by Erich C. Ferrari

With the Persian New Year upon us, it seems the Treasury’s Office of Foreign Assets Control (OFAC), the main US federal agency tasked with the administration of economic sanctions, has gotten into the spirit. Today it issued General License G, a regulatory authorization designed to permit academic [...]]]> via LobeLog

by Erich C. Ferrari

With the Persian New Year upon us, it seems the Treasury’s Office of Foreign Assets Control (OFAC), the main US federal agency tasked with the administration of economic sanctions, has gotten into the spirit. Today it issued General License G, a regulatory authorization designed to permit academic exchanges between Iran and the United States. The license also paves the way for the provision of scholarships to Iranian students, Iranian participation in online courses, and Iranian participation in university entrance and professional certification examinations.

With Iran’s participation in on-going talks regarding its disputed nuclear program, the US appears to have found another concession that it can easily offer to the Iranians as a show of good faith. That said, what appears like an easing of sanctions is in reality merely the broadening of a current policy that benefits the Iranian people while also cutting down on the administrative paperwork OFAC will have to handle as it shifts from a specific licensing policy to a generally authorized one.

It really shouldn’t come as a big surprise that the US has shifted its position on this type of activity. For some time OFAC has maintained a positive licensing policy in favor of academic exchanges, demonstrating that there is a belief within the government that the types of exchanges authorized by this new license do not harm the integrity of the sanctions program, nor impede US foreign policy objectives. But there have been setbacks. Consider the recent controversy surrounding the cessation of services by companies like Coursera to sanctioned jurisdictions such as Iran. Coursera and similarly situated private education service companies offer Massive Open Online Courses (MOOCs), which for some time where offered to parties in Iran but were recently suspended due to concerns over sanctions compliance. Part of the new General License G seeks to address this issue by authorizing the provision of online courses for certain areas of study.

While this all seems great on paper, sanctions critics will likely point to the fact that the majority of these services and/or exchanges will be accompanied by necessary financial transactions that other US sanctions on Iran currently impede. For example, how will an Iranian pay to participate in an online course? How will tuition payments be made? How does a US citizen relocating to Iran to participate in a course of study at an Iranian university transfer their money there? And where will they keep their funds since sanctions prohibit US persons from having a bank account at an Iranian bank?

General License G tries to answer some of these questions by including a note that makes it clear that US depository institutions can process transactions related to the General License pursuant to 31 C.F.R. 560.516. However, section 560.516 prohibits the debiting or crediting of an Iranian account, therefore all transactions must be routed through foreign financial institutions. The problem is that both domestic and foreign financial institutions have been skittish about processing any Iran-related transactions, even when they are clearly authorized by OFAC.

One possible solution is the new financial channel promised by the Joint Plan of Action that was signed by Iran and world powers on November 24, 2013. However, details about how this financial channel operates have been difficult to discern, with some sources reporting that even those banks being asked to participate with encouragement from the US have been hesitant to do so.

Today’s authorization is a great step forward in adjusting the US trade embargo so that it makes sense and minimizes the negative impact on the Iranian people. Yet there are still concerns that this new authorization may not be able to fully achieve its intended effect due to difficulties arising from the ability to transfer funds between the US and Iran. It remains to be seen if the sanctions relief offered thus far by the US following the interim deal reached in Geneva is an adequate solution to allow this authorization to have maximum impact, or if further action will be needed by OFAC in order to achieve such result.

What is likely, however, is that there may be some hesitation by US persons in their willingness to operate under General License G. This may last until they are assured that proper payment channels are in place, and that the financial institutions participating in such channels will not stand in the way of receiving and originating payments under this new license.

Photo: Iranian students celebrating Nowruz, the Iranian New Year, at the LA County Museum of Art on March 14, 2010. Credit: The Farhang Foundation

by Farideh Farhi

Let me begin by saying that I have been a long-standing critic of US sanctions against Iran. Irrespective of my distaste for Iran’s structure of governance, I have not been shy in calling out the sanctions regime as collective punishment of the Iranian people. I have also been [...]]]> via LobeLog

by Farideh Farhi

Let me begin by saying that I have been a long-standing critic of US sanctions against Iran. Irrespective of my distaste for Iran’s structure of governance, I have not been shy in calling out the sanctions regime as collective punishment of the Iranian people. I have also been worried that they will eventually ensnare Iranians living in the United States.

The comprehensive, “crippling” nature of financial sanctions and the attempt to go for the jugular of the Iranian economy belies the boiler-plate argument that the sanctions are directed at the institutions of the Islamic Republic. Obvious to anyone who travels to Iran, the squeezed are the people who have lost jobs because of a contracting economy, those who have difficulty accessing or must pay atrocious prices for life-saving medicines, and the parents who suddenly have to generate three times as much income to support their children studying abroad. The list, which goes on, includes the sanctions-related difficulties some of Iran’s best and brightest students face when they seek admission to US universities, some of which were recently examined by Steven Ditto of the Washington Institute.

All this is to say I am not usually surprised when I hear about the problems Iranians face in order to study abroad, attend academic conferences, or send money for their children living abroad. But even I was taken aback when a friend showed me a letter sent at the end of December by the Bank of Hawai’i (BOH) to Iranian citizens residing in the state notifying them that their accounts will be closed due to US sanctions against Iran. To see this happen in the midst of negotiations between Iran and world powers — which may eventually lead to the lifting of at least some sanctions — is even more surprising and a telling example of the depth, breadth, and perhaps potential staying power of these sanctions even if the negotiations prove successful.

In retrospect, however, BOH — the largest independent financial institution in Hawai’i — is taking a confusing and harmful law to its logical conclusion: discrimination against Iranian nationals wherever they live, including the United States. I suppose one can even go as far as commending BOH for its honesty in acknowledging the transfer of its burden to its Iranian customers. Let me explain.

In December 2013, BOH began informing Iranians residing in Hawai’i of the unilateral termination of their accounts because of their “Iran citizenship.” The letter requests the BOH customer with Iranian citizenship to withdraw his or her money voluntarily or the bank will close their account by a certain date and send a check to the last address of record. Iranians who have received these notices include Green Card-holders who are residents of Hawai’i as well as Iranian students at the University of Hawai’i at Mānoa and Hawai’i Pacific University. At least one Iranian-American also received a similar letter but proof of US citizenship prevented the closure of their account.

