New OFAC General Licenses For Iran: Game Changers or Paper Champions?
While most of the world may not have caught on yet, the OFAC world is a buzz with Monday’s reissuance of the Iranian Transactions Regulations under the name the Iranian Transactions and Sanctions Regulations (ITSR). Issued by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), ITSR revamped the Iranian trade embargo but included blocking provisions for Iran’s financial sectors and foreign money exchangers, and by generally authorizing a number of activities which were previously prohibited without a specific license.
For example, now that ITSR exists there is no need to apply for a specific license to sell real property in Iran that was either inherited or was obtained prior to becoming a U.S. person. In addition, U.S. regional centers and businesses seeking to accept investment funds from Iranian investors no longer have to obtain specific licensing to do so. Finally, exports of certain medicines and medical devices to Iran without specific license authorization are now permitted.
Sounds like a drastic easing of sanctions right? Not necessarily. Despite the numerous caveats contained in these general licenses, the fundamental problem still remains: How to have the funds from these transactions transferred to the U.S. Of course, U.S. depository institutions are authorized to process those transactions authorized by either an OFAC specific or general license, so long as they are routed through a third country financial institution. There is, however a two fold problem. On one hand, OFAC, as part of their ITSR revamp, blocked U.S. persons from directly dealing with any money exchanges services (commonly referred to as saraafis). Prior to this past Monday, U.S. persons almost always had to rely on these saraafis to move funds into and out of Iran for licensed transactions. Now OFAC has declared that only U.S. depository institutions can transact with these exchangers, an authorization that is unlikely to ever be utilized given the enormous AML and Sanctions compliance risks involved and the U.S. banks’ mortal fear of transacting in any manner which could expose them to liability for sanctions violations. The second aspect of the problem is that facilitating a funds transfer is in some regards more difficult under a general license than a specific license. At least with an OFAC specific license, it is a documented authorization from OFAC authorizing the specific activity in question. As such, it is an easier sell to a bank, than just walking and showing them a complicated and ambiguous regulation that you believe authorizes your activity and any funds transfer resulting from that activity. Therefore, if you are trying to operate under a general license, you better pray for a very well informed and smart compliance officer or you may be out of luck.
In short, due to the continued difficulty in transferring funds between Iran and the U.S. for licensed transactions, the general licenses look great on paper, but may not do anything to resolve the humanitarian or divestment issues resulting from the sanctions that have been levied against Iranian’s financial sector. Indeed, they may actually make certain authorized transactions more difficult than ever.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.
More TSRA Statistics Released by OFAC
Yesterday, I commented on the recent of the 4th Annual Biennial Report under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA). For those not in the know, TSRA is the program under which agricultural commodities, medicine, and medical devices are exported to Sudan and Iran. In my post yesterday, I quipped that since that Biennial Report was for the period from October 2006 through September 2008 that the numbers were really irrelevant because so much has changed in the world of sanctions since that time. Well today’s Biennial Report, while being more recent, still doesn’t cover any recent statistics as it only applies for the period between October 2008 through September 2010. Despite the date of these statistics, I wanted to take a look at them to see if there was anything of value in this report. Here are some key points of interest:
1. There was a 54.2% increase in the number of the TSRA license applications received between the periods stated in the 4th and 5th Biennial Report. This is somewhat surprising as the regulations impacting payments for licensed transactions between the Iran and the United States became much more restrictive during this period.
2. 93.1% of the applications were for exports to Iran. It was not completely a surprise that there were more license applications for exports to Iran, but how strongly they were skewed towards Iran is a testament to the fact that despite years of sanctions against Iran, there are still U.S. companies willing to export or reexport to Iran and the Iranians still have money to buy those goods.
3. The comments concerning difficulties with payment began to creep in on this report. As I eluded to above, during the time frame covered in this report the sanctions began to squeeze the ability of Iranian financial institutions to transfer funds to pay for licensed exports. As such, there were a few comments from the public concerning third country financing and guidance for corresponding payments processed by third country institutions. It will be interesting to see the increase in such comments in the next Biennial Report.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
OFAC Updates Cuba Guidelines on Licensing for Cuba Travel for Educational Activities
On Friday the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) updated its Comprehensive Guidelines for License Applications to Engage in Travel-Related Transactions Involving Cuba (Guidelines). According to the Guidelines, OFAC will provide specific license authorization for travel related transactions directly incident to educational activities involving non-commercial academic research in Cuba, participation in a formal course of study at a Cuban academic institution, or teaching at a Cuban academic institution.
