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 [...]]]>
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 [...]]]>
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
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 [...]]]>
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.
]]>Last Thursday, the Treasury’s Office of Foreign Assets Control (“OFAC”) announced the removal of two parties designated under the Iraq Stabilization and Insurgency Sanctions program (“Iraq Sanctions”). These sanctions were put into law by Executive Orders 13303, 13315, 13350, 13364, and 13438. They target specific individuals and entities associated with [...]]]>
Last Thursday, the Treasury’s Office of Foreign Assets Control (“OFAC”) announced the removal of two parties designated under the Iraq Stabilization and Insurgency Sanctions program (“Iraq Sanctions”). These sanctions were put into law by Executive Orders 13303, 13315, 13350, 13364, and 13438. They target specific individuals and entities associated with the former Saddam Hussein regime, as well as parties determined to have committed, or to pose a significant risk of committing, an act of violence that has the purpose or
effect of threatening the peace or stability of Iraq or the Government of Iraq or undermining efforts to promote economic reconstruction and political reform in Iraq or to provide humanitarian assistance to the Iraqi people.
To date, their remains 218 parties designated pursuant to Iraq Sanctions administered by OFAC. As a result of these designations. US persons are prohibited from engaging in transactions with these parties, and any assets owned or controlled by these parties which come under US jurisdiction are to be blocked. The last time a party was designated pursuant to Iraq Sanctions was over three years ago on December 22, 2009. Since that time, all OFAC actions concerning that program have either been removals or the release of the regulations promulgated pursuant to the above referenced executive orders.
This March will mark ten years since the regime of Hussein was toppled. It has been over six years since Saddam was executed and one year since US troops pulled out of Iraq. So why do we still have Iraq sanctions? Well, sectarian violence is still believed to be rampant throughout the country, which could impact Iraq’s economic reconstruction and political reform. That said, it is interesting to note that the overwhelming majority (around 80-85%) of those designated on the OFAC SDN List pursuant to the Iraq Sanctions have been designated since July 30, 2004, nearly eight and a half years ago, when the new Iraq Sanctions were imposed, and not as a result of an recent ongoing violence in the country.
This phenomenon speaks to one of several conclusions. First, it could be that a large majority of these parties still engaged in the same activities they were engaged in during July 2004 when they were designated. This would suggest that OFAC targeted sanctions have had no impact on changing the behavior of these parties. Taken a step further, this notion would bolster the arguments of those who suggest sanctions do not work. Second, it could be that OFAC just needs to do some house cleaning on the Iraq portion of their SDN List. This is likely, because the agency is obviously geared more towards putting parties on the list than taking them off. Finally, and dovetailing off of the previous point, it could be that none of those parties designated on July 30, 2004 have formally contested their designation by submitting a request for reconsideration pursuant to 31 C.F.R. 501.807. I am unaware of any internal process OFAC has for periodic review of designations, so it may be that as long as the program exists and parties are not contesting their designation, they will remain listed. Regardless of which conclusion is most accurate, the Iraq Sanctions seem to be an atavistic sanctions program, or, at minimum, one that is long overdue for a review.
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.
Photo: The Treasury Annex, located across the street from the US Department of the Treasury headquarters. Source: “AgnosticPreachersKid” Wiki Creative Commons
]]>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, [...]]]>
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.