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

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

By Erich C. Ferrari and Samuel Cutler

Contained in the Defense Authorization Act (NDAA) of 2013, and signed into law by President Obama on January 2, are sweeping new sanctions targeting Iran over its disputed nuclear program. The new measures target foreign entities engaging in a wide array of transactions with [...]]]> via Lobe Log

By Erich C. Ferrari and Samuel Cutler

Contained in the Defense Authorization Act (NDAA) of 2013, and signed into law by President Obama on January 2, are sweeping new sanctions targeting Iran over its disputed nuclear program. The new measures target foreign entities engaging in a wide array of transactions with Iran, including the sale of any goods supporting Iran’s energy, shipping and shipbuilding sectors, the sale of raw materials such as aluminum, steel, and coal, the provision of insurance, or underwriting services in support of any activity for which Iran has been subjected to US sanctions.

Lawmakers quoted by the Wall Street Journal said that the new sanctions move closer to a complete trade embargo on Iran. Importantly, the US currently maintains a complete trade embargo, with exceptions for humanitarian exports and a positive licensing program for divestment activities and certain academic and cultural exchanges with Iran. The new sanctions will therefore have little impact on the legality of US companies still engaging in licensed trade with Iran. Any new steps that restrict Iran’s ability to buy or sell goods and services would need to be enforced through the threat of US secondary sanctions.

Secondary sanctions, known pejoratively as extraterritorial sanctions, are designed to prevent foreign individuals and entities from conducting activities that US primary sanctions seek to prohibit by imposing various penalties, including revoking access to the US market. They have been increasingly used over the past 3 years by the United States to pressure foreign countries and entities into curtailing their business dealings with Iran. Beginning with the Iran Sanctions Act of 1996 and gaining wide spread notoriety with the Comprehensive Iran Sanctions Accountability and Divestment Act of 2010 (CISADA), the US government maintains the authority to impose secondary sanctions on a wide variety of activity involving Iran, including but not limited to the importation of Iranian crude oil, dealings with entities sanctioned under Weapons of Mass Destruction (WMD) or Terrorism-related programs and the export to Iran of refined petroleum products.

By and large, these measures have been extremely effective at cutting Iran off from large swaths of the global economy. Sanctions on Iranian financial institutions have been particularly effective as most foreign banks are loathe to risk their access to the all-important American financial system and have responded by cutting off all ties with Iran.

The effectiveness of secondary sanctions is largely dependent on buy-in from the rest of the world. Following the passage of new sanctions included in the 2012 NDAA, Iranian oil exports have dropped to under 1 million barrels per day. A number of factors contributed to the sanctions’ success. For example, international concern over the continued development of Iranian enrichment capabilities convinced some states that additional economic leverage was needed to pressure Iran to resume negotiations. While the NDAA directed countries to “significantly reduce” their purchases of Iranian oil, the European Union announced its intention to institute a full oil embargo just 3 weeks after the act’s passage.

This does not mean that all of Iran’s trading partners would have acted in the same manner without the existence of sanctions. An increase in the global supply of crude oil due to greater production levels in Saudi Arabia, Iraq, and Libya coupled with lower demand as result of the global economic slowdown has allowed Iran’s customers to reduce their purchases without dramatically increasing the price of crude. Waivers included in the law have also allowed importers of Iranian oil to gradually reduce their purchases so as not decrease the associated economic costs. So, despite repeated denunciations of US unilateral sanctions in public, China has quietly reduced its purchases of Iranian oil, as have Iran’s other East Asian customers. By complementing new sanctions with robust diplomatic engagement and managing the economic costs of compliance, the United States has been able to ensure fairly broad acceptance of its efforts to economically isolate Iran.

Indeed, secondary sanctions targeting Iran have faced roadblocks in the past when a consensus regarding their utility was lacking. In 1996, Congress passed the Iran and Libya Sanctions Act, which was renamed the Iran Sanctions Act (ISA) in 2006 following Libya’s decision to give up its WMDs. The bill directed the President to sanction foreign companies that provided investments of over $40 million towards the development of petroleum resources in Iran. The EU responded by threatening to file a World Trade Organization complaint against the US due to French petroleum giant Total SA’s involvement in a $2 billion deal to develop Iran’s South Pars gas field. President Bill Clinton was forced to issue a waiver for the project in 1998 and Secretary of State Madeline Albright later promised that similar projects would not be sanctioned. It would be another 12 years before any entity was subjected to ISA sanctions.

The reality is that the Executive’s use of secondary boycotting measures has been fairly limited. For example, only two banks have lost their ability to maintain correspondent banking relationships with the US because of the Iranian Financial Sanctions Regulations mandated by CISADA: Elaf Islamic Bank and Kunlun Bank. Moreover, the Executive branch, not Congress, is tasked with the implementation of the secondary boycotting measures. In other words, while Congress can continue to provide tools for the Executive to impose additional sanctions, the actual implementation is left to the President.

Yet the impact of numerous rounds of congressionally mandated secondary sanctions is greater than the sum of its prohibitions. Due to the confusing and oftentimes overlapping nature of different US sanctions programs, the international business community has in large part withdrawn from the Iranian market in fear of running afoul of US law. Sanctions on Iranian financial institutions have been particularly effective, as the mere existence of CISADA-authorities have convinced most foreign financial institutions to cut off all ties with Iran.

In practice, secondary sanctions are the equivalent of speaking softly, but carrying a big stick. However, the US has departed from the diplomatic strategy of Theodore Roosevelt. Indeed, the latest round of secondary sanctions are a form of neo-big stick diplomacy; the US is now speaking loudly and carrying a big stick.

- 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.

The US-led sanctions regime isn’t directly targeting Iran’s healthcare system but reports continue to suggest that critically-ill Iranians are being affected. The Al Jazeera English clip above squares with Najmeh Bozorgmehr’s Financial Times article from September about how  sanctions on Iran’s Central Bank are preventing critically-ill patients from getting crucial medical aid: