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.

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.

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

via Sanctions Law

This was a big year for sanctions. Although 2012 isn’t over yet and there is some pending legislation threatening to impose more sanctions against Iran and a forthcoming set of regulations from OFAC on some of the additional Iran sanctions we saw in the late summer/early fall, [...]]]> By Erich Ferrari

via Sanctions Law

This was a big year for sanctions. Although 2012 isn’t over yet and there is some pending legislation threatening to impose more sanctions against Iran and a forthcoming set of regulations from OFAC on some of the additional Iran sanctions we saw in the late summer/early fall, I thought I would recap some of the big sanction developments of 2012. I may update this list if additional events do come to pass.

December 31, 2011: President Obama signs into law the National Defense Authorization Act (NDAA) of 2012 (NDAA), which includes Section 1245, calling on the President to block all Iranian banks and the Central Bank of Iran.

January 23, 2012: Bank Tejarat is designated under Executive Order 13382 for its involvement in Iran’s weapons of mass destruction proliferation efforts. Tejarat was frequently used to initiate payments for U.S. exports of agricultural commodities, medicine, and medical devices. That same day the European Union (EU) institutes an oil embargo against Iran and targets the Central Bank of Iran for sanctions.

February 6, 2012: President Obama issues Executive Order 13599, effectively blocking all Iranian financial institutions.

February 23, 2012: Designations under the Transnational Criminal Organizations sanctions program applied to a number of individuals believed to be members of Brother’s Circle and Yakuza.

February 27, 2012: The EU applies sanctions to the Central Bank of Syria.

February 28, 2012: The first NDAA deadline passes.

March 15, 2012: EU prohibits SWIFT from providing financial messaging services to EU designated banks.

March 20, 2012: First NDAA exemptions are announced. Eleven (11) countries receive sanctions waivers.

April 23, 2012: The Grave Human Rights Abuses by the Governments of Iran and Syria Via Information Technology (GHRAVITY) executive order is issued.

May 1, 2012: Foreign Sanctions Evaders Executive Order is issued.

May 16, 2012: Yemeni Sanctions Executive Order is issued. EU suspends sanctions targeting Burma.

May 22, 2012: Belarus based JSC CredexBank is targeted as a financial institution of primary money laundering concern under Section 311 of the USA PATRIOT Act.

June 6, 2012: The United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) announces $619 million sanctions settlement against ING Bank. The announcement marks the largest settlement in the history of OFAC.

June 11, 2012: 2nd NDAA exemptions are announced.

June 28, 2012: 2nd NDAA deadline concerning oil activity and public/private banks.

July 1, 2012: EU Oil Embargo against Iran goes into effect.

July 11, 2012: OFAC issues two general licenses which significantly ease U.S. sanctions targeting Burma.

July 17, 2012: U.S. Senate releases report and holds hearing on the activities of HSBC which includes evidence of money laundering and sanctions violations.

July 31, 2012: First designations under the Comprehensive Iran Sanctions Accountability, Divestment Act of 2010 (CISADA). Kunlun Bank and Elaf Islamic Bank added to the new Part 561 List. President Obama also issues Executive Order 13622 implementing further sanctions against Iran, specifically targeting the National Iranian Oil Company, and Naftiran Intertrade Company.

August 6, 2012: New York Department of Financial Services announces violations of banking laws and sanctions by Standard Chartered Bank.

August 10, 2012: The Iran Threat Reduction and Syria Human Rights Act of 2012 (“TRA”) is signed into law.

October 9, 2012: Executive Order 13628 issued. U.S. parent companies become liable for their foreign subsidiaries dealings with Iran.

October 11, 2012: MS-13 is designated under the Transnational Criminal Organizations sanctions program.

October 15, 2012: EU bans dealings between EU financial institutions and Iranian banks.

– Erich Ferrari an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.

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: