Archive for the ‘Iran Sanctions’ Category


Feb

2

The Case of the Missing Airline


Posted by at 10:15 pm on February 2, 2016
Category: Iran SanctionsOFAC

Iran Air A300 by allen watkin [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/4vzYqi [cropped]I have spoken before about the weirdness surrounding the E.O. 13599 List, which has some (but unaccountably not all) of the entities controlled by the Government of Iran that were removed by the Office of Foreign Assets Control from the SDN List as part of Implementation Day. As far as U.S. persons and companies are concerned, entities owned or controlled by the Government of Iran are still blocked whether they are on the SDN List or not, and the E.O. 13599 List was designed to flag some (but not all) of those entities owned or controlled by Iran that were once on the SDN list but are still off-limits.

What seems odd is this “some but not all” nature of the E.O. 13599 List. OFAC in its guidance made clear that U.S. persons could not assume that just because an entity was removed from the SDN List but not put on the E.O. 13599 List that it was okay to do business with that entity. Whether any such omission was the result of incompetence, uncertainty, a desire to lay a trap for U.S. exporters or some super secret reason only known to OFAC, no conclusion, OFAC said, should be drawn from such omission.

That being said, the most puzzling instance of an Iranian government entity falling into the uncertain limbo between the SDN List and the E.O. 13599 List is Iran Air. Although it appears that Iran has made several unsuccessful attempts to privatize Iran Air, the best evidence appears to be that Iran Air is owned and controlled by the government of Iran. The Iran Air website is, not surprisingly, cagey about revealing its ownership.

It seems clear that Iran Air was removed from the SDN List in order to make it eligible as an end-user under the new policy permitting licensing the sale of aircraft and parts to Iran. But why it was not added to the E.O. 13599 List is a complete mystery. Certainly OFAC, with the vast apparatus of the U.S. intelligence and spying apparatus, knows precisely whether Iran Air is owned and controlled by the government of Iran. The rest of us are forced to rely on the markedly less reliable Internet which seems to say, in some places and probably inaccurately, that Iran Air may have been privatized and in other places confirms that it is state-owned.

One has to imagine, but hope that it is not the case, that the omission of Iran Air from the E.O. 13599 is simply a trap for the unwary with OFAC hiding in the bushes, poised to pounce on the first U.S. company that dutifully checks the lists and concludes that it can deal with Iran Air.

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Jan

28

SEC Name and Shame Obligation Survives Implementation Day


Posted by at 11:29 pm on January 28, 2016
Category: Iran SanctionsSEC

Shame for Mihaha - graffiti by Gabriel [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/8spfHr [cropped]One of the issues that has received little attention in all the hubbub about Implementation Day is the survival of the name and shame provisions adopted by Congress in section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which amended the Securities and Exchange Act of 1934 to require that all “issuers” who are required to file annual or quarterly reports with the SEC must report certain Iran-related activities by the company itself or its “affiliates.” The activities that must be reported are activities specified in sections 5(a) and 5(b) of the Iran Sanctions Act, sections 104(c)(2) and 105A(b)(2) of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 and any transactions with the Government of Iran or with persons blocked under Executive Orders 13224 or 13382.

These transactions include knowingly

  • Making and investment of $20 million or more that directly and significantly contributes to Iran’s ability to develop its petroleum resources;
  • Providing goods and services valued at $1 million (or an aggregate of $5 million in a 12-month period) that directly and significantly contribute to Iran’s ability to import refined petroleum;
  • Assisting Iran in the development of chemical, biological or nuclear weapons or a destabilizing amount of conventional weapons;
  • Assisting in the transfer of items to Iran that can be used for human rights violations including conventional firearms, stun guns, and hardware, software and technology for monitoring and censorship;
  • Assisting (in the case of foreign financial institutions) the IRGC to acquire weapons of mass destruction or delivery systems for such weapons; or
  • Engaging in any transaction or dealing with the Government of Iran or any company owned by the Government of Iran “without the specific authorization of a Federal department or agency.”

Significantly, section 219 may require disclosure of activity that is not prohibited under U.S. sanctions. If any of the above described transactions is engaged in by a foreign company (that is not a subsidiary of U.S. company) and does not involve any U.S. origin goods, the transaction, although subject to one or more sanctions (such as debarment from U.S. government procurement), is not prohibited as a matter of law.

Some, but not all, of the secondary sanctions listed above were lifted on Implementation Day for foreign firms (other than those that are U.S. subsidiaries). Nevetheless, the reporting requirements set forth in section 219 remain in place for those foreign firms that are also issuers required to file annual or quarterly reports.

The situation is somewhat more complex for foreign companies that are owned or controlled by U.S. companies. Prior to Implementation Day, the activities listed above were absolutely prohibited to those companies. Now, General License H  permits some (but, again, not all) of those activities (provided no U.S. persons facilitate those activities other than through revising policies or making global IT systems available). Importantly, it permits, for foreign subsidiaries of U.S. companies, transactions or dealings with the Government or Iran and its state-owned enterprises.

As with completely foreign firms, these foreign subsidiaries that are owned and controlled by U.S. companies will be required to report all of the above listed activities, except for one, under section 219. The exception is for transactions or dealings with the government of Iran and its state-owned enterprises authorized by General License H. Because the SEC has stated that a general license constitutes the specific authorization referred to in Section 219, those transactions by foreign subs of U.S. parents will no longer be required to be reported under Section 219. Ironically, because General License H applies only to entities owned or controlled U.S. persons, wholly foreign firms that do not meet that criterion will still be required to report these transactions with the Government of Iran and its state-owned enterprises under section 219.

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Jan

20

Heads We Win; Tails You Lose


Posted by at 10:11 am on January 20, 2016
Category: Iran SanctionsOFAC

Ground Hog by John Sonderman [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/4zUjkf [cropped]Well, Implementation Day has come and gone.  Hassan Rouhani peeked out of his house, did not see his shadow, and his handlers declared that winter would soon be over … at least if you’re in Europe.  If you’re in the United States, not so much, where the sanctions remain pretty much the same, albeit more confusing.  Meanwhile half of the CEOs of European companies are booking first class flights on Air France to Tehran where they will sign lucrative contracts to sell their goods and services.

For U.S. persons, there are a few minor benefits to Implementation Day.   U.S. companies can sell civil aircraft parts to Iran as long as they get a license from OFAC.  And you can now enjoy Iranian foodstuffs such as Iranian caviar and pistachios.   In addition, foreign subsidiaries of U.S. companies can deal with Iran as long as the parent company, its employees and all U.S. persons carefully tread the treacherous facilitation line where one misstep leads to immediate catastrophe, penalties and, maybe, jail terms for all.

The only other benefit of Implementation Day to anyone in the U.S. involves removals of certain persons and companies from the SDN List.  But, but, but (surprise!) there are major caveats.   The removed parties are still blocked and off-limits to U.S. persons if they are part of the Iranian government (including state-owned enterprises) as defined in section 560.304. Second, they can’t be an Iranian financial institution as defined in section 560.324.

Now this is where the fun begins.   Many of the entries removed from the SDN List on Implementation Day were either Iranian government entities or financial institutions.   So, OFAC now has a new list for you to check of people removed from the SDN list who are still blocked and off-limits to U.S. persons.  That’s right:  implementation day brought U.S. citizens yet another list to check.  These are the entities marked with an asterisk in Attachment 3 to Annex II of the JCPOA which are now compiled in the new list, the E.O 13599 List, and which can be found here (at least until OFAC, to keep its web designers employed, reorganizes its website again and breaks all previous links).

But the fun doesn’t stop there.  The federal government, aware of its own incompetence and keen to punish those who rely on it, says this in the otherwise excellent January 16 guidance on the effect of implementation day:

Please be advised that, under the ITSR, U.S. persons continue to have an obligation to block the property and interests in property of individuals and entities listed in Attachment 3 to Annex II of the JCPOA that do not have an asterisk next to their name and are not included on the E.O. 13599 List if such persons meet the definition of either the Government of Iran or an Iranian financial institution as set forth in section 560.304 or 560.324 of the ITSR, respectively.

In plain English, just because we screwed up and didn’t put a removed party on the 13599 List and that party is in fact related to the Government of Iran, we still get to fine you if you blithely assume that removed parties not on the 13599 List are safe to deal with.  Heads we win, as they say, tails you lose.

Happy Implementation Day, everyone!

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Nov

4

OFAC Expands List of Medical Devices Eligible for Unlicensed Exports to Iran


Posted by at 10:28 pm on November 4, 2015
Category: Iran SanctionsOFAC

GE Giraffe Baby Warmer via http://www3.gehealthcare.com/en/products/categories/maternal-infant_care/warmers/giraffe_warmer [Fair Use]

Back in September, we reported on industry criticism of the list published by the Office of Foreign Assets Control (“OFAC”) of medical devices eligible for export to Iran without a license for certain glaring omissions, namely, infant warmers used in maternity units and neo-natal intensive care devices. This seemed ironic given that certain contraceptive devices were on the list, but critical infant care items were not.

