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Recently the U.S. Treasury Department Office of Foreign Assets
Control (OFAC) issued new Iranian Transactions and Sanctions
Regulations. Notably, the regulations formally address
financing provisions for authorized sales to Iran of agricultural
commodities, medicine and medical devices. Previously such
provisions were found only on OFAC's website, and companies
selling these products to Iran reported issues receiving payment as
banks refused to participate in the transactions.
On October 22, 2012, the U.S. Department of the Treasury's
Office of Foreign Assets Control (OFAC) published a notice
replacing its Iranian Transactions Regulations in their entirety
with new Iranian Transactions and Sanctions Regulations (ITSR),
which will appear at 31 CFR Part 560. Of particular note, the
ITSR formalize provisions for the financing of authorized sales of
agricultural commodities, medicine and medical devices to Iran
pursuant to the Trade Sanctions Reform and Export Enhancement Act
(TSRA). Because these financing provisions previously were
found only in responses to FAQ on OFAC's website, many
companies selling licensed food, medicine and medical products to
Iran reported problems getting paid because banks refused to
participate in the transactions.
Background
The National Defense Authorization Act for Fiscal Year 2012
(NDAA), which was signed into law on December 31, 2011, required
the president to block the property and interests in property
subject to U.S. jurisdiction of all Iranian financial institutions,
including the Central Bank of Iran (CBI). Notably, the NDAA
included an exception prohibiting the president from imposing
sanctions "with respect to any person for conducting or
facilitating a transaction for the sale of food, medicine, or
medical devices to Iran." On February 5, 2012, President
Obama signed Executive Order (EO) 13599, blocking all property and
interests in property of the Government of Iran (GOI), including
the CBI and all Iranian financial institutions. On May 1,
2012, President Obama signed EO 13608, which prohibited
transactions by U.S. persons involving such blocked entities,
effectively cutting these entities off from the U.S. marketplace
and financial system.
Distinguishing Among Iranian Banks
In its FAQ, OFAC outlined key distinctions in the various ways
in which Iranian financial institutions and other entities can be
sanctioned. In short, the [IRAN] tag on OFAC's Specially
Designated Nationals (SDN) List connotes an entity is
"blocked" due to the U.S. Government's identification
of the entity as the GOI and/or as an Iranian financial
institution. "Designated" persons, in contrast,
appear on the SDN List due to the U.S. Government's having
determined they meet the criteria set forth in any of a number of
other EOs concerning, for example, assisting Iran's weapons of
mass destruction development or aiding international
terrorism. Such entities are identified on the SDN List with
various tags other than [IRAN], such as [NPWMD] or [SDGT].
Exempt or authorized transactions to or from Iran (such as
TSRA transactions) may involve the use of a blocked Iranian
financial institution as long as the institution is identified on
the SDN List only with the tag [IRAN] and as long as there
is a third-country, non-U.S. financial institution as an
intermediary between the U.S. financial institution and the Iranian
financial institution. It is not allowable, however, for
banks identified on the SDN List with tags other than or in
addition to [IRAN] to be involved in the transaction in any
way.
The ITSR
New section 31 CFR § 560.532 of the ITSR formalizes these
financing provisions. The new section is discussed in the
preamble to the regulations, which explains that "a new
authorized payment term for all TSRA sales is being added in
section 560.532. New paragraph (a)(4) of section 560.532
specifies that the new payment term is a letter of credit issued by
an Iranian financial institution whose property and interests in
property are blocked solely pursuant to 31 CFR part 560. Such
a letter of credit must be initially advised, confirmed or
otherwise dealt in by a third-country financial institution that is
not a United States person, an Iranian financial institution, or
the Government of Iran before it is advised, confirmed or dealt in
by a U.S. financial institution."
Companies selling food, medical devices and other products
authorized by specific or general license under TSRA should review
the new regulations (77 Fed. Reg. 64,664
(Oct. 22, 2012)). Time will tell whether the formalization of
the financing provisions in the new regulations serves to help make
banks more willing to participate in these transactions.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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