The argument used by BOH is that it is trying to address the predicament in which it has been placed in by US financial sanctions against Iran, administered by the Treasury Department’s Office of Foreign Assets Control (OFAC). The relevant directive that imposes the predicament on BOH can be found on page 2 of this explanatory Treasury Department document.

The regulation states that “U.S. depository institutions, including foreign branches, are prohibited from servicing accounts of the Government of Iran, including banks owned or controlled by the Government of Iran (as in Appendix A) or persons in Iran” (emphasis is mine). The OFAC directive does not explicitly require the closure of accounts owned by Iranian citizens residing in the United States. Indeed, this is something the BOH letter acknowledges by including the first word in the following sentence, “although we are aware that your account address in our records is a US address”, before attempting to justify the account closure because it is “not able to prevent the operation of your account if, or when, you are in Iran.”

In effect, fearing potential punishment by OFAC, the bank has chosen to take preemptive and discriminatory action against anyone who has Iranian citizenship. In order to avoid the hassle of figuring out exactly what this notion of “persons in Iran” means in its own dealings, the bank has chosen to broaden the category to include Iranian nationals in the United States. This is irrespective of the fact that, taken to its logical conclusion, the notion of “persons in Iran” can potentially include US citizens of any background; even presumably the “true blue” ones who do not carry a suspiciously Iranian name like I do. Most Iranian-Americans who travel to Iran these days know that they shouldn’t try to access their bank accounts from Iran for fear of their account being blocked. I certainly hope that the increasing number of American tourists who are going to Iran these days also know this.

Erich Ferrari, an attorney well-versed in Iran sanctions laws who I was put in touch with through the National Iranian-American Council (NIAC), told me via email that there have been other, similar cases of account closures by US banks. But in this case BOH has gone a step further. In the other cases there was always some bank-related activity conducted within Iran. In those instances, the banks “could make an argument that a particular account holder was being targeted due to the risk profile created by his or her activity in Iran.” But this BOH action, according to Ferrari, is “just a buck shot approach at anyone who has Iranian citizenship.” He goes on to state, “I have to say, this is as strong a case for discrimination as I have seen in any of these bank cases.”

BOH’s action becomes even more troubling when one considers the potential far-ranging repercussions for Americans of Iranian descent. Under Iran’s citizenship laws, all persons born in Iran automatically carry Iranian citizenship. Moreover, individuals born outside of Iran whose father is an Iranian national — including my Hawai’i-born children — also automatically carry Iranian citizenship. Indeed, Iran’s approach to citizenship leaves no other way for Iranian-Americans and their US-born children to travel to Iran without using their Iranian citizenship and passport — a fact recognized by the US Government and State Department. Taken to its logical conclusion, BOH’s focus on Iranian nationality can potentially place US citizens at risk as well.

The Bank of Hawai’i must be called out for its lazy reading or reaction to US sanctions law on Iran, but the complex and intimidating nature of the laws themselves are ultimately responsible. Indeed, numerous stories have appeared in the news over the past few years about financial institutions and other business entities being fined large amounts for violating US sanctions on Iran in one way or another. Taking this into consideration, it’s easy to see why this relatively small bank opted for the easiest and safest route in making sure it’s not violating OFAC rules (assuming no one launches a civil suit against them).

Attempts by Iranian-American residents of Hawai’i to convince BOH to reverse its clearly discriminatory policy have so far been unsuccessful. But state authorities and relevant civil rights groups have been informed, and watchful NIAC is thankfully communicating with the bank. As far as I know, BOH is the only bank in the nation that has chosen this discriminatory route. But its honest reasoning reveals the reckless, far-reaching, and prejudicial nature of US sanctions laws against Iranian nationals wherever they live, even in the Aloha State, which is known for extending its gracious and welcoming spirit to immigrants and visitors from all over the world.

The Treasury Department’s Office of Foreign Assets Control (OFAC) is primarily known for its role as the agency charged with enforcing Iran sanctions. This summer, however, the agency came out with a series of actions aimed at mitigating the effect of sanctions on the Iranian people. Most recently, OFAC has issued two [...]]]> By Samuel Cutler

The Treasury Department’s Office of Foreign Assets Control (OFAC) is primarily known for its role as the agency charged with enforcing Iran sanctions. This summer, however, the agency came out with a series of actions aimed at mitigating the effect of sanctions on the Iranian people. Most recently, OFAC has issued two new general licenses authorizing certain humanitarian related activities by nongovernmental organizations with Iran, as well athletic exchanges between Iran and the United States. According to the Treasury Department’s press release, the new general licenses, which provide a standing authorization to conduct the activities described therein, are “designed to support longstanding U.S. Government efforts to encourage humanitarian and goodwill activities between the Iranian and American people.”

General License F authorizes “the importation of Iranian origin services into the United States or other dealings in such services, and the exportation or reexportation of services, directly or indirectly, from the United States or by a United States person related to professional and amateur sporting activities and exchanges involving the United States and Iran.” It covers activities such as the sponsorship of players, coaching, refereeing, and training. One caveat is that any payments related to these activities must comply with 31 CFR § 560.516 of the Iranian Transactions and Sanctions Regulations (ITSR), meaning that payments must either be deposited into a third-country bank account or passed through a third-country financial institution before being deposited in an account at certain authorized Iranian financial institutions.

This authorization also reflects the sensitivity of OFAC to allegations that its action have had an adverse effect on matters unrelated to the Iranian government’s illicit activities. Those pushing for the new general license likely received a boost following the recent case where an Iranian tennis referee was initially prevented from participating in the U.S. Open. While some were quick to blame sanctions, the larger problem was that the referee received a visa not covered by § 560.505, which authorizes activities related to certain visa categories. The fact that OFAC felt compelled to respond to an issue that was somewhat inaccurately blamed on U.S. sanctions policies is indicative of the role the agency plays in the public relations war between Iran and the United States.

While General License F is fairly limited in scope, General License E could have a far broader impact. Contained within the license are standing authorizations for a range of humanitarian and human rights-related activities designed to help the Iranian people. These include activities related to humanitarian projects in Iran such as the operation of orphanages, the provision of relief services and non-commercial reconstruction projects related to natural disasters, donations of items intended to relieve human suffering, and activities related to environmental and wildlife conservation projects. Prior to General License E, U.S. persons were required to seek specific licenses on a case-by-case basis from OFAC to conduct the above activities, or in the case of natural disasters such as the August 2012 earthquake in northwest Iran, wait until the release of a time-limited general license.

Most important, however, are the provisions in § (a)(4) of General License E that focus on the activities of NGOs in Iran. These include authorization for activities related to human rights and democracy building projects in Iran such as the sponsorship of and attendance and training at conferences in Iran related to human rights projects, democracy building, efforts to increase access to information and freedom of expression, and public advocacy, public policy advice, polling, or surveys relating to human rights and democracy building. U.S. NGOs that wish to take advantage of this general license are required to file quarterly reports with OFAC, and the transfers of funds by a single U.S. NGO may not exceed $500,000 in aggregate over a 12-month period.

The new license could make it far easier for U.S. NGOs to conduct activities directly benefiting the Iranian people. In particular, the inclusion of “efforts to increase access to information and freedom of expression” builds upon General License D, which authorized the sale of certain goods and services related to personal communications. By opening the doors for NGOs working in Iran to expand awareness of and access to software designed to defeat restrictions on internet access, the new general license has the potential to be a boon to those seeking to defeat government filters and internet censorship. Realizing the full impact of these provisions, however, depends upon U.S. NGOs actively taking advantage of the general license, as well as on Iranian NGOs’ ability to operate without provoking a crackdown by the government.

As noted by Collin Anderson, an independent researcher who works on Iran’s internet censorship, the Treasury’s recent action caps a summer in which OFAC has made a conspicuous effort to dispel perceptions that its coercive actions are targeted at the Iranian people, as well as to lower tensions with Iran. On May 30, OFAC released the above mentioned General License D, while July 25 saw the release of guidance designated to clarify OFAC’s policy regarding payments for humanitarian goods, amid allegations that sanctions have resulted in shortages of these goods, particularly medicine. Furthermore, OFAC has considerably slowed the pace of its Iran-related designations following the June 14 election of Iranian president Hassan Rouhani. A full 94 days have passed between the designations of June 4 and the recent action targeting oil sanctions evaders, making this one of, if not the longest quiet periods in the last 5 years.

Taken together, these actions may signal a change both in how OFAC views its role in administering Iran sanctions and how the U.S. government addresses the tension between preventing certain economic activities while promoting others. During a February symposium at the Georgetown University Law Center, an OFAC attorney-adviser stated that “Generally OFAC’s job is preventing economic activity and even when there is a strong policy favoring certain types of activity, it’s not part of their nature to go out and sort of drum up business for pharmaceutical companies to send medicine to Iran. Maybe it should be.” Setting aside the highly contested issue of pharmaceutical exports, the point holds that OFAC has traditionally viewed enforcement as a far more important priority than promoting activities that support U.S. policy goals. While OFAC is not the only, or even the primary driver of Iran sanctions policy within the U.S. government, these actions are a positive indication that the United States is doing a better job of recognizing the importance of balancing pressure with outreach to the Iranian people.

– Samuel Cutler is a policy adviser at Ferrari & Associates, a Washington, DC boutique law firm specializing in US economic sanctions matters.

- Photo Credit: Reza Saiedipour

via Sanctions Law

For over a year now, those in the sanctions policy and legal worlds have been discussing the difficulties that food and medicine exports have had in reaching Iran. A large part of this discussion has focused on US sanctions targeting Iran’s financial sector and how [...]]]> by Erich Ferrari

via Sanctions Law

For over a year now, those in the sanctions policy and legal worlds have been discussing the difficulties that food and medicine exports have had in reaching Iran. A large part of this discussion has focused on US sanctions targeting Iran’s financial sector and how that has impacted the ability of exporters to receive payments for the sale of US origin food and medicine. These discussions have not been in vain, as there are many significant problems arising from US sanctions that are directly contributing to the problem. However, one area is often overlooked in this discussion: EU sanctions have also been complicit in causing financial institutions to shy away from dealing with Iran, thereby furthering the inability of exporters to receive payments for their shipments. This is particularly relevant because US sanctions require all payments for authorized activity between Iran and the US to go through third-country banks, and for many years those transactions were facilitated by European banks. Also, there were numerous EU companies that were reexporting US origin food, medicine, and medical devices to Iran and were receiving payments in their European bank accounts for those exports. Those companies now face difficulty in doing so.

In addition to the fear of massive penalties from the US or possibly sanctions, the unwillingness of some EU banks to deal with Iran stems from three EU Council Regulations, EU Council Regulation 961/2010 (25 October 2010),EU Council Regulation 267/2012 (23 March 2012), and EU Council Regulation 1263/2012 (21 December 2012). These regulations require EU banks to consider the product or services and parties involved in a transaction with Iran, as well as whether authorization is required for the transaction and who is obliged to provide for such notice or authorization. Furthermore, unlike in the US, in many cases the EU banks themselves are responsible for obtaining the appropriate license for facilitating the payment and/or providing notice of their facilitation of the payment. This creates a greater burden on the EU banks when dealing with such payments than those placed on their US counterparts.

This burden becomes particularly apparent when comparing what the notice/authorization requirements of the two jurisdictions are. In the US, any amount of food and most types of medicine can be exported to Iran undergeneral license authorization, meaning that there is no need to obtain a license from the Office of Foreign Assets Control (OFAC) or to provide notice to the US government. However, in the EU, the facilitation of transactions related to food and medicine exports does have requirements. Here are how those EU notice/authorization requirements break down:

1) Any transaction under 10,000 € does not need to be reported.
2) Any transaction under 100,000 € requires notice to be provided.
3) Any transaction over 100,000 € requires authorization to be provided.

So while in part EU banks are concerned about facilitating payments with Iran due to fears rooted in the US government’s issuance of massive penalties and settlements against a number of European banks over the past several years, they also have a number of regulatory hoops to jump through when facilitating these payments. It is true that the beneficiary could apply for the license without the EU bank knowing. However, irrespective of the compliance obligations being met, it is believed that many EU banks would refuse the transaction if they knew of its nature and that the beneficiary had acted in such a way.

