Archive for the ‘Iran Sanctions’ Category


Mar

31

OFAC May Make a U-Turn on Its U-Turn Ban


Posted by at 10:39 am on March 31, 2016
Category: Iran SanctionsOFAC

Freedom Triumphant by takomabibelot [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/4Au9Zg [cropped and processed]An AP story today suggests that the White House may be considering the return of “U-turn” transactions for permitted sales to Iran. Those transactions, which were eliminated in 2008, allowed, under former section 560.516(a)(1), transactions with Iran to be cleared in U.S. Dollars by permitting non-U.S. banks to use their correspondent banks in the United States. In order to qualify for the exception, both the originating and beneficiary banks had to be non-Iranian foreign banks. In addition, no Iranian banks on the SDN List could be involved and, of course, the underlying transaction could not be one prohibited under U.S. law. So, if an Iranian customer wanted to buy goods from France and pay dollars, the Iranian customer would direct its bank in London to use its correspondent account in a New York bank to send the purchase price in U.S. dollars to the seller’s bank in France.

Of course, even if U-turn transactions are permitted once again by OFAC, there is no guarantee that banks will be willing to process them.   After all, no one has forgotten that the New York Department of Financial Services, believing the it understood OFAC regulations better than OFAC, went after Standard Chartered bank for legal U-turn transactions involving Iran.

Photo Credit: Freedom Triumphant by takomabibelot [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/4Au9Zg [cropped and processed]

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Mar

25

OFAC Issues New General License for Some Aircraft Negotiations with Iran


Posted by at 10:58 am on March 25, 2016
Category: Iran SanctionsOFAC

Iran Air Boeing 747SP-86 by Aero Icarus [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/91vXkv [cropped and processed]Yesterday, the Office of Foreign Assets Control (“OFAC”) published Iran General License I which is designed to permit U.S. persons seeking to sell civil passenger aircraft and parts to Iran to negotiate executory contracts to make such sales provided that all such contracts are expressly contingent upon OFAC approval. Four new FAQs, labelled J.9 through through J.12, were added to explain the general license.

Specifically, the license permits “all transactions ordinarily incident to negotiation of and entry into” contracts for activities eligible for authorization under OFAC’s policy permitting the sale of passenger aircraft and parts to Iran. The general license is needed because the new policy required a license for the sales of those aircraft and parts and, by extension, would require licenses for the negotiations leading to such sales. At least one company had requested and received such licenses, leading OFAC to decide to issue a general license to eliminate the burden of processing such applications.

Not surprisingly, the license excludes any negotiations with “any person whose property and interests in property are blocked pursuant to any part of 31 C.F.R. chapter V other than part 560.” The key language here is “other than part 560.” Some Iranian airlines, and theoretical purchasers of passenger aircraft and parts, are designated under OFAC regulations other than the Iran Transactions and Sanctions Regulations found in part 560. For example, Mahan Air, the éminence noire of Iranian airlines, is sanctioned under part 561 (Iran Financial Sanctions Regulations) and part 594 (Global Terrorism Sanctions Regulations). Iran Air, the great white whale of Iranian airlines, on the other hand, is sanctioned only under part 560 as an entity controlled by the Government of Iran, meaning that negotiations with Iran Air under General License I would be permitted.

The most significant take-away from General License I is less what it specifically permits than what it implies is not permitted.  Many U.S. companies outside the aircraft sector, hoping against hope that all U.S. sanctions against Iran may soon be lifted, are wondering if they can negotiate with potential Iranian customers “just in case” provided any resulting agreement is contingent upon OFAC approval.  The answer now is quite clearly no unless a specific license to do so is obtained from OFAC.

Photo Credit: Iran Air Boeing 747SP-86 by Aero Icarus [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/91vXkv [cropped and processed]]

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Copyright © 2016 Clif Burns. All Rights Reserved.
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Mar

24

Question of the Day


Posted by at 11:24 pm on March 24, 2016
Category: Iran SanctionsOFAC

Cyan Headquarters via Google Maps [Fair Use]
ABOVE: Cyan Headquarters


Today’s question is this: say you are a UK-based company that manufactures a product with U.S.-origin content which you want to sell to Iran? How do you do it?

According to this article, you sell the stuff to Iran through your subsidiary in India. Yes, seriously, that’s the answer that was given:

Cyan was also required to check if an export license would be required to export its products from both the UK and the US, since there is an element of its product that originates in the US. “UKTI (UK Trade & Investment) was very helpful in assisting us and confirming that no license would be required if we ship our products from our subsidiary in India …,” explains John [Cronin, Chairman of Cyan].

Oh dear. Let’s hope that’s a misquote or a misunderstanding. If you are a foreign person with a product with U.S. origin content, section 560.205 of the Iran Transactions and Sanctions Regulations quite clearly state the circumstances in which that product can be sold to Iran. That export is permissible only if the U.S. content has been “substantially transformed” into a new product or if all such content which would require a license from the United States constitutes less than 10 percent of the total value of the foreign product.

It does not say that the foreign person can, as the article suggests the Cyan chairman says, sell the product with U.S. content to Iran if you simply try to sell it through another non-U.S. subsidiary in India or elsewhere. I suspect that, as European companies rush to exploit the Iran market after Implementation Day, this will not be the first possible misunderstanding of the scope of the remaining U.S. rules and when they apply. (I am, of course, assuming that Cyan, in fact, determined the exceptions in section 560.205 applied and that Cronin was either misquoted or misunderstood the actual reason his exports to Iran passed the test.)

Photo Credit:Cyan Headquarters via Google Maps [Fair Use]

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Mar

9

As Epsilon Lay Dying


Posted by at 11:04 pm on March 9, 2016
Category: Iran SanctionsOFAC

Soundstream Audio Car http://www.soundstream.com/images/intl-team/pic/england/england/images/new/UK%20(1).jpg [Fair Use - Soundstream is Epsilon sub]We have followed the saga of Epsilon Electronics extensively, beginning with the The Auto Sound and the OFAC Fury Part I and Part II and ending most recently with Epsilon, Epsilon. Well, it seems that the story may be drawing to a close. On Monday, a federal district court granted OFAC summary judgment on its motion to dismiss Epsilon Electronics complaint challenging the $4.073 million dollar fine imposed on Epsilon by OFAC. The opinion can be viewed and downloaded here.

The court considered each of Epsilon’s arguments and easily dispatched all of them, only barely concealing its opinion that Epsilon’s arguments were largely frivolous. We discussed our own view of Epsilon’s arguments, particularly its bizarre claim that the fine violated the U.S. Constitution’s Excessive Fines clause, in The Auto Sound and the OFAC Fury Part II. The court, not surprisingly, held that the Excessive Fines clause did not preclude the $4 million fine given that Epsilon sold $3.4 million in goods to Iran and given that this fine was only one-third of the statutory maximum.

Epsilon’s due process claim fared no better with the court.   The court paid particular attention to what was, perhaps, Epsilon’s gravest error in its dealing with OFAC, one we noted in Epsilon, Epsilon, our third post on this case.  Two separate subpoenas, the court noted, provided Epsilon with adequate notice of OFAC’s investigation.   The court went on:

Almost two years later, on May 6, 2014, OFAC issued its pre-penalty notice, which informed the plaintiff that it had 30 days to provide a written response to the pre-penalty notice. … The plaintiff provided a two-page response to the pre-penalty
notice on June 6, 2014 … . This series of events shows that the plaintiff had ample opportunity to respond to OFAC’s inquiries into its dealings with Asra International and to OFAC’s detailed pre-penalty notice. Procedural due process demands nothing more.

The court’s reference to the “detailed” pre-penalty notice and the plaintiff’s “two-page” response make clear that the court had little patience for a due process claim once Epsilon had squandered its opportunity to provide an adequate response to the pre-penalty notice.

Finally, the court dismissed Epsilon’s arguments that its sales to Iran were permissible under the “inventory exception” embodied in OFAC’s “Guidance on Transshipments to Iran.” According to the court, the guidance does not permit sales into non-U.S inventory outside Iran where the U.S. exporter has “reason to know” that the goods were ultimately destined to Iran. The court cited, as we have, the distributor’s website as ample evidence that Epsilon had reason to know that its distributor was dealing principally, if not exclusively, with Iran.

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Mar

7

ZTE Zells ZTE Zhells by the Zeashore


Posted by at 5:57 pm on March 7, 2016
Category: BISIran Sanctions

ZTE Stand 6 via http://www.zte.com.cn/cn/events/ces2013/show/201301/t20130110_381605.html [Fair Use]

The Bureau of Industry and Security (“BIS”) is placing Chinese telecom giant ZTE (and three related companies) on the Entity List tomorrow according to this pre-release version of the Federal Register notice announcing the action. As a result, all items subject to the EAR will require an export license prior to any export to ZTE. Under this action, all applications for such licenses will be subject to a policy of denial.

The action is taken as a result of the diversion by ZTE of certain U.S. origin products to Iran. More important, perhaps, than the diversion itself is that BIS caught ZTE playing a shell game and ZTE lost. Somehow or other, BIS got its hands on a ZTE internal document, labelled “Top Secret Highly Confidential” and titled, innocently enough, “Proposal for Import and Export Control Risk Avoidance.” In fact, this incriminating document might be better titled “Everything You Wanted to Know about Shells but Were Afraid to Ask.” It sets out, in excruciating detail, a plan for setting up a chain of shell companies through which the U.S. goods would pass with the hope that it would throw the U.S. government off the scent of what was really going on. Under this plan, a Chinese company owned by an allegedly independent Chinese investor would buy U.S. parts, sell them to another Chinese company, owned by another allegedly independent Chinese investor, which would sell those to another single “independent” Chinese investor company in Dubai, which would then sell the goods to Iran.

Two juicy quotes from the report will give you the idea of what ZTE had in mind:

However, the detached [shell] companies … are invested by natives of [the People’s Republic of China] and not only does our company need to make [the detached shell companies] operate independently, [our company] also needs to effectively control them.

Yea, sure, that works … if you believe in oxymorons and unicorns.

The biggest advantage of [this] Model is that it is more effective, [because it’s] harder for the U.S. Government to trace it or investigate the real flow of the controlled commodities; and in formality, our company is not participating in doing business with [Iran].

Right, “in formality” it’s not doing business with Iran because its being done by those companies that look like they operate independently but which ZTE “effectively control[s].” Game over.

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Copyright © 2016 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)