties to an Unlicensed Transaction in Blocked Property," 6 Syrc. L. Rev. 1 (1954).

* Reeves, William H., "The Control of Foreign Funds by the United States Treasury," 11 L. & Contemp. Prob. 17 (1945).

62 31 C.F.R. § 530.440 (1975).

63 Id. § 530.307 (1975).

64 Id. § 530.404 (1975).

65 Id. $$ 530.211-.312 (1975).

68 Id. § 530.506 (1975). Similarly, specific licenses may be issued authorizing remittances to persons in Rhodesia for medical, humanitarian, or educational purposes, 34 C.F.R. § 530.508 (1975).

87 50 U.S.C. §§ 98-98h (1970).

68 34 C.F.R. § 530.548 (1975).

Sommerfield, Stanley L., Treasury East-West Trade Control Regulations, Mar. 10, 1967 (unpublished paper available from the Office of Foreign Assets Control). Sommerfield, Stanley L., Treasury Regulations Affecting Trade with Cuba, May 6, 1976 (unpublished paper available from the Office of Foreign Assets Control).

* Sommerfield, Stanley L., "Treasury Regulations Affecting Trade with the Sino-Soviet Bloc and Cuba," 19 Bus. Law. 861 (1961).