OFAC

Treasury’s Office of Foreign Assets Control (OFAC) recently held an all-day international trade symposium where it provided guidance on many of its programs, and discussed program requirements and licensing procedures. For those of you who were not lucky enough to attend, here are ten OFAC tips:

  1. As part of the Export Control Reform Initiative (ECRI), OFAC worked with Commerce’s Bureau of Industry and Security (BIS) and Department of State’s Directorate of Defense Trade Controls (DDTC) to create a consolidated screening list.  You can find it here.  Note that it does not include all government lists.  It only combines lists from the big three.  Other lists such as law enforcement wanted persons lists, U.S. General Services Administration excluded party lists, and international blocked persons, wanted, and entity lists are not included in this database.  If you find it necessary for your business, there are software programs available that provide a fully consolidated search of both domestic and international restricted parties.
  2. Despite all the new sanctions laws and recent blogger comments that TSRA can’t survive, Treasury will continue to issue Trade Sanctions Reform and Export Enhancement Act (TSRA) licenses, “but it will be a different environment in which you’ll operate.”  This means you can still get a license to export medicine, medical devices and food stuffs from OFAC.  The new Central Bank sanctions do not shut down the program.
  3. Although the U.S. seems to be restoring its diplomatic relationship with Burma due to Burma’s changing political atmosphere, there are presently no changes to OFAC’s Burma sanctions.  OFAC has not begun licensing beyond the scope of the current Burma program.
  4. BIS will provide an illustrative list of TSRA eligible medical device replacement parts.  Keep a look out.  OFAC and BIS recognize that replacement parts need to be exported.
  5. There is no formal process for expedited OFAC license processing. This needs to be repeated because no one wants to believe this statement.  There really is no formal process for expedited processing.  However, you can tell OFAC if there is an urgent situation.   You can request expedited processing on the top of your license application and OFAC will consider the circumstances.  OFAC has complete discretion and will decide if you really do need to jump the processing line.  In certain rare cases that OFAC considers true emergencies, OFAC will grant your request, but again there is no formal process for expedited processing.  So if some lawyer tells you he can get you a license through expedited processing–call another lawyer.  A business issue is generally not considered an urgent need.
  6. The new SDN Search tool performs a simple search so always try searching in a variety of ways such as last name first, first name first, and using key words. The new OFAC search tool can be accessed at SDN Search.
  7. Screen parties multiple times throughout a transaction.  The SDN list can change daily.  Reliance on an outdated SDN list is a frequent cause of OFAC violations. It is best to run the names at the beginning of your transaction and as a last step before exporting.
  8.  “Legal services” exemptions or general licenses generally cover activities distinct from the registration and protection of intellectual property.  However, depending on the sanctions program, there may be a separate authorization for these activities.  For example, the Iranian Transactions Regulations (ITR) contain a specific authorization for certain patent, trademark and copyright transactions. In other words protecting IP rights is not always authorized under a legal services exemption.  Read general licenses and exemptions carefully.
  9. OFAC violations frequently result from the following actions: misunderstanding the regulations, miscommunication with institutions, failure to escalate SDN matches, failure to comply with the terms and conditions of a license, use of an expired license, and reliance on the due diligence of a freight forwarder.  Make sure your compliance program is thorough and includes checks to avoid these common mistakes!
  10. Read your OFAC license! It does not necessarily include everything you requested and in some cases it contains reporting requirements.

Also note that as the symposium was taking place, OFAC issued guidance concerning the implementation of section 1245 of the National Defense Authorization Act (NDAA) into the Iran sanctions program.  The new guidance can be found on OFAC’s website.

Although I practice within these regulations on a daily basis I have avoided blogging on Iran transactions because the current political situation is causing daily changes to the OFAC program.   Following this recent trend, a new Executive Order (EO) and two general licenses, General License A and General License B, were released on Monday, February 6.  Thankfully, it seems that OFAC understands there might be some confusion with the EO and released FAQs and a Fact Sheet: Implementation of National Defense Authorization Act Sanctions on Iran.

The new EO builds upon the Iranian Transaction Regulations (ITR) and existing sanctions while implementing Section 1245(c) of the National Defense Authorization Action Act for fiscal year 2012 (NDAA).  It blocks property and interests in property of the Government of Iran (including the Central Bank of Iran) as well as any Iranian financial institutions.  This includes anyone owned, controlled, or acting on behalf of either the Iranian government or Iranian financial institutions.  In other words, anyone that meets the definition of “Government of Iran” or is an Iranian financial institution (both denoted by the [IRAN] tag when listed on the Specially Designated Nationals (SDN) list) is blocked.

How is this different from the previous ITR rules you ask?  This is where the devil is in the details.  If you’re thinking that U.S. persons were already prohibited from transacting with these same entities – you’re right!  The difference is that now, rather than banks simply rejecting a transaction, the transactions are blocked, meaning they will be frozen where they are and neither party will have access to the money until the funds are released by OFAC.

There is comforting news. The two General Licenses mainly restate and confirm the existing authorized general licenses and TSRA authorizations.

General License A permits transactions that were previously authorized under the ITR general licenses (minus a couple of specific exceptions) and does not generally allow payments from blocked funds or debits to blocked accounts unless authorized by certain specific licenses.  General License A also reauthorizes most transactions with an authorizing specific license including those under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA). See General License A for more details on unauthorized ITR licenses.

General License B authorizes the transfer of non-commercial personal remittances to or from Iran for or on behalf of someone not defined at the Government of Iran that is ordinarily resident in Iran. Again, this is a reauthorization under the new EO of previously existing allowances.  The transfer cannot be by, to, or through a blocked person except those only blocked by the new EO.  Because U.S. banks are prohibited from operating correspondent accounts for Iranian banks, these transactions should go through intermediary third-country non-U.S. financial institutions.   Conveniently, this license provides an example of an authorized transaction for added clarity. The example explains that personal remittance transfer from one family member in the U.S. to another in Iran would be allowed if the remittance is routed through a third-country bank to an Iranian bank that has not been blocked under any OFAC regulation or EO other than the new February 6 EO. See General License B for more detailed information.  I know that some U.S. banks are still blocking authorized transactions when they receive the funds transfer.  We are working on the best protections for U.S. parties to ensure U.S. banks will allow authorizes transfers.

BE CAREFUL what you read. There is now a lot of misinformation floating around out there as if the Iran sanctions are new.   The real “new” problem is the inability to export legitimate funds from Iran within its banking system and the rial valuation against the dollar. Meanwhile, expect more changes to come from OFAC.

Thailand

While the U.S. has no formal Thai sanctions program (and we love their food and beautiful vacation spots), U.S. businesses may want to take a few extra precautions when dealing with the Thai government these days.  Nalinee Taveesin, formerly Thailand’s trade representative and currently a “Cabinet Member in Thailand’s Prime Minister’s office” is now one of The Office of Foreign Assets Control (OFAC)’s Specially Designated Nationals (SDN).   For those of you that are unfamiliar with blocked parties, OFAC’s SDN list is a list of parties (governments, individuals, businesses, and entities) whose assets are blocked and U.S. persons are generally prohibited from doing business with such listed parties.  Ms. Taveesin was added to the SDN list under the Zimbabwe sanctions for an alleged connection to Robert Mugabe.

For U.S. businesses the real questions are:

What does this mean for U.S. persons?

How does OFAC treat such a listing of a private individual who holds a public office?

Does this mean you can’t do business with her in her official capacity?

According to OFAC as of today, such a listing doesn’t prohibit U.S. persons from dealing with the Thai government.  However, what is clear is that U.S. individuals and businesses should be aware of Ms. Taveesin’s listing and consult OFAC before considering any transactions that might involve or be connected to her. As always, OFAC must evaluate the particular extent of contact with the named SDN in your transaction/business dealings.  A phone conversation is not prohibited but financial dealings would be a no-no.

Burma

In other news, the U.S.’s relationship with Burma (also known as Myanmar), whose U.S. sanctions include a prohibition on import of Burmese products, export and reexport of financial services, and  new investment in Burma,  seems to be moving in a positive direction.  Political reforms in Burma, including the first elections in 20 years and the release of political prisoners, seem to be making real headway in Burmese/U.S. relations.  Hillary Clinton’s December 2011 visit marked the first visit by a U.S. Secretary of State to Burma in over fifty years.  On January 16th and 22nd respectively Senator Mitch McConnell and Senator John McCain (this was his second visit within a year) also visited the country.   This month the U.S. also announced that it will once again be exchanging ambassadors with Burma for the first time in two decades.

While none of these actions ensures a change or scaling back of sanctions against Burma, the U.S. seems to be considering its next moves.  Some Congressmen have been speaking positively on the issue but no one seems to have a decisive plan just yet.  While the U.S. watches and waits to see if Burmese progress continues, the bottom line is this: keep an eye on Burma – we could be seeing big changes soon.

The Office of Foreign Assets Control seems to be making changes by the minute these days. U.S. companies providing services globally need to ensure that they are keeping up with both substantive and procedural changes at OFAC.   Also, U.S. companies must confirm that none of their customers are offering services in a way that violates U.S. law.  For instance, if you provide services to a company that has business or employees in Cuba, Syria or Iran, your company may be unknowingly providing the services to those subsidiaries or employees as well.  Your company has a duty to determine if you are violating the law.  Is your compliance program up to date? Do you have a system for tracking future changes in sanction law and U.S. regulations that may affect your business and/or customers?

Currently, As Mary Jacobs reported in Mainjustice.com, OFAC has increased its “prosecutorial approach” to enforcement.  OFAC’s Director is a former prosecutor and was counsel to the Deputy Attorney General.  OFAC is also getting more efficient in many ways and is using its new knowledge base to become more “procedure oriented” and less discretionary in its determinations.  This is both good and bad.  Today I received a new piece of correspondence from OFAC (via snail mail with no previous email) and it tells me that OFAC is getting a system for handling the barrage of requests for no license required (NLR) confirmation letters.  This correspondence demonstrates a new streamlined approach for NLRs.

Looking forward, with the current political  focus on Iran, the trend may draw more attention to the new Iranian transaction limitations.  For example, the President signed new sanctions into law on December 31, 2011 which will further isolate Iran’s financial sector, enable the U.S. government to deny foreign financial institutions access to the U.S. system if they engage in certain Iranian transactions, and freeze the assets of Iran’s financial institutions.  These sanctions are not yet implemented so it is difficult to pinpoint their full effect on U.S. entities.  What is clear is that these sanctions, although not focused on U.S. businesses and will primarily effect foreign financial institutions, can affect U.S. companies.  Non-U.S. banks may refuse to process Iran-related transactions in order to avoid any chance of triggering U.S. government action against them.  Thus, U.S. companies need to be cognizant of the indirect effects of the sanctions.  In this case, particularly if they are operating under a specific or general license with Iran.

My compliance point is that U.S. service providers can’t assume that they are not affected by these changes.  Internal self-audits must be undertaken to ensure that your compliance programs recognize and include these issues and that you have thought through all the nuances with related overseas parties.  Cloud computing, deemed exports, and re-exports are all issues that need to be reviewed and updated.   With the heightened prosecutorial focus, all global service providers need to be savvy to the changing regulations and update your programs (for example – Iran and Syria have been recently revised).  Such diligence is becoming a full-time job.

As you hopefully know, OFAC and other U.S. government agencies have lists of  “blocked” parties.  U.S. people and businesses are prohibited from doing most activities with the entities on these lists.  In particular, OFAC has a list entitled the Specially Designated Nationals (SDN) list.  This list includes individuals, governments, organizations, and businesses, that OFAC prohibits U.S. persons from transacting with or dealing in/with related property.  OFAC prohibits  the activities through any one of one of its 21 sanction programs meant to enforce economic sanctions and further foreign policy and national security objectives.  Depending on the program, entities can be added to the SDN list for varied reasons such as oppressive treatment of citizens by government regimes, violence, nuclear proliferation, and human rights abuses.

If you export or do business in a country with a sanctions program, you are required to review the SDN list as part of your export compliance.  If you do this screening, you know that the SDN list is a LONG list.  It can also be an unwieldy list.  Many parties have multiple names, addresses, and even aliases.  OFAC publishes the list in different formats, for example by sanction program or country or alphabetically, but it can still be difficult to feel comfortable that you have done your due diligence and properly reviewed the list.  Mistakes are not an option and negligence is not an excuse.  [Now here comes the gift from OFAC.]

