What the New Iran Sanctions Could Look Like

There has been a lot of talk over the past week about a new amendment to pending legislation that will impose new sanctions on Iran. A lot of the discussion has revolved around the Obama administration’s opposition to this latest round of sanctions. Essentially, the administration believes that imposing these sanctions at this time would lead to Iran experiencing an economic boon due to spiking oil prices. Lost in all this conversation is what the actual measures to be imposed consist of. What follows is a breakdown of the key provisions to this much discussed amendment:

1. Freezing of Assets of Iranian Financial Institutions. Under this new amendment any property or interest in property of an Iranian financial institution that comes under U.S. jurisdiction is to be blocked. This is already the case for a number of Iranian banks who have been designated under the Weapons of Mass Destruction Proliferation Sanctions or the Global Terrorism Sanctions Regulations. However, with this new amendment the property or interests in property of ANY Iranian financial institution would be blocked.

2. Sanctions Against Foreign Financial Institutions Doing Business with Central Bank of Iran. The amendment would also prohibit U.S. depository institutions from maintaining correspondent accounts with foreign financial institutions which have engaged in significant financial transactions with the Central Bank of Iran. This amendment also allows the President to impose sanctions on Central Bank of Iran under the International Emergency Economic Powers Act (IEEPA). Presumably, this allowance was offered so that the President wouldn’t have to satisfy the mandates of the National Emergencies Act to invoke his IEEPA authority.

3. Exemption for Sales of Food, Medicine, and Medical Devices. The aforementioned prohibitions would not apply to any person conducting or facilitating a transaction for the sale of food, medicine, or medical devices. As readers of this blog may be aware these types of sales are either authorized by general license (in the case of food) or eligible for specific license authorization under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA).

These new sanctions are undoubtedly restrictive and will have more than just their direct effect. Once passed into law these sanctions will have a massive chilling effect upon any Iranian financial institution’s ability to engage in transactions with any foreign banks. Effectively, Congress is throwing down the gauntlet and saying that any bank that does business with Iran cannot do business with the United States. This is not necessarily the best course of action. In addition, to the arguments already put forward by the Obama administration, there will also be the propping up of an increasingly powerful black market economy as those who deal with Iran, both legally and illegally, will be forced to turn to hawala brokers, cash smugglers, and underground money exchangers to transfer funds into and out of Iran. This will lead to tens, if not hundreds, of millions of dollars flowing through a black market economy which cannot be traced and which could potentially fall into the wrong hands. If this amendment is passed into law, we could be looking at a very precarious situation for those seeking to legally divest or trade with Iran.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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A Guide to Iran Sanctions

It’s come to my attention as of late that there is quite bit of confusion regarding what Iran sanctions are. Some believe the sanctions are completely statutory as mandated in the Iran Sanctions Act (ISA) and the Comprehensive Iran Sanctions, Accountability, Divestment Act of 2010 (CISADA). Others focus on just the regulatory trade ban found at 31 C.F.R. Part 560, known as the Iranian Transactions Regulations (ITR). Still there are others who only focus on the blocking of certain Iranian banks under either the Weapons of Mass Destruction Proliferation Sanctions Regulations (WMDPSR) and the Global Terrorism Sanctions Regulations (GTSR). The truth is that Iran sanctions are all of these things and more.

The sanctions regime targeting Iran is comprised of a variety of statutes, executive orders, and regulations. Some of these provisions call for transactions with Iran to be blocked, others enact prohibitions against dealings with Iran and Iranian entities. The following is a non-exhaustive list of the laws that comprise what we refer to as Iran Sanctions:

1. The International Emergency Economic Powers Act (IEEPA): IEEPA grants the authority to the President to impose sanctions. It is a short act that leaves a lot of discretion up to the Executive Branch on when and how sanctions can be imposed. Under IEEPA, the President can prohibit transactions, block assets, and generally impose a wide array of restrictions on dealings with a target country, entity, or individual.

2. Iran Sanctions Act (ISA): First passed in 1996, ISA calls on the President to impose certain sanctions upon foreign entities contributing more than $40 million of investment to Iran’s petroleum sector or on those parties engaging in trade with Iran in violation of U.N. Security Council Resolutions.

3. The Comprehensive Iran Sanctions, Accountability, Divestment Act of 2010 (CISADA): Under CISADA, Congress expanded the provisions of the Iran Sanctions Act (ISA) to include prohibiting investment in Iran’s petroleum production, exporting refined petroleum products to Iran, denial of foreign exchange transactions, imposing prohibitions on transfers of credit or payments between, by, through, or to financial institutions that are subject to U.S. jurisdiction, and denial of any transaction with respect to property subject to U.S. jurisdiction.

4. Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA): TSRA calls for the licensing of exports of agricultural commodities, medicine, and medical devices to Iran, Cuba, and Sudan.

5. The Iranian Assets Control Regulations: The Iranian Assets Control Regulations are the first sanctions to be imposed in relation to Iran. They were imposed during the Carter Administration and froze assets belonging to the Government of Iran that were under U.S. jurisdiction.

6. The Iranian Transactions Regulations: The Iranian Transactions Regulations (ITR) are what we commonly think of when we hear the term “Iran sanctions”. The ITR constitutes an expansive trade ban targeting Iran, the Government of Iran, and Iranian entities. In short, the ITR prohibits U.S. persons from carrying out any import or transaction related to Iranian-origin goods or services, any export to Iran of any U.S.-origin goods, services, or technology, and/or the facilitation of any of the aforementioned activities.

7. The Iranian Financial Sanctions Regulations: One of the new sanctions programs mandated by CISADA, the Iranian Financial Sanctions Regulations imposed prohibitions with respect to correspondent accounts or payable-through accounts of certain foreign financial institutions, as well as on persons owned or controlled by U.S. financial institutions.

8. The Iranian Human Rights Abuses Sanctions Regulations: Another of the new sanctions programs mandated by CISADA, the Iranian Human Rights Abuses Sanctions Regulations identified for blocking of assets any persons contributing to human rights abuses in Iran. It also prohibited U.S. persons from engaging in transactions with such targeted parties.

9. United Nations Security Council Resolution 1696: A 2006 U.N. Security Council Resolution which gave Iran one month (to the end of August 2006) to halt its enrichment of uranium and all other “research and development” activities or face the threat of sanctions.

10: United Nations Security Council Resolution 1747: A 2007 United Nations Security Council Resolution which called upon states and international financial institutions to refrain from entering into new commitments for grants, financial assistance, and concessional loans, to the government of the Islamic Republic of Iran. In addition, it imposed an arms ban on export of Iranian arms and related material.

11: United Nations Security Council Resolution 1929: The latest round of U.N. sanctions imposed on Iran. Among the many provisions of United Nations Security Council Resolution 1929, this resolution imposed bans on certain Iranian nuclear and missile development abroad, on arms sales, bunkering services, financial services contributing to Iran’s proliferation efforts. In addition, it called for the blocking of all transactions related to Iran’s proliferation efforts.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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Syrian Sanctions Hurting Ordinary Citizens and Syrian-Americans

There have been a number of recent news articles describing the impact sanctions against Syria are having both on ordinary Syrians living in Syria, as well as those, living abroad. Not surprising to those of us who work in this area, the sanctions are having a serious impact on the lives of those parties that they are not necessarily meant to harm. In a recent National Public Radio article it was written that “Western sanctions are designed to target the government and pressure President Bashar Assad, but every Syrian is grappling with the punishment. For the poor, eggs and meat are now out of reach. For the well-to-do, international banks have stopped processing personal credit cards. For merchants, there is a collapse in demand….”

Part of the U.S. economic sanction program against Syria, much like the sanctions against Iran, Cuba, and Sudan, contains country based sanctions. That means they prohibit U.S. persons, wherever located, from engaging in a number of transactions with Syria or where a benefit is derived in Syria. This includes the following types of transactions:

(a) new investment in Syria;

(b) the exportation, reexportation, sale, or supply of any services to Syria;

(c) the importation into the United States of petroleum or petroleum products of Syrian origin;

(d) any transaction or dealing related to petroleum or petroleum products of Syrian origin; and

(e) Facilitating any of the aforementioned transactions.

The exportation of any services to Syria is the one that will likely put the most innocent Syrians and Syrian-Americans at risk. This is the reason why Syrian merchants can no longer use credit card processing machines, why foreign banks will shy away from providing services to Syrians, and why inflation will continue to increase as Syria’s economy suffers from difficulty in finding buyers for its petroleum exports.

While the executive order imposing this country wide band is fairly new–it was imposed on August 18, 2011–it seems to already have impacted average Syrians. Although the government agency tasked with enforcing U.S. sanctions, The United States Department of the Treasury Office of Foreign Assets Control (OFAC), has promulgated some general licenses and provided some guidance which reduces the expansiveness of these country wide sanctions, there is still exposure for those who continue to deal with Syria particularly those ordinary U.S. persons who do not realize the extent of U.S. economic sanctions against Syria. For those parties it would be advisable to seek out counsel familiar with the new Syrian sanctions to ensure full compliance with the law.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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Iran Unconcerned About Proposed Central Bank Sanctions Designation

Iran is dismissing threats by the United States that sanctions would be imposed upon the Central Bank of Iran as retaliation for an the alleged “Iran Terror Plot”, Iran contends that even if the U.S. were to attempt to move forward with the designation that the United Nations would block the plan and other central banks would not accept it.

