The Office of Foreign Assets Control issued today a Final Rule, without notice or public participation, which, effective immediately, amends the Iranian Transactions Regulations to amend the definition of “Iranian Account” found in § 560.320 of those Regulations. Prior to the amendment, “Iranian accounts” were defined as:

accounts of persons located in Iran or of the Government of Iran maintained on the books of either a United States depository institution or a United States registered broker or dealer in securities.

Under the amended rules the phrase “persons located in Iran” has been replaced by “persons who are ordinarily resident in Iran, except when such persons are not located in Iran.”

The definition is important to exporters because an “Iranian account” can’t be debited in connection with sales to Iran of agricultural products, medicines or medical devices under the Trade Sanctions Reform and Export Enhancement Act of 2000. The definition is also important to banks which are forbidden to service “Iranian accounts.”

OFAC claims that, without explaining why, the new defintion will “facilitate compliance by U.S. financial institutions” and, presumably compliance by TSRA exporters by extension. And that’s the riddle of the day: how exactly does the amendment accomplish that?

The old rule was certainly somewhat ambiguous. How does one determine exactly whether a person is “located in Iran.” Probably simply by looking at the address of the account holder. That’s at least a bright line rule. But the new rule seems even harder to apply. How do you define ordinarily resident? A person could have a U.S. or non-Iranian address where they are sometimes resident even though they ordinarily reside in Iran. When the account is opened under that non-Iranian address, what due diligence can establish that the person is not “ordinarily resident” in Iran. How does my bank know where I ordinarily reside?

Worse, if someone who’s ordinarily resident in Iran, the account is not Iranian while they are not in Iran, but immediately becomes an Iranian account the moment that person sets foot on Iranian soil. How on earth can a financial institution or a TSRA exporter assure that the account holder is outside Iran at the time of the transaction involving the account?

OFAC clearly has something in mind in thinking that this is an improvement, but for the life of me, I can’t tell what. If an Export Law Blog readers have an idea, please share it with the rest of us in the comments section.

Even though Iran’s mobile phone infrastructure was crucial to the ability of Iranians to send to the outside world video, still images and first-hand reports of the events in Iran, Senators Chuck Schumer and Lindsey Graham think it’s a good idea to impose sanctions on two European companies that provided equipment used by Iran’s mobile phone infrastructure. The rush to pitchforks and torches was occasioned by a Wall Street Journal report earlier this week that revealed that Nokia Siemens Networks, a joint-venture of the German and Finnish telecom equipment giants, provided equipment that the Iranian government was using to monitor mobile telephone and Internet communications. A spokesman for the joint venture indicated that the technology provided to Iran was intended for lawful intercepts, a capability provided by the joint-venture and other companies to telcom providers around the world, including the United States. Lawful interception capacity is built into telcom networks to enable interception of communications relating to child pornography, drug trafficking, terrorism and other criminal activities.

Schumer and Graham are proposing to introduce legislation tomorrow that would require U.S. government contractors that export “sensitive technologies” such as the intercept technology to Iran to terminate relationships with Iran before applying for new contracts or renewing existing contracts. The proposed legislation allows the President to waive the restrictions as long as the reasons for the waiver are reported to Congress. If, as Nokia Siemens Networks claims, the intercept capability is inherent in all networking equipment, the Graham-Schumer proposal could have the counterproductive effect of slowing the growth of Iran’s mobile telephone system. At this point, that would seem to benefit the currently embattled Iranian regime to the detriment of ordinary Iranians as well as dissidents in Iran seeking to communicate with the outside world.

Ironically, Schumer and Graham appear not to realize that they might do more for Iranian dissidents and the ordinary Iranian in the street by limiting sanctions rather than increasing them. As we noted in an earlier post, current sanctions, as interpreted by OFAC, arguably prohibit the provision of social networking and similar services, such as Twitter and Facebook, to Iranians, even though these services have been essential to allowing the flow of information from Iran to the rest of the world. More good could be done by legislation expanding and clarifying the information and telecommunications exception to make provision of Twitter, messaging-services, Facebook, YouTube and the like to private citizens in Iran clearly and unambiguously legal.