It would be unimaginable to go into Bank of America and ask them to procure a license from OFAC so that a US exporter client of theirs could engage in trade with Iran and receive payment for such trade. As it stands now, most US banks don’t desire processing a transaction authorized by OFAC even when the account holder has obtained the license themselves, much less when the bank would have to take on the added work of drafting, submitting and waiting on an OFAC license application. And yet, that is exactly what the EU banks are tasked with doing.

So this is all the EU’s fault then, right? Not at all. US sanctions have contributed to the problem in a variety of ways from massive penalties to the wielding of secondary sanctioning authorities.

It should be understood that non-US sanctions, and the way they are crafted, have also contributed to the failure of food and medicine exports in reaching Iran. Since the US has taken the lead on the implementation of sanctions targeting Iran, it should also take the lead on how to address the unintended consequences of those sanctions and their implementation.

Special thanks to Nigel Kushner from W Legal for his insight that contributed to the drafting of this post.

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.

via Sanctions Law

I suppose the President has gotten tired of Congress getting all of the attention when it comes to imposing new sanctions on Iran. Earlier this week, he issued a new executive order implementing certain sanctions that were previously called for in the Iran Freedom [...]]]> by Erich Ferrari

via Sanctions Law

I suppose the President has gotten tired of Congress getting all of the attention when it comes to imposing new sanctions on Iran. Earlier this week, he issued a new executive order implementing certain sanctions that were previously called for in the Iran Freedom and Counter Proliferation Act (IFCA) and adding some new sanctions of his own. Here are the highlights:

1) Energy Sanctions: These sanctions target activities related to the exploration, extraction, production, refinement, or liquefaction of petroleum, natural gas, or petroleum products in Iran. They allow for the targeting of those parties involved in the supply or provision of goods or services that contribute to Iran’s ability to develop its domestic petroleum resources, the maintenance or expansion of Iran’s domestic production of petroleum products; and Iran’s ability to import or export petroleum or petroleum products.

2) Shipping Sanctions: These sanctions target activities related to the transportation of goods by seagoing vessels flying the flag of the Islamic Republic of Iran, or controlled directly or indirectly by the Government of Iran. When these sanctions go into effect they will already target the National Iranian Tanker Company and the Islamic Republic of Iran Shipping Lines. These sanctions will allow for the targeting of those parties involved in the provision of crude and product tankers to Iran, the provision of registry, flagging, or classification services of any kind, the supervision of and participation in the repair of ships and their parts, the inspection, testing, and certification of marine equipment materials and components, the carrying out of surveys, inspections, audits and visits, and the issuance, renewal or endorsement of the relevant certificates and documents of compliance, as they relate to ships and shipping, or the supply or provision of any other goods or services relating to the maintenance, supply, bunkering, and docking of vessels flying the flag of the Islamic Republic of Iran, or controlled directly or indirectly by, or on behalf of the Government of Iran (GOI) or an Iranian person.

It should be noted, however, that if a non-Iranian vessel is transporting non-sanctionable goods to or from Iran, bunkering in a third country will not be subject to sanctions provided that no other sanctionable activity is involved.

3) Shipbuilding Sanctions: These sanctions target activities related to the construction of seagoing vessels, including oil tankers and cargo vessels, in Iran. Once implemented they will allow for the targeting of those parties involved in the building and refit of vessels, the provision or refit of items such as (i) steam turbines and their parts for marine propulsions; (ii) marine propulsion engines and parts used solely or principally with them; (iii) other gas turbines for marine propulsion; (iv) ship or boat propellers and blades; and (v) direction finding compasses and other navigational instruments and appliances solely for the maritime industry; (vi) the provision of other goods used in connection with building and propulsion of vessels; (vii) and the provision of technical assistance and training relating to, and financing of, the building, maintenance or re-fitting of vessels.

4) Precious Metal and Semi-Raw Material Sanctions: These sanctions will target activities related to the provision of the following raw materials to Iran: various types of steel; aluminum metal and its alloys; base metals of single or complex borides of titanium; beryllium metal and its alloys; boron metal and its alloys; cobalt metal and its alloys; copper infiltrated tungsten metal; copper-beryllium metal; germanium metal and its alloys; graphites; hastelloy; inconel; magnesium metal and its alloys; molybdenum metal and its alloys; neptunium-237 metal and its alloys; nickel metal and its alloys; nickel aluminide metals; niobium metal and its alloys; niobium-titanium filaments; plutonium metal and its alloys; porous nickel metal; silver infiltrated tungsten metal; tantalum metal and its alloys; tellurium metal and its alloys; titanium aluminide metals; titanium metal and its alloys; tungsten metal, tungsten carbide metal, and their alloys; uranium titanium alloy metals; and zirconium metal and its alloys and compounds.

Further, the provision of the following precious metals will also be cause for sanctions targeting: silver (including silver plated with gold or platinum); gold (including gold plated with platinum); base metals or silver, clad with gold, not further worked than semi-manufactured; platinum; iridium; osmium; palladium; rhodium; ruthenium; base metals, silver or gold, clad with platinum, not further worked than semi-manufactured; waste and scrap of precious metal or of metal clad with precious metals, other waste and scrap containing precious metal or precious-metal compounds, of a kind used principally for the recovery of precious metal.

Persons determined by the Department of the Treasury or the Department of State, as appropriate, to have established and enforced official policies, procedures, and controls to ensure that the person does not sell, supply, or transfer to or from Iran, or facilitate or conduct a significant financial transaction to sell supply, or transfer to or from Iran, the materials listed above will not be targeted for sanctions pursuant to IFCA.

5) Industrial Software Sanctions: These sanctions allow for the targeting of parties, pursuant to IFCA, involved in the provision of industrial software to Iran.

6) Insurance Sanctions: These sanctions will, naturally, target the provision of insurance and re-insurance services to Iran, but will not apply in matters involving insuring humanitarian trade in food, medicine, and medical devices, or to parties determined to have established and enforced official policies, procedures, and controls to ensure that the person does not sell, supply, or transfer to or from Iran, or facilitate or conduct a significant financial transaction to sell supply, or transfer to or from Iran, insurance services will not be targeted for sanctions pursuant to IFCA.

7) Financial Sanctions: The new Executive Order also allows for the targeting of foreign financial institutions facilitating any type of significant financial transactions for parties on the OFAC SDN List. These sanctions include a prohibition on opening and maintaining correspondent banking relationships on behalf of such foreign financial institutions.

OFAC has made it clear, however, that these sanctions will not include targeting of foreign financial institutions who 1) facilitate transactions for the provision of agricultural commodities, food, medicine, or medical devices to Iran; 2) conduct a significant financial transaction for the purchase of petroleum or petroleum products from Iran if a significant reduction exception under the NDAA applies to the country with primary jurisdiction over the FFI and the financial transaction is for trade between Iran and the country with primary jurisdiction over the FFI, and any funds owed to Iran as a result of the trade are credited to an account located in the country with primary jurisdiction over the FFI; 3) conduct a significant financial transaction related to the sale, supply, or transfer of natural gas to or from Iran if the transaction is solely for trade between the country with primary jurisdiction over the FFI and Iran, and any funds owed to Iran as a result of such trade are credited to an account located in the country with primary jurisdiction over the FFI; and 4) participating in certain activities related to the pipeline project to supply natural gas from the Shah Deniz gas field in Azerbaijan to Europe and Turkey.

8) Diversion of Goods Sanctions: These sanctions allow for the targeting of parties involved in the diversion of goods intended for the Iranian people or the misappropriation of proceeds from the sale or resale of such goods.

9) Currency Sanctions: These new sanctions allow for foreign Financial Institutions to lose their correspondent and payable-through account relationships with U.S. depository institutions if they are (i) knowingly conducting or facilitating significant transactions related to the purchase or sale of Iranian rials or a derivative, swap, future, forward, or other similar contract whose value is based on the exchange rate of the Iranian rial, or (ii) maintaining significant funds or accounts outside the territory of Iran denominated in the Iranian rial.

10) Automotive Sanctions: The new Executive Order authorizes the imposition of sanctions to impair the ability of foreign financial institutions to obtain correspondent and payable-through accounts in the U.S. and provides for Iran Sanctions Act-style sanctions for certain types of transactions, in cases where the provision of significant goods or services used in connection with Iran’s automotive sector have been made. That sector includes the manufacturing or assembling in Iran of light and heavy vehicles including passenger cars, trucks, buses, minibuses, pick-up trucks, and motorcycles, as well as original equipment manufacturing and after-market parts manufacturing relating to such vehicles. The goods and services implicated include goods or services that contribute to (i) Iran’s ability to research, develop, manufacture, and assemble light and heavy vehicles, and (ii) the manufacturing or assembling of original equipment and after-market parts used in Iran’s automotive industry.

11) Sanctioned Parties Sanctions: As if targeting an entity for sanctions wasn’t enough, the new Executive Order targets parties deemed to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to, or in support of, (i) Iranian persons included on the SDN List as well as other persons included on the SDN List whose property and interests in property are blocked pursuant to Executive Order 13599, and (ii) persons whose property and interests in property are blocked pursuant to subsection 2(a)(i) of the E.O. Certain activities relating to the pipeline project to supply natural gas from the Shah Deniz gas field in Azerbaijan to Europe and Turkey are excepted from the material support provision of the E.O., as are Iranian depository institutions solely blocked pursuant to Executive Order 13599.

That’s all for now. There is a lot of news about these new sanctions so surely additional commentary will be forthcoming soon. Stay tuned.

– 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.

by Jasmin Ramsey

Press reports about medical supply shortages in Iran, some of which have described devastating consequences, have been surfacing in the last two years, while debate rages on about who’s responsible — the Iranian government or the sanctions regime. Siamak Namazi, a Dubai-based business consultant and former Public Policy [...]]]> via Lobe Log

by Jasmin Ramsey

Press reports about medical supply shortages in Iran, some of which have described devastating consequences, have been surfacing in the last two years, while debate rages on about who’s responsible — the Iranian government or the sanctions regime. Siamak Namazi, a Dubai-based business consultant and former Public Policy Fellow at the Woodrow Wilson Center for International Scholars, admits the Iranian government shares responsibility but says sanctions are the main culprit. Humanitarian trade may be exempted from the sanctions, says Namazi, but that isn’t enough when the banking valve required to carry out the transactions is being strangled. “[I]f [sanctions advocates] maintain the sanctions regime is fine as it is, then how come they try to promote substitution from China and India?” asks Namazi. The following Q&A with Namazi was conducted in Washington, DC.

Q: You recently authored a policy paper published by the Woodrow Wilson Center where you essentially blame medical shortages in Iran on Western sanctions. How did you reach this conclusion?

Siamak Namazi: We concluded that the Iranian government deserves firm criticism for mismanagement of the crisis, poor allocation of scarce foreign currency resources and failing to crack down on corrupt practices, but the main culprit are the sanctions that regulate financial transactions with Iran. So, while Tehran can and should take further steps to improve the situation, it cannot solve this problem on its own. As sanctions are tightened more and more, things are likely to get worse unless barriers to humanitarian trade are removed through narrow adjustments to the sanctions regime.

My team and I reached these conclusions after interviewing senior officers among pharmaceutical suppliers, namely European and American companies in Dubai, as well as private importers and distributors of medicine in Tehran. We also spoke to a number of international banks. None of us had any financial stake in the pharmaceutical business, whatsoever, and we all worked pro bono.

Q: What is your basis for this claim given the humanitarian exemptions to the sanctions regime that allow for the trade of food and medicine?

Siamak Namazi: The US Congress deserves kudos for passing a law making it abundantly clear that humanitarian trade in food, agricultural products, medicine and medical devices are exempted from the long list of sanctions against Iran. This law is the reason why the Western pharmaceuticals can do business in Iran. I sincerely applaud that gesture.

Unfortunately, what we see is a case of what lawyers refer to as “frustration of purpose.” Iran can in theory purchase Western medicine, but in practice it is extremely difficult to pay for the lifesaving drugs it needs. Despite the Congressional directive, a number of Executive Orders that restrict financial transactions with Iran remain in place, making it all but impossible to implement that exception.

Sanctions also limit Iran’s access to hard currency. The country’s oil sales are seriously curtailed and have effectively been turned into a virtual barter with the purchasing country, mainly China and India.

Q: Not all Iranian banks are blacklisted by the US and there is a long list of small and large international banks that could carry out humanitarian transactions. Why can’t Iran use these channels for importing the medicine it needs?