As is well known, the United States and its European allies have already pushed the United Nations to impose multiple rounds of sanctions over Iran’s nuclear program and have taken it upon themselves to impose their own unilateral sanctions programs which have had the effect of deterring investment in Iran’s oil sector and have increased the difficulty associated with moving money in and out of the country. Targeting the Central Bank of Iran for sanctions would in theory make it more difficult for Iran to receive payment for exports.

Earlier this year, such difficulties were evidence when Iran was temporarily unable to receive payment of nearly $5 billion of petrodollars from India due to that nation’s discontinued use of the payment system previously being utilized to pay Iran.

Although the U.S. has taken steps to designate some of the parties alleged to have been involved in the plot, President Obama has stated that he will act to bring international support for even tougher sanctions on Iran.

As most readers of this blog are aware, U.S. persons are already generally prohibited from doing business with any bank in Iran, including the Central Bank. However, the impact of this designation could effectively shut down all transactions with Iran that are in or will be in rials. Thus, the designation of Central Bank of Iran could have significant consequences on Iran even without international support.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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Another IEEPA Criminal Conviction for Dealings with Iran

Jeng “Jay” Shih, and his company, Sunrise Technologies and Trading Corporation, have plead guilty for conspiracy to illegally export United States-origin computers from the United States to Iran through Dubai, UAE. Due to charge being conspiracy, the maximum sentence is five years in prison and $1 million in criminal fines, as opposed to the traditional criminal penalties under the International Emergency Economic Powers Act (IEEPA) of up to twenty years imprisonment.

In additional to the potential criminal penalties, Shih has also agreed to forfeiture of a money judgment in the amount of $1.25 million. Finally, Shih and his company are denied export privileges for 10 years, although this penalty can be suspended if Shih and Sunrise commit to refraining from any further export violations.

Shih was originally arrested on April 6, 2011, though he and his company were not indicted until April 21, 2011.  According to the facts to which he plead guilty, Shih conspired with a company operating in Dubai, UAE, and Tehran, Iran, to procure United States-origin computers through Sunrise and export those computers from the United States to Iran, through Dubai, without first obtaining a license or authorization from the United States Office of Foreign Assets Control (OFAC). Shih and his company were responsible for the illegal export of 711 units of computer-related goods to Dubai, which were later sent to Iran.

Criminal convictions under IEEPA carry a maximum of 20 years imprisonment. However, in this case Shih was convicted of conspiracy to violate IEEPA, therefore, he will only face imprisonment of up to five (5) years. With less than six months separating the arrest of Shih and his guilty plea, it seems as though the government was giving Shih a break for pleading guilty early on in the process. Indeed, the plea agreement sent to Shih’s defense counsel only kept the deal open until October 3, 2011. Although we do not have the benefit of seeing all of the government’s evidence, based on the indictment and how previous cases of this type have been prosecuted, Shih likely made the right move to plea to the conspiracy charge. If he had gone to trial and lost he would have been looking at a 20 year maximum term of imprisonment with a high likelihood that the bottom of the sentencing guideline range would be nearly five (5) years.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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Criminal Consequences of Violating Sanctions Regulations

Yesterday, the Assistant Attorney General for National Security, Lisa Monaco, offered a statement before the Senate Judiciary Subcommittee on Crime and Terrorism. The statement discussed the combating of terrorist financing and indirectly offered insight into a side of U.S. sanctions that is not regularly discussed: criminal liability. Below I have outlined some of the more relevant comments and what it means from an OFAC sanctions perspective.

1. “DOJ currently has State Department funded Resident Legal Advisers in Bangladesh, Kenya, Turkey, and the United Arab Emirates who are focused primarily on terrorist financing. In addition, DOJ’s network of 55 RLA’s in countries around the world regularly provide technical assistance to the host government on terrorist financing laws and prosecutions.”

This is only half the story. I also have seen evidence that U.S. government officials are very active in investigating criminal and terrorist financing in foreign countries. This has been particularly true in Africa where a number of recent Specially Designated Nationals (SDN) designations involved quite a bit of direct investigation and participation by U.S. Ambassadors. From what I have seen in these SDN cases, not only are legal advisers in these countries, but the embassies themselves are very active in investigating terrorist and criminal financing in those countries.

2. “Department of Justice attorneys closely review the administrative record compiled for purposes of designating an entity as an FTO, or an individual or an entity as an SDT or SDGT, to ensure that the record adequately supports the factual findings required by the applicable authority and to assess litigation risk in the event that a designation is subsequently challenged by the designated individual or entity.”

In other words, the executive branch will compile the information necessary for the SDN designation and then their own lawyers will review it to make sure it’s ok. In essence, what this means there is no neutral judicial authority which will review the evidence used in the designation. Moreover, the question of litigation risk is often negligible as most SDNs do not have substantial connections in the U.S to have standing in a U.S. court.

3. “Persons and entities designated under those Executive Orders can challenge their designations under the Administrative Procedure Act in district courts.”

Not always. Sure, there have been high profile cases related to designations, however, those plaintiffs were U.S. based entities. The majority of parties on the SDN List are not U.S. based individuals and entities nor do they have substantial connections with the United States. As such, they do not have recourse under the Administrative Procedure Act to challenge their designation in U.S. district courts since they do not have standing.

Other than the aforementioned, Ms. Monaco discussed a number of ongoing criminal investigations and prosecutions related to providing material support to designated terrorists and terrorist organizations. It certainly seems to be an area that DOJ is taking very seriously and one that can impact anyone dealing with sanctions related issues. Those concerned about U.S. sanctions should pay attention to these prosecutions to ensure that they have not engaged in any activity for which other parties are being prosecuted.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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Government’s Jury Instructions in Online Micro Case Give Insight on the Term “Willful”

Last week the U.S. Attorneys Office prosecuting Masood Habibion, Mohsen Motamedian and Online Micro, LLC for, among other charges, violations of the Iranian Transactions Regulations (ITR) submitted proposed jury instructions to the United States District Court for the District of Columbia. Within those proposed jury instructions, the Government sought to clarify the phrase “willful violation of export control laws.”

In their proposed jury instructions, the government set out four (4) elements which must be satisfied for finding that the defendants engaged in a “willful violation of export control laws.” Those elements are as follows:

1. That the defendants exported goods from the United States to Iran, through the United Arab Emirates;

2. That the defendants acted willfully;

3. That a license was required from the Office of Foreign Assets Control (OFAC) before exporting the goods; and

4. That the defendants did not obtain the necessary license.

What is much more interesting than these elements, however, is the clarification the government proposed for the term “willful.” In their proposed jury instructions, the government stated that, “[the] government must prove beyond a reasonable doubt that the conduct alleged of the defendants…..was undertaken with the defendant’s knowledge that the export was unlawful. A finding that a defendant engaged in conduct with the intent to export goods to Iran is, by itself, insufficient to sustain a finding of guilt. The government must prove that the defendant engaged in the conduct with the intent to violate a known legal duty, that is, with knowledge of illegality.”

I was actually impressed with this portion of the jury instruction and thought that the government had offered a very fair standard for determining willfulness. My elation, however, passed once I read the next paragraph. According to the government’s proposed instruction, “While the government must show that the defendant knew that his conduct was illegal……..in this case, the government is not required to prove that any defendant had read, was aware of, or had consulted the relevant Iranian Transactions Regulations, including the licensing requirement in those regulations. The government, however, must prove beyond a reasonable doubt that the defendant knew that his conduct was unlawful. At all times relevant to this case, it was unlawful to export goods from the United States to Iran, either directly or indirectly, without prior approval in the form of a license issued by the Office of Foreign Assets Control in the Department of the Treasury.”

I think the language of this second paragraph confuses the issues as it suggests that the illegality of the conduct is directly tied to the exportation without a license, not merely the exportation itself. At the same time, the government states that the defendants must have known that their conduct was unlawful, but they did not need to be “aware of” the licensing requirement in the relevant regulations. However, if they were unaware of the licensing requirement, they couldn’t have known their conduct was unlawful because they wouldn’t have known that they needed a license. So in that case to have unlawfully exported without a license they must have been “aware of” a licensing requirement.

I think what the government is really shooting for here, and as they accurately state earlier in the instruction, is that the illegal conduct is the export of products to the U.A.E. with knowledge that they would then be shipped to Iran. However, the government’s comment about OFAC licenses later in the jury instruction could cause a juror to be confused as to whether the government is stating that the unlawful conduct is exporting to Iran without a license, as opposed to just exporting to Iran. I look forward to seeing how Judge Huvelle rules on this proposed instruction.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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