Specific license authorization for these types of travel related transactions is not needed if traveling under the auspices of an accredited U.S. graduate or undergraduate degree granting institution, as such transactions are already authorized pursuant to a general license found at 31 C.F.R. 515.565. Those who do require specific license authorization, however, should make sure to include the following information in their license application:
1. Personal Identifying Information: Such information includes the names of the Applicants and their contact information.
2. Travel Identifying Information: State the category of activities to be engaged in whether it be noncommercial academic research in Cuba, participation in a formal course of study at a Cuban academic institution, or teaching at a Cuban academic institution.
3. Description of Educational Activities: Provide details about the particular type of activities such as the proposed dates and time of the trip, as well as specific activities to be undertaken.
4. Supporting Information: Provide supporting documentation such as brochures, and/or a letter from an appropriate representative of your academic institution.
5. Information for Extensions or Renewals: If you are seeking to extend or new a license for travel to Cuba under this category, provide an explanation of why an extension or renewal is necessary, a detailed report of all the activities previously undertaken pursuant to the license, and a complete copy of the previously issued license and/or amendments.
6. Signature: As always a signature is needed for an OFAC submission.
Travel to Cuba has relaxed significantly over the past several years, however, there is still a need to obtain OFAC specific license authorization for travel to Cuba in many scenarios. For more information contact an attorney specialized in OFAC and Cuba travel in order to determine whether or not you can travel to Cuba and under what circumstances.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Setting the Record Straight: Personal Remittances To and From Iran and OFAC
In recent weeks I have been getting calls from numerous Iranian Americans who are inquiring into OFAC licensing for the transfer of personal funds as cash gifts or as inheritances from Iran to the U.S.. As usual I give them the standard line: non-commercial personal remittances from Iran to the United States are authorized to be processed by a U.S. depository institution so long as the funds are transferred from a third country foreign financial institution and the transfer is not related to any type of family-owned business. This is the rule, and has been the rule for sometime, as codified in 31 C.F.R. 560.516(a)(2). This rule is commonly referred to as a general license, which means it is an open authorization that OFAC has provided and does not require any specific application and approval in order to be utilized.
Recently, however, these individuals who are calling me are telling me that there are a number of lawyers and CPAs out there marketing to the Iranian American community stating that an OFAC specific license is needed for every type of transaction in relation to Iran, including these types of personal remittances. If this wasn’t bad enough some of these individuals are indicating that this is due to the recent change in the law due to OFAC’s amending the Iranian Financial Sanctions Regulations (“IFSR”). This is so wrong, that I have a hard time even knowing where to begin.
Let’s start with the fact that the recent IFSR changes related to the mandates of Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA) do not impact personal remittances to or from Iran. In short, those sanctions deal with denying foreign financial institutions who engage in significant financial transactions with the Central Bank of Iran and/or the designated Iranian banks access to correspondent or payable through accounts at U.S. depository institutions. It has nothing to do with the ability of U.S. depository institutions to process personal remittances from Iran.
Second, subsection C of Section 1245 of the NDAA, implemented by Executive Order 13599, did block all Iranian financial institutions, however, OFAC issued two General Licenses, following the issuance of Executive Order 13599, to allow for personal remittances to proceed unimpaired. As such, the old rule which was in place is still in place. Don’t believe me? Here is the language that OFAC actually uses in their letters concerning these types of transfers:
“The ITR [Iranian Transactions Regulations] also authorize United States depository institutions to process transfers of funds that arise from a family remittance not related to a family-owned enterprise. ITR, § 560.516(a)(2). Please be advised that transfers authorized by the ITR must be wired from in Iran to a non-U.S., non-Iranian bank outside the United States, although the ultimate destination may be an account held at a United States depository institution. See ITR, § 560.516(a).