Siamak Namazi: The non-designated Iranian banks are small and lack the international infrastructure required to wire money from Tehran to most foreign bank accounts. They rely on intermediary banks to process such transactions. Unfortunately, it’s extremely difficult, if not outright impossible, for these Iranian banks to find such counterparts, even when they are trying to facilitate fully legal humanitarian trade.

In the end, Iran needs to go through many loops and plays a constant cat and mouse game, creatively trying to find a channel to pay its Western suppliers of medicine. Not only does this increase the costs of medicine for the Iranians, it also causes major delays. In the meanwhile, pharmacy shelves run empty of vital drugs and the patient suffers.

Q: Isn’t that just a reflection of the international banks being too cautious rather than shortcomings in US sanctions laws? In a recent testimony to the Senate, US Treasury Undersecretary David Cohen was clear that no special permission is required to sell humanitarian goods to Iran and foreign financial institutions can facilitate these permissible humanitarian transactions.

Siamak Namazi: What Mr. Cohen actually said is that all is fine “as long as the transaction does not involve a U.S.-designated entity,” meaning a sanctioned Iranian bank.

How, exactly, does an international financial institution guarantee that none of Iran’s main banks, all of which are blacklisted, were involved in any part of the long chain involving a foreign currency transfer from Iran? Recall that foreign currency allocation for pharmaceutical imports start with the Central Bank of Iran, which is blacklisted. Maybe the CBI wired these funds to the non-designated Iranian bank from monies it holds in say, Bank Tejarat or Bank Melli, potentially adding further layers of banned banks to the chain.

Given the severity of the risk involved — fines that have reached nearly $2 billion in recent months — international banks seek clear indemnity. They want legal clarification that basically says, “You will not be fined for clearing humanitarian trade with Iran, period.”

So far Treasury has refused to grant such a measure, though recent comments by senior officials suggest that the US government has sent out delegations reassuring the banks, without actually making any changes to the letter of the law. While this is a welcome move, and indeed one of the recommendations in the report published by the Wilson Center, it is far from sufficient.

Q: You say that Iran has a hard time finding a banking channel to pay for Western medicine. At the same time, for the first time in many years, Iran purchased $89 million in wheat from the US in 2012. Why were they able to find a banking channel to pay for wheat, but have difficulty purchasing medicine?

Siamak Namazi: My claim is supported by recent US trade statistics showing that exports of pharmaceuticals to Iran dropped by almost 50 percent, but these numbers are ultimately misleading. My understanding is that US trade data only reflects exports from an American port, directly entering an Iranian port, which is a thin slice of the overall trade. This is while most companies send their goods to Dubai, Europe or Singapore and cover the entire Middle East, including Iran, from these hubs. So, when the statistics refer to a drop of sales of medicine from around $28 million in 2011 to half that figure in 2012, the figure grossly misrepresents the scale of the problem.

Let me stress this point again: the loss of $14 million in American-made drugs does not make for a crisis. The real problem is exponentially bigger than this. We are talking about the loss of hundreds of millions of dollars worth of American and European medicine.

You must also keep in mind supplier power in trade. Wheat is a perfectly substitutable good, so Iran is bound to find one supplier that is willing to sell its wheat with extended credit terms, until it secures the hard currency and banking channel to pay for it. A vital drug is often perfectly un-substitutable; meaning that a single company — most often American or European in the case of the most advanced medicines — enjoys a 20-year patent to manufacture it. So if Iran cannot find a banking channel to reimburse the manufacturer for it, it will have to do without that medicine until it can pay.

Q: Why can’t Iran procure its medicine from China, India or Japan — the countries it’s selling oil to?

Siamak Namazi: Iran has already increased its purchase of medicine and medical equipment from all the countries you listed. However, as I stated earlier, due to the highly regulated and patented nature of the pharmaceutical business, vital drugs are often un-substitutable.

Even when there is an alternative drug made by the Chinese, Indians or Japanese, there is an additional barrier. Medicine has to be registered before its importation is permitted. Just like the US has the Food and Drug Administration, Iran, like most countries, has an equivalent body that must approve the medicine. The specific molecule must be registered after thorough testing. In Iran, this process takes an exceedingly long time and should no doubt be improved, though recently they have taken steps to expedite it by making exceptions. The Ministry of Health sometimes allows a drug that was approved for sale in another country to also be imported and sold in Iran. But this rushed process has had major consequences in terms of side-effects. There are even press reports of deaths when substandard drugs were imported.

To be honest, I don’t understand the logic of the advocates of this solution. They argue that the existing humanitarian waivers are sufficient and claim any shortage of medicine in Iran is the consequence of Tehran’s own mismanagement. I have even heard accusations that Iran is intentionally creating such shortages to create public outrage against the US. But if they maintain the sanctions regime is fine as it is, then how come they try to promote substitution from China and India? Besides denying Iranian patients their right to receive the best treatment there is, aren’t they also rejecting the American pharmaceutical companies’ right to conduct perfectly legitimate business?

Q: To be fair, Iran’s own former health minister, Marzieh Vahid Dasjerdi, also accused the government of failing to allocate the necessary resources and lost her job after doing so.

Siamak Namazi: I actually commend the former health minister for her courageous intervention and have also voiced my concern about the misallocation of hard currency in various forums.

That said, I am not in a position to know or comment on the exact nature or circumstances of her dismissal. I can only reference our direct research and findings. We found and verified ample cases where Iran had allocated hard currency for vital medicine, yet the purchase fell through because they could not find a banking channel. This includes the sale of an anti-rejection drug needed for liver transplants by an American pharmaceutical that ultimately failed. Can you imagine waiting years for a donor and when your operation time arrives, being told that you cannot have it because the drug you need is missing?

You need not take our word for it. It is very easy for the US government to verify our claims by talking to the American pharmaceuticals that do business with Iran, or even by reviewing some of OFACs own files. In fact, the US industry lobby USA*Engage recently wrote a letter refuting Undersecretary Cohen’s claims that American companies have no problems dealing with Iran. In their own words: “Despite … clear Congressional directive and long-standing policy, the U.S. Treasury implements Executive Branch unilateral banking sanctions in a manner that blocks the financial transactions necessary for humanitarian trade.”

Q: So is there a solution to all this?