On December 7th, OFAC released a new SDN search tool, aptly named SDN Search, that allows you to search the SDN list using several different criteria.  [Find SDN Search here ].  Results can be saved as a spreadsheet or printed and lists names, alternate names, addresses, type of party and the applicable sanction program related to the entity. What you want to do and what every exporter should do as part of its compliance program is run a search and save the spreadsheet or print out in their records.

While this is truly a very useful gift when you are investigating the ability do business with a particular entity in a OFAC sanctioned country, such a search will not protect you from Bureau of Industry and Security’s (Department of Commerce) general export requirement that you must screen all exports against the Entity List found in part 744 of the Export Administration Regulations (EAR).  To make things more complicated, these aren’t even the only government lists out there.  There are actually around 50 government lists (including the two already mentioned)  of restricted parties ranging from wanted persons to debarred parties.  Luckily, software is available that allows you to screen all the restricted parties lists at once.

Of course OFAC gets kudos for providing a search tool.  It is a small step towards the larger goal of easing the exporter’s due diligence burden.  Until Commerce, State and Treasury can accomplish their goal of complete export compliance reform we have to be very happy about each small step.  Happy screening!

Happy Thanksgiving all.   I get questions daily about the dos and don’ts of doing business in Iran.

Here they are in plain English—remember though to check with legal counsel for nuances.  I can’t give specific legal advice through a blog.

Basic Rule:

U.S. persons can’t do any business or facilitate any business or direct or control any business in Iran, period. This applies to exporting and importing things and services. Money is considered a thing, so sending it in either direction is forbidden.  A U.S. person means a U.S. citizen, a foreign person in the U.S. or any U.S.-registered business entity.  U.S. nationals who work for foreign companies, beware, the law applies to what you do at work, even if you work in a foreign country.  If you do it, you violate U.S. law.

As promised, I wanted to provide the list, albeit a short one, of what can be done in Iran by U.S. persons. Even with this list of “dos,” there are still permeating “don’ts,” so – like the warning that you get when taking a new medication – please consult your compliance officer or an attorney who works with the U.S. Department of Treasury, Office of Foreign Assets Control (“OFAC”) for the details.  In some cases you need a license, and in some cases you still won’t be able to do what you want to do unless you follow the correct process.  For instance, even though you can send remittances from Iran, you can’t use an Iranian government-owned bank, and if you are bringing the money over to qualify for an EB2 or EB5 investment visa, you may need a letter from OFAC.

Actions concerning Iran which are permitted:

  • Travel to Iran and related remittances and carrying of personal baggage are permitted.
  • Family remittances to and from Iran are not prohibited, provided they are undertaken through the conventional banking system (note: havaleh transfers are not permitted and can result in prosecution and even prison time). Such family remittances cannot be related to a family-owned enterprise.
  • A U.S. person may receive a monetary inheritance from Iran (however, prior consultation with counsel is suggested because the U.S. bank may require an OFAC letter).  This is a narrow exception.  Any associated sale of property requires a license.
  • Receipt of gifts worth less than $100 is allowed.
  • Importation of household effects from Iran that were actually used abroad for the use of the same household and not for sale or for the use of anyone else or prohibited for some other reason is okay.
  • Information and informational materials may be imported/exported in either direction.
  • Any action for which an individual or company receives a specific or general license from OFAC.

There are also “general licenses” that allow U.S. nationals who work for specific international organizations to do the work of those organizations, that permit certain remittances for humanitarian relief, that allow the transmission of certain services and software over the Internet, and for a few other purposes.  General licenses allow everyone within certain classes of people to do things that would otherwise be violations, but you should not rely on these general licenses without legal advice.

The penalties for violating these laws can be huge, and if you attempt a transaction that is not allowed and it is blocked, you may never get your money or items back.

On August 18th 2011 OFAC simultaneously issued Executive Order 13582 Blocking Property of the Government of Syria and Prohibiting Certain Transactions with Respect to Syria and six General Licenses allowing specific Syrian transactions.   Over the last 40 days, eight more General Licenses were issued amounting to fourteen General Licenses in total.  Today’s post concerns Licenses one through six.