On February 5, 2012, the President signed Executive Order 13599, “Blocking Property of the Government of Iran and Iranian Financial Institutions,” which blocks all property and interests in property of the Government of Iran, including the Central Bank of Iran, and any Iranian financial institution, that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person, including any foreign branch. However, OFAC also issued two general licenses, which authorize certain transactions that would otherwise be prohibited by Executive Order 13599. Subject to certain exceptions, General License A authorizes under Executive Order 13599 all transactions involving property and interests in property of the Government of Iran or Iranian financial institutions that are authorized under general licenses set forth in the ITR, including§ 560.516.
Additionally, General License B authorizes U.S. depository institutions and U.S. registered brokers or dealers in securities to process transfers of funds to or from Iran or for or on behalf of an individual ordinarily resident in Iran who is not included within the term “Government of Iran” to the extent the transfer is a noncommercial, personal remittance and the transfer is not by, to, or through a person whose property and interests in property are blocked pursuant to the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F .R. part 544 (“WMDPSR”), or the Global Terrorism Sanctions Regulations, 31 C.F.R part 594 (“GTSR”), or a person whose property and interests in property are blocked pursuant to any other part of 31 C.F.R. chapter V, or any Executive order, except an Iranian financial institution whose property and interests in property are blocked solely pursuant to Executive Order 13599.”
In short, you don’t need an OFAC specific license to send or receive personal remittances or family related remittances to and from Iran since it is already authorized by OFAC administered regulations. That said, the U.S. bank sending or receiving the funds may request a signed affidavit confirming that that the funds are indeed personal or family related in nature. Also, in some cases, people seeking to confirm that this general license applies to their case may file a request for interpretative guidance with OFAC to ensure that the general license applies to their specific facts. OFAC will send back an advisory opinion stating whether or not the general license applies. This is not a license authorization, but merely a confirmation by OFAC of the applicability of the general license to a specific set of facts.
Finally, a word of caution. It seems that everyone in Iran has become very generous as of late and is sending millions of dollars in gifts to family members in the U.S. I would caution that any structuring or characterization of a transaction to avoid or circumvent sanctions is deemed to be evasion and can carry stiff penalties. For example, inheriting real estate in Iran, does not mean that you can sell the property without an OFAC license just because it was inheritance and personal in nature. The above general license only applies to personal and family cash transfers and does not authorize any transactions which may otherwise be prohibited without an OFAC license.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
TSRA Brokers Operating in Iran
There have been a slew of matters that have come up recently involving U.S. persons participating in the export of medicine and medical devices exported to Iran pursuant to specific license authorization under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA). Those familiar with economic sanctions programs administered by the United States Department of the Treasury Office of Foreign Assets Control (OFAC) are probably wonder what the problem with that is.The problem in there cases is that a number of individuals are engaged in such activities inside Iran. What has made matters even more concerning is that these individuals are operating companies who are not only importing the products from U.S. sources, but also distributing them in Iran.
You may ask: but isn’t there a general license for brokers of TSRA products? Yes, 31 C.F.R. 560.533 contains a general license authorizing U.S. persons to provide brokerage services on behalf of U.S. persons for the sale and exportation or reexportation to Iran of agricultural commodities, medicine, and medical devices on behalf of U.S. persons where the sale and exportation or reexportation is authorized by a one-year license issued pursuant to section 560.530 of the Iranian Transactions Regulations (ITR). Section 560.530(b) also authorizes the making of arrangements, cargo inspections, obtaining insurance, and arrangement of financing (consistent with section 560.532 of the ITR) for such authorized exports or reexports, as well as the entry into executory contracts (including pro forma invoicing) for the exportation or reexportation of agricultural commodities, medicine, and medical devices to the Government of Iran, entities in Iran, or persons, provided that performance of an executory contract is expressly made contingent upon the prior issuance of a license under paragraph (a) of section 560.530. The provisions of section 560.530 and 560.533, do not however, authorize the creation or management of an entity in, and organized under the laws of Iran.
