Overview
For additional guidance, please refer to Steptoe's COVID-19 Resource Center.
Exporters, non-governmental organizations, financial institutions, and individuals that are subject to US jurisdiction may require a license from the US Treasury Department's Office of Foreign Assets Control (OFAC) to support COVID-19 relief efforts in territories subject to comprehensive US sanctions (e.g., Crimea, Cuba, Iran, North Korea, Syria) and territories whose governments are subject to stringent US sanctions (e.g., Venezuela).
The purpose of this advisory is to provide exporters, financial institutions, shipping companies, non-governmental organizations (NGOs), and other entities or individuals (especially US Persons, as defined below) with a brief summary of humanitarian general licenses (GLs) that may apply to their transactions, services, and other activities.
A chart of relevant GLs is found below.[1] (Click here for an online, interactive version of the chart. A printable version is also available here.)
In some cases, OFAC’s jurisdiction overlaps with that of the US Commerce Department's Bureau of Industry and Security (BIS), which administers the Export Administration Regulations (EAR), 15 C.F.R. Parts 730-774, for any "item," i.e., commodities, software, or technology, that is "subject to the EAR."[2]
For assistance in understanding how these GLs or other provisions of OFAC regulations or the EAR may apply to your transactions, contact a member of Steptoe's Economic Sanctions team.
When is an OFAC License Required?
Generally speaking, an OFAC GL is required when a transaction is subject to OFAC's administrative jurisdiction, which includes most transactions involving (i) US Persons, (ii) the US financial system, and (iii) certain US-origin items and services.
"US Persons" are defined to include all US citizens or permanent residents (i.e., green card holders), regardless of location; (ii) all entities organized under US law (including their foreign branches); and (iii) all persons in the United States, regardless of their nationality. For the purposes of OFAC's Cuba and Iran sanctions, OFAC's administrative jurisdiction also extends to foreign entities owned or controlled by US Persons.[3]
The US financial system includes (i) US financial institutions; (ii) foreign branches of US financial institutions; (iii) US-based branches of foreign financial institutions; (iv) US-based correspondent accounts; and (v) for the purposes of OFAC’s Iran and Cuba sanctions, foreign entities or branches owned or controlled by US financial institutions.[4]
Where OFAC has not issued a GL covering a proposed export subject to US jurisdiction, the exporter may file an application to request an OFAC-specific license.[5]
"Incidental" and "Necessary" Transactions Also Authorized
As a general rule, OFAC’s jurisdiction-based (i.e., primary) sanctions regulations authorize transactions that are "ordinarily incident to a licensed transaction and necessary to give effect thereto."[6] This authorization covers funds transfers, insurance, shipping transactions, and other types of transactions, provided the underlying export falls within the scope of a GL. In certain circumstances, this authorization may permit exports, reexports, or transfers (in country) of items subject to the