They are:

1.      Syrian Diplomatic Missions in the United States

As long as the transaction is not otherwise prohibited, in the U.S. goods or services may be provided to the diplomatic missions of the Government of Syria to the U.S. and to the United Nations as well as to their employees.  However, the provision must be for the conduct of official business or for personal use of the employees of the missions and cannot be for resale.  Provisions to the missions may not involve the purchase, sale, financing, or refinancing of real property.

2.      Authorizing lawyers to provide legal services but a specific license is requires to receive payment of fees and reimbursement of expenses. Services that are allowed include:

  • legal advice and counsel on the requirements of and compliance with U.S. law
  • representation of the Government of Syria in U.S. proceedings
  • initiation and performance of proceedings before a U.S. court or agency,
  • representation of the Government of Syria or other persons before a U.S. court or agency with respect to Syrian sanctions

3.      Entries in Certain Accounts for Normal Service Charges Authorized with Respect to Syria

U.S. financial institutions are authorized to debit accounts that they hold that have been blocked pursuant to certain Executive Orders for payment or reimbursement of “normal service charges” owed by the account owner.  For an explanation of what constitutes “normal service charges” please see part “b” of this License.

4.     Exportation or Reexportation to Syria of Items Subject to the Export Administration Regulations and Related Services:

Department of Commerce licensed or otherwise authorized exportations or reexportations of commodities, software, and technology (items) to the Government of Syria or other blocked parties are authorized. This includes transactions and services ordinarily incident to such actions and services to install, replace, and repair such items.  This license does not include a debit to a blocked   account.

5.      Exportation of Certain Services Incident to Internet-Based Communications Authorized

The exportation of services incident to the exchange of personal communications over the internet available at no cost to the user from the U.S. or by U.S. persons to persons in Syria is authorized.  This includes:

  • instant messaging,
  • chat and email,
  • social networking,
  • sharing of photos and movies,
  • web browsing, and
  • blogging

This does not authorize the direct or indirect exportation of:

  • services with knowledge or reason to know to the Government of Syria or a blocked party,
  • internet connectivity services or telecommunication transmission facilities,
  • webhosting services not used for personal communications,
  • domain name registration services, and
  • items to Syria

OFAC may issue Specific Licenses for other services on a case-by-case basis.

6.      Noncommercial, Personal Remittances Authorized

The transfer of funds to or from Syria or on behalf of an individual ordinarily resident in Syria is authorized if the transfer involves a noncommercial, personal remittance.  Such transfers do not include charitable donations or funds benefiting an entity or funds used to support or operate a business.  The transfer may not be by, to, or through the Government of Syria or a blocked party.

Syrian EB5 Visa Issues

According to OFAC, Syrian EB-5 visa transactions including the transfer of money to the U.S. for investment purposes do not fall under General License No. 2 authorizing certain legal services or General License No. 6 allowing for non-commercial personal remittances.  Under the new regulations, OFAC views such Syrian EB-5 transactions as prohibited services.  Therefore, a regional center will need a Specific License to provide services. Additionally, an immigration lawyer can provide services under the General Exception; however, he/she will need a Specific License to accept funds/payment for such services from Syria. In considering whether a transaction is permissible and eligible for a Specific License OFAC reviews transactional details including who the funds are coming from, where the funds are coming from, and where the funds are going.

In addition to the acquisition of a Specific License, all parties involved in an EB-5 visa transfer including banks, private entities, and businesses through which the money was earned must be screened to ensure no blocked parties are investing.

OFAC has added new entities to the Specially Designated Nationals (SDN) list.  The targeted Syrian sanctions included blocking the Government owed Commercial Bank of Syria and its subsidiary the Syrian Lebanese Commercial Bank.

The White House issued an Executive Order blocking property of the Syrian Government and prohibiting most transactions with Syria.   The Order prohibits:

1.      new investment in Syria by U.S. persons

2.      the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any services to Syria

3.      the importation of petroleum and petroleum products of Syrian origin and any transaction or dealing by a U.S. person in or related to Syrian petroleum or petroleum products

4.      a U.S. person’s approval, financing, facilitation, or guarantee of a foreign person’s transaction if that transaction would be prohibited if done by the U.S. person or within the U.S.

5.      donations to or for the benefit of any person with blocked property or interests

Simultaneously, OFAC issued six General Licenses allowing specific Syrian transactions.  Over the next two months, another eight Licenses were released, making 14 General Licenses in total.