New OFAC General License No. 8 Authorizes Agricultural Commodity and Medical Commodity Transactions Involving the CBI

Effective February 27, 2020, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury issued General License (GL) Number 8 to authorize certain humanitarian transactions involving the Central Bank of Iran (CBI).  As discussed further below, GL No. 8 and other measures taken by the US Government should now facilitate transfers, transactions, and certain activities related to the exportation and reexportation of agricultural commodities, medicines, and medical devices to Iran. Before issuance of GL No. 8, humanitarian trade from the United States and involving U.S. persons had been significantly and negatively affected based on the US Government’s “maximum pressure” campaign against the Government of Iran. First, as previously advised, on September 20, 2019, OFAC designated the CBI as a Specially Designated National and Blocked Person (SDN) under the Global Terrorist Sanctions Regulations (GTSR).  Although the CBI had previously been named a SDN as the GOI under the Iranian Transactions Sanctions Regulations (ITSR) and off-limits to most US person transfers and dealings, the GTSR designation called into question exiting GLs applicable to humanitarian trade by US persons and also raised the possibility of secondary sanctions being imposed against non-US, foreign persons for engaging in significant transactions with GTSR SDNs related to Iran. Second, effective November 14, 2019, the Financial Crimes Enforcement Network (FinCEN) of the US Department of the Treasury published a final rule designating the Islamic Republic of Iran as a jurisdiction of primary money laundering concern and imposing special measure five under section 311 of the USA PATRIOT Act of 2001, as amended, against all of Iran’s financial institutions.  Although this action followed a proposed rule issued in 2011, in the final rule, FinCEN prohibited any US financial institution from opening or maintaining in the US a correspondent account for, or on behalf of, any Iranian financial institution (unless authorized or exempt). As a result FinCEN’s rule required that US financial institutions take reasonable steps not to process a transaction for the correspondent account of a foreign bank in the United States if such a transaction involves an Iranian financial institution. Third, on January 30, 2020, Brian H. Hook, Special Representative for Iran and Senior Policy Advisor to the Secretary of State, discussed coordination with the Department of Treasury about completing a sale and delivery of cancer drugs and transplant drugs to Iran as part of working with the Swiss government on a new financial channel for humanitarian goods. As part of that briefing, Mr. Hook stated: “We want companies to take advantage of the exemptions in our sanctions regime for food, medicine, medical devices, and agricultural products.” Now, subsection (a) of GL No. 8 authorizes the following: Transactions and activities described in general licenses or authorized under specific licenses set forth in the following sections of 31 CFR Part 560:

• 560.530(a) or (b) – Commercial sales, exportation, and reexportation of agricultural commodities, medicines, and medical devices, and certain related software and services;
• 560.532 – Payment for and financing of exports and reexports of agricultural commodities, medicines, and medical devices, and certain related software and services; and
• 560.533 – Brokering sales of agricultural commodities, medicine, and medical devices.

Transactions and activities ordinarily incident and necessary to transactions with regard to the CBI sanctioned under OFAC’s GTSR and ITSR programs:

• 560.516 – Transfers of funds involving Iran; and
• 560.405 – Transactions ordinarily incident to a licensed transaction authorized.

Be aware that Note 1 to subsection (a) of GL No. 8 does not authorize the export or reexport of goods to the CBI.  Also, Note 2 provides that even though §560.530(d)(5) of the ITSR excludes from the scope of §560.530 any transaction or dealing with a person that is blocked under the GTSR, GL No. 8 authorizes certain transactions involving the CBI that would otherwise be prohibited.  Finally, subsection (b) of GL No. 8 makes clear that the authorization does not authorize humanitarian-related transactions involving Iranian financial institutions designated under the GTSR (Executive Order 13224) other than the CBI. Any transactions otherwise prohibited by the ITSR must be separately licensed pursuant to the ITSR. Effective February 27, 2020, OFAC also published new Frequently Asked Question (FAQ) No. 821 reiterating the discussion above, and also including the following notable statement:  For example, if a U.S. person could have relied on general or specific licenses pursuant to sections 560.530(a) or (b), 560.532, or 560.533 of the ITSR to engage in certain activities prior to the CBI’s designation under E.O. 13224, GL 8 provides the additional authorization needed to engage in such activities. In addition, even though neither GL No. 8 nor FAQ No. 821 explicitly references any payment channel, the Secretary of the Treasury issued a press release about the United States and Switzerland finalizing the so-called Swiss Humanitarian Trade Arrangement (SHTA).  The statement provides that SHTA presents a voluntary option for facilitating payment for exports of agricultural commodities, food, medicine, and medical devices to Iran “in a manner that ensures the upmost transparency.”  Consequently, SHTA participating financial institutions must undertake enhanced due diligence to ensure that humanitarian goods reach the people of Iran and are not misused by the GOI.  The release directs that companies within Swiss jurisdiction that have questions should contact Switzerland’s State Secretariat for Economic Affairs (SECO), including entities that are owned or controlled by U.S. and third-country persons and domiciled in Switzerland. Finally, the statement seems to open a door for other foreign governments and foreign financial institutions interested in establishing a humanitarian mechanism to contact OFAC. As a result, GL No. 8 and the SHTA should authorize transfers, activities, and incidental transactions involving the United States and the CBI related to humanitarian trade.  This development should hopefully relieve restrictions targeting Iran that may be viewed as inconsistent with the Trade Sanctions Reform and Export Act of 2000, which required the President to terminate any unilateral agricultural sanction or unilateral medical sanction against a foreign country, absent the application of specific exceptions, and that any future imposition of such sanctions would require a report to and joint resolution by Congress for approval. If you have any questions or concerns about General License 8 or related issues, please contact a member of Steptoe’s economic sanctions team.