The reason for this is because in order to operate a company in Iran you will necessarily need to employ Iranian-origin services such as labor, rental property, etc. Engagement of such services will cause a U.S. person to run afoul of the prohibition of trade transactions for Iranian-origin goods or services found at 31 C.F.R. 560.206. As such, operating inside of Iran as a broker of TSRA exports would be virtually impossible unless the U.S. person acting pursuant to such license would merely work out of his residence, employ no staff, and have receive all payments for his services in a non-Iranian bank account outside of Iran. Since this set of circumstances sounds quite untenable from a business perspective, those seeking to serve as brokers under the general license at 560.533 should make sure to keep their operations outside of Iran.
This aside, the larger lesson to be learned here is that OFAC is putting its foot down when it comes to U.S. citizens and permanent legal residents operating companies in Iran. Even when the business activities are authorized or favorable to U.S. foreign policy objectives the prohibition in 560.206 makes it impossible to maintain and operate a business in Iran as a U.S. person.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
OFAC Releases Q1 2011 TSRA Report…Is OFAC Getting Faster?
Today, the United States Department of the Treasury Office of Foreign Assets Control (OFAC) released its quarterly report on licensing under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA). TSRA allows U.S. persons to apply for specific license authorization from OFAC to export agricultural commodities to Cuba and medicine and medical devices to Iran, Cuba, and Sudan. Formerly, TSRA called for licensing exports of agricultural commodities to Iran and Sudan, however, most of those types of transactions were resolved last week when OFAC issued a general license for the export of food to Iran and Sudan.
Generally when this report comes out I look at Graph 1 which details the processing time of license applications under the TSRA program. In the first quarter of 2011, the average processing time for a TSRA license application was 75 days. License approvals on the other hand took an average of 93 days. This is compared with an average processing time of 72 days and an average license approval period of 86 days. This would seem to suggest that OFAC processing times have slowed due to the widely rumored backlog at OFAC.
I wouldn’t be so sure such about any perceived slow down. I have been tracking processing times under the TSRA program for a few years and they do seem to fluctuate. However, I think there a couple of factors which will lead to faster processing times for licenses under this program. First, is the general license for export of food to Iran and Sudan that was mentioned above. This should certainly cut a bulk of the workload down on the personnel working in the TSRA office of OFAC’s Licensing Division. Second, I think more parties are becoming comfortable using OFAC’s online TSRA application process. This also streamlines the process and makes it easier to submit all of the correct information the first.
I will be interested to see how the promulgation of the general license for export of food to Sudan and Iran impacts these processing times. Even if it does nothing to cut back on the processing times, I think it should make parties more open to engaging authorized transactions with Iran and Sudan. Certainly, that seemed to be Congress’ goal in passing TSRA and would be a development that would benefit the people in those sanctioned countries as well as U.S. businesses.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
OFAC Issues Syria General Licenses 13 and 14
The trend of general licenses being issued by the United States Department of the Treasury Office of Foreign Assets Control (OFAC) in relation to sanctions against Syria was continued today, when OFAC issued Syria General Licenses 13 and 14, which deal with payments for overflights and emergency landings and with transactions related to telecommunications, respectively.
Syria General License 13 merely states that payments to Syria for charges rendered by the Syrian Government for overflights and emergency landings are permitted, so long as no blocked party has an interest in that transaction.
Syria General License 14 states that all transactions with respect to the receipt and transmission of telecommunications is authorized so long as it does not entail the debiting of any Government of Syria accounts on the books of a U.S. depository institution, and does not involve any persons blocked pursuant to sanctions. Syria General License 14 does not, however, permit transactions with the Govemment of Syria or to a person in Syria of telecommunications equipment or technology or telecommunications transmission facilities (such as satellite or terrestrial network connectivity) to Syria.
I have been receiving a lot of questions about general licenses and specific licenses the past few weeks. It seems that some people are getting the two confused. A general license is an open authorization for U.S. persons to engage in activity that would otherwise be prohibited by sanctions. It is not an exemption, however, because a general license can be revoked at any time by OFAC. A specific license on the other hand is an authorization that is requested and given on a case by case basis for the party actually applying for such authorization. As such, the general licenses above do not require any additional application or submission to OFAC for their use, although, in certain scenarios you may want to contact OFAC’s compliance division to ensure that activities you propose to take under a particular general license are indeed authorized by that general license.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
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