International Law Advisory - OFAC Amends Iranian Transactions Regulations

OFAC Amends Iranian Transactions Regulations

The United States Department of the Treasury, Office of Foreign Assets Control (“OFAC”) published in yesterday’s Federal Register a final rule amending the Iranian Transactions Regulations (ITR).  See, 71 Fed. Reg. 53,569 (Sept. 12, 2006).  The purpose of the amendment is to cut off a large Iranian government-owned bank, Bank Saderat, from the U.S. financial system by prohibiting transactions directly or indirectly involving Bank Saderat. 

The amendment, retroactively effective as of September 8, 2006, revokes prior authorizations granted under a general license as they relate to Bank Saderat.  OFAC explains that “Bank Saderat has been a significant facilitator of Hizballah's financial activities and has served as a conduit between the Government of Iran and Hizballah, Hamas, the Popular Front for the Liberation of Palestine-General Command, and Palestinian Islamic Jihad.”

The rule makes three key amendments to the following sections of the ITR:

1. Section 560.516: The ITR currently allow U.S. depository institutions and registered brokers and dealers to process funds transfers involving Iran if certain criteria are met (i.e., the transfer is from one foreign non-Iranian bank to another, or the transfer arises from a licensed, non-prohibited, or exempt transaction under the ITR).  The new rule adds a paragraph, Paragraph (f), to the regulation to revoke applicability of the general license to Bank Saderat.  Therefore, no such transaction is permitted if Bank Saderat is directly or indirectly involved in the transaction.  OFAC has granted U.S. persons utilizing the general license 90 days from September 8, 2006 to achieve compliance with this restriction by winding down or completing performance on such transactions.  For specific licenses issued pursuant to Section 560.516(b) to obtain letters of credit, the compliance window is 180 days.
2. Section 560.405: OFAC has amended this interpretive section of the regulations to confirm that transactions with Bank Saderat will not be permitted as transactions ordinarily incident to licensed transactions and necessary to give such transactions effect.  As with the revisions discussed above, OFAC has granted U.S. persons a grace period of 90 days and 180 days to wind down and complete performance on transactions involving Bank Saderat pursuant to general and specific licenses, respectively. 
3. Section 560.532(b): The rule amends this provision to confirm that it will not issue specific licenses involving Bank Saderat for payment terms and trade financing of commercial sales and exportation or reexportation of agricultural commodities and products, medicine, and medical devices not authorized by the general license.  Again, OFAC has granted U.S. persons a grace period of 90 days and 180 days to wind down and complete performance on transactions involving Bank Saderat pursuant to general and specific licenses, respectively. 

In addition to the changes described above, OFAC clarifies the entities between which transfers can be made under Paragraph (a) (1) of Section 560.516 of the ITR.  This part of the ITR authorizes the transfer of funds to or from Iran, or for the direct or indirect benefit of persons in Iran or the Government of Iran, if the transfer is by order of a non-Iranian foreign bank from its own account in a domestic bank to an account held by a domestic bank for a second non-Iranian foreign bank.  The new rule removes the word “second”, clarifying that U.S. banks are authorized to make transfers between accounts held by different branches of the same non-Iranian foreign depository institution.

We will continue to keep you apprised of this and other developments related to export controls and sanctions regulations.  If you have any questions regarding this rule or the ITR, please feel free to contact Ed Krauland 202.429.8083.