Siamak Namazi: Absolutely, and I have spelled it out in my op-ed in the International Herald Tribune and also in the Wilson Center report. It simply makes no sense to say humanitarian trade is legal, but the banking channel needed to facilitate the trade is restricted. In the case of medicine, the solution is arguably simpler than other humanitarian goods. With fewer than 100 American and European companies holding patents to the most advanced drugs needed, we can craft narrow, but unambiguous exemptions to the banking restrictions, essentially allowing these companies to sell medicine to Iran without undermining the sanctions regime overall.

To address the shortage of hard currency, Iran should be allowed to convert some of its current holdings in Chinese, Indian and other banks around the world into hard currencies for the exclusive purpose of buying medical supplies. Alternatively, the US could revisit its earlier decision on the matter and allow European companies that owe billions of dollars to Iran to settle this debt by paying a pharmaceutical company on Iran’s behalf.

US policymakers are reminded that medicine is highly subsidized in Iran. Imported drugs receive hard currency allocations at a greatly subsidized rate and are again supported through government-owned insurance companies. That means that the Iranian government ultimately gains far fewer rials for every dollar it allocates to an importer of medicine than it does selling its hard currency to importers of most other goods.

– Siamak Namazi, a Middle East specialist whose career spans the consulting, think tank and non-profit worlds, is currently a consultant based out of Dubai. His former positions include the managing director of Atieh Bahar Consulting, an advisory and strategic consulting firm in Tehran. He has also carried out stints as a fellow in the Wilson Center for International Scholars, the Center for Strategic and International Studies and the National Endowment for Democracy. A frequent contributor to international publications and conferences, he has authored chapters in six books and appeared regularly as a commentator in the international media. He holds an MBA from the London Business School, an MS in Planning & Policy Development from Rutgers University, and a BA in International Relations from Tufts University.

by Erich C. Ferrari and Samuel Cutler

In a move alluded to earlier this week by Undersecretary of State for Political Affairs Wendy Sherman, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) has released General License D, authorizing the exportation and re-exportation by US persons [...]]]> via Lobe Log

by Erich C. Ferrari and Samuel Cutler

In a move alluded to earlier this week by Undersecretary of State for Political Affairs Wendy Sherman, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) has released General License D, authorizing the exportation and re-exportation by US persons to Iran of services, software and hardware incident to the exchange of personal communications.

According to the Treasury’s press release, the new general license “aims to empower the Iranian people as their government intensifies its efforts to stifle their access to information.” Prior to today’s action, only those items covered by 31 CFR § 560.540 could be exported to Iran and were limited almost exclusively to free-of-charge online communication services such as Gmail, LinkedIn and Facebook. The relatively limited nature of the exemption generated a great deal of criticism from certain groups that the Obama administration was aiding the Iranian government’s crackdown on dissent by preventing Iranians from accessing technology that could be used to access the internet, circumvent government filters and communicate freely with each other and the rest of the world. Such criticisms were at a fever pitch during the weeks and months following Iran’s June 2009 Presidential Election, where widespread protests gripped the country.

With Iran’s next Presidential Election only two weeks away, the Administration has sought to evade such criticisms this time around through an expansion of authorized exports, the likes of which have not been seen since the passage of the Trade Sanctions Reform and Export Enhancement Act of 2000. Under the new general license, US persons can legally export electronic and communications equipment including cell phones, modems, laptops, tablets, antivirus software, anti-censorship tools, and Virtual Private Networks. Helpfully, OFAC also included Bureau of Industry and Security ECCN classification codes for these products, in order to limit any confusion over what exports are allowed.

Unfortunately, exporters will continue to face numerous hurdles in selling goods to Iran and the effects of the general license will likely not materialize for some time. While payment for newly authorized goods is covered, conducting any financial transactions with Iran remains extremely difficult. If third country banks are reluctant to facilitate payments for the export of medicine and medical devices to Iran, it is unclear whether they will be any more likely to do so for laptops and smartphones. In addition, transactions with individuals and entities who are designated under 31 CFR Chapter V, which can implicate a significant percentage of Iranian companies, are also forbidden and are likely to scare off exporters who may deem such transactions as too risky despite the authorizations contained in General License D. As such, even in a best-case scenario, it doubtful that much will change before Iran’s June 14 election.

That said, there is one aspect of the license that could have an immediate impact. The inclusion of Virtual Private Networks and other software designed to combat censorship may come into play if the same type of unrest occurs after this election as occurred in June 2009. VPNs help evade local internet restrictions by replacing user IP addresses with that of the VPN. Because these tools are usually available for download online, Iranians, especially those with foreign bank accounts, will be able to pay for and access this software almost immediately.

Ultimately the General License D is a positive development and the Obama administration should be applauded for it. There are still concerns that despite the authorizations, the hardware necessary for the conducting of personal communications may still have a difficult time reaching Iran. However, given the way Iranians have been able to get their hands on iPhones, iPads, and iPods over the last few years, maybe it won’t be as difficult as some think.

- Samuel Cutler is a policy adviser at Ferrari & Associates, P.C. and Erich Ferrari is the principal of Ferrari & Associates, P.C., a Washington, DC boutique law firm specializing in US economic sanctions matters.

Photo Credit: Farzad Hamidimanesh

If an international agreement is violated and no one makes a sound, did it really happen?

by Samuel Cutler

A few weeks ago, the State Department imposed sanctions on Greek businessman Dimitris Cambis and his company, Impire Shipping Ltd., pursuant to the Iran Sanctions Act of 1996 (ISA), for his [...]]]> via Lobe Log

If an international agreement is violated and no one makes a sound, did it really happen?

by Samuel Cutler

A few weeks ago, the State Department imposed sanctions on Greek businessman Dimitris Cambis and his company, Impire Shipping Ltd., pursuant to the Iran Sanctions Act of 1996 (ISA), for his role in operating what Treasury Under Secretary for Terrorism and Financial Intelligence David Cohen described as an “intricate Iranian scheme that was designed to evade international oil sanctions.” While OFAC’s designation has been covered at length, less noticed is the fact that the sanctions on Cambis and his companies seem to violate a Clinton-era pact between the US and EU, in which the US pledged to waive sanctions against EU persons under the ISA, known at the time as the Iran and Libya Sanctions Act.