Well, OFAC just updated the list to add a number of devices eligible for unlicensed exports to Iran, including “infant radiant warmer and parts and accessories … [and] [n]eonatal equipment (phototherapy, nasal CPAP, etc. and all components).” Whether or not OFAC listened to what we had to say or not, it clearly listened to industry and did the right thing.

There are a substantial number of additions to the new list, too many to detail here, but I noticed certain changes of particular interest. The category of radiology equipment was expanded from a single item (medical ultrasound equipment) to pretty much the full array of radiology equipment: MRIs, X-ray machines, x-ray film, contrasting agents, mammography machines, and tomography scanners.

Also on the list, and it’s hard to understand why this took so long, are hearing aids. It seems to me that we were in no position to say that Iran was not listening to our arguments on nuclear proliferation at the same time we were restricting the export of hearing aids to the Iranians.

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Copyright © 2015 Clif Burns. All Rights Reserved.
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Oct

23

Keeping A List, Not Checking It Twice


Posted by at 9:13 am on October 23, 2015
Category: Iran SanctionsOFAC

Red Rug by Christopher Sessums [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/x7H2Dp [cropped]

BMO Harris Bank on Wednesday escaped an OFAC fine, even though it admitted to having processed six funds transfers totaling $67,357 representing payment by a customer of sums to an Iranian entity from which the customer had purchased Persian rugs. The customer, apparently a retailer that purchased and resold Persian rugs from Iran, had been a bank customer since 2009 when the importation of rugs from Iran was still legal. Because the customer’s name contained the word “Persian,” the bank’s somewhat overzealous interdiction software had been resulting in hits for each transaction by the customer, so the bank put the customer on a false hits list to prevent transactions by the customer from being flagged each time.

On September 29, 2010, OFAC banned the importation of Iranian rugs but, apparently, the bank’s customer didn’t get the message. (That’s what you get for not reading the Federal Register cover-to-cover each morning!) The customer continued to import Iranian rugs and the bank continued to process related wire transactions. In 2011, a suspicious downstream bank in the transaction requested additional information. A Harris Bank employee apparently then learned that the payment was to Iran for Persian rugs but, because the customer was on the false hit list, did not do anything and, as a result, Harris processed five additional transactions for payments to Iran.

Normally such a scenario is a sure-fire guarantee that the company involved will get walloped with an OFAC fine, but in this case OFAC decided to show a little mercy, apparently feeling that the false-hit list was to blame and stating that the bank “may have been unaware of the risks associated with a false hit list that was not reviewed and updated regularly.” This is a bit strange given that the issue here had nothing to do with reviewing and updating the list. The customer, which was on the false hit list, was still a false hit. It had not become an SDN, and the violation did not result from an error in the list.

The violation occurred not because the bank did not review the list but because it did not review the transaction. And this reveals an all-too-common misunderstanding by front line employees about OFAC sanctions. They often see it merely as a list-checking exercise. Is the customer on the list? Nope. Okay, then, everything’s good to go. And this appears to be exactly what happened here. The front line bank employee saw that the customer wasn’t on the SDN list and was instead on the “false hit” list and that was the end of the inquiry

Even though this case really isn’t about a bad false hit list, OFAC used it as an opportunity to issue a “False Hits List Guidance.” The new guidance, if it can really be called that, states the obvious: namely, that false hit lists are a “legitimate” practice as long as you check them periodically to make sure that someone who was not an SDN two weeks ago did not suddenly become an SDN yesterday. Oddly, OFAC does not say anything in the guidance about the glaring lesson from the case at hand, so I’ll say it for them: just because a customer is on the false hit list does not mean that the transaction itself need not be reviewed. (Your welcome, OFAC.)

Of course, I can’t leave the guidance without reference to a tiny bit of silliness in it. The guidance says that a review of the list should be triggered by any “meaningful change” in the customer’s information such as “a change in ownership status, business activity, address, date of birth, place of business, etc.” Wait a second. Does this mean you can change your birth date? Really? Please tell me how you do that. My birthday comes really close to Christmas and I’ve always wanted to move it back into a more present-friendly zone such as June. Also, I bet a number of us would like to shave a few years off that birth date as well.

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Copyright © 2015 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)