According to OFAC and an earlier story by Reuters, Cambis used a web of front companies to purchase eight aging oil tankers, worth little more than their weight in scrap metal, in order to facilitate the sale of Iranian crude to China. An example provided by Reuters illustrates how the scheme worked: In early December, the Leycothea, one of Cambis’ ships, anchored alongside the Iranian tanker Marigold off the coast of the UAE Emirate of Sharjah, just across the Persian Gulf, from the Iranian shipping hub of Bandar Abbas. Once anchored, a ship-to-ship transfer took place, concealing the origin of the crude and allowing it to be traded on the global market as non-Iranian oil. About a month later the Leycothea made a port call to China’s Zhanjiang oil terminal. Each of these tankers is capable of carrying approximately $200 million worth of oil per shipment.

In the recent past, the EU has reacted strongly to attempts by the US to impose secondary sanctions on its citizens and companies. Following the passage of the Cuban Liberty and Democratic Solidarity Act of 1996, commonly known as the Helms-Burton Act, the EU filed a World Trade Organization (WTO) challenge alleging that secondary sanctions violated US commitments under the General Agreement on Tariffs and Trade (GATT). While the WTO challenge refers only to the Helms-Burton Act, the EU concurrently voiced serious concerns about the ISA. The EU also passed European Council Regulation 2271/96, which contains legal countermeasures against the extraterritorial application of US sanctions and forbids EU persons “actively or by deliberate omission” from complying with the Cuban Democracy Act of 1992, the Helms-Burton Act, and the ISA. In order to settle the dispute, the Clinton administration entered into an agreement with the EU known as the “Understanding with Respect to Disciplines for the Strengthening of Investment Protection.” In exchange for the withdrawal of the WTO challenge, the United States, among other measures, committed to waiving future ISA sanctions against EU persons.

The SDN designation of Cambis and Impire Shipping represent the first sanctions against an EU person under the ISA. Despite the apparent violation of the Investment Understanding, a response by the EU has been nonexistent so far. This reflects a broader acceptance by the EU of US secondary sanctions, at least when it comes to Iran, over the past two years. Since the passage of the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) in 2010, US and EU Iran sanctions policies have largely come into alignment. The fact that Cambis is a minor player engaged in activities that are sanctionable under both US and EU law likely dampens any enthusiasm for challenging an infringement on EU or Greek sovereignty. In this case, the action might even be tacitly supported by the EU because it allows for the US to do the “dirty work” of imposing sanctions against an EU citizen without granting them the right to present a legal challenge in an EU court, which has recently caused EU policymakers major headaches. What is clear is that at least when it comes to Iran, there are few nations interested in challenging US secondary measures, regardless of past agreements.

– Samuel Cutler is a policy adviser at Ferrari & Associates, P.C., a Washington, DC boutique law firm specializing in US economic sanctions matters.

Photo Credit: U.S. Navy/ Richard J. Brunson

by Siamak Namazi

The United States Treasury has issued a new explanation for the shortage of medical drugs and equipment in Iran. They claim the Iranian government is intentionally trying to exploit the problem for political purposes. A senior US Treasury official recently pointed to just-released US International Trade Statistics (USITS) [...]]]> via Lobe Log

by Siamak Namazi

The United States Treasury has issued a new explanation for the shortage of medical drugs and equipment in Iran. They claim the Iranian government is intentionally trying to exploit the problem for political purposes. A senior US Treasury official recently pointed to just-released US International Trade Statistics (USITS) to support this claim, arguing that while these figures show falling medicine exports to Iran, the export of wheat has gone up, therefore, Iran could use whatever banking it used for the wheat to procure medicine.

Not really. At least the data that’s being referred to proves no such thing.

The USITS data showed a drop from $31.2 million to $14.8 million in US pharma exports from the US to Iran between 2011 and 2012. These figures are highly misleading and seriously discount the scale of the problem. I checked the sales figures of a single large US pharmaceutical company (on the conditional of anonymity) with the person in charge of them out of Dubai. Well, this American company alone experienced a drop of sales to Iran from around $50 million to $20 million during the same time period.

The USITS data simply shows what goods left the US directly for Iran. This is while the US pharma company is likely to have supplied Iran with drugs from a manufacturing or storage facility in Europe, Dubai or Singapore.

The food figures are just as inconclusive. Sure, they went up because of an $89 million sale of wheat in 2012. Keep in mind that $89 million is nothing; it’s peanuts for a country that often imports over $1 billion of wheat. Such a figure probably amounts to one or two single orders at best. When did that take place? Early 2012, before the tightening of sanctions? Was it part of the $1.4 billion Shell-Cargill deal allowing Shell to pay its debts to Iran by crediting Iran’s account with Cargill (if that actually went through?).

All in all, the trade figures of the USITS are irrelevant to the debate at hand.

There are many arguments among pundits when it comes to the overall effectiveness of sanctions against Iran and whether or not they will ultimately persuade decision-makers in Tehran to change their nuclear policies.

But the effect of sanctions on the shortages of medical equipment and drugs in Iran is much easier to assess. Talk to the people in charge of the Iran account among the American and European pharma companies and ask them where the problem is. It’s not that hard to understand: these companies need to get paid and banking channels are very limited while Iran has a shortage of hard currency (I mean Euros and Dollars, not Rupees and Yuan); therefore, the amount of trade is curtailed. Perhaps the fact that only one international bank remains willing to brave the wrath of US sanctions — even though we are talking about fully legal trade under humanitarian exemptions — lends further testimony to where the main problem exists.

Let me be perfectly clear: sanctions are not the sole problem here. The Iranian government deserves stern criticism for its maladroit handling of the shortages of medicine and medical products. It must dramatically improve its foreign currency allocation competence and transparency, as well as governance of the sector, and it must crackdown on corrupt practices.

However, the Iranian government alone cannot solve the issue of Western medicinal shortages. Sanctions are a major impediment and unless Washington and Brussels rethink the humanitarian waivers — specifically by removing the banking bottleneck and allowing Iran to convert some of the money it earns from oil sales to Euros and Dollars for the narrow purpose of clearing trade debt related to medical drugs and equipment — this problem is going to get worse, not better.

A recent study that a group of independent consultants conducted for the Wilson Center explains this issue’s various complications and their solutions in more detail.

– Siamak Namazi is a Dubai-based consultant and a former Public Policy Fellow at the Woodrow Wilson Center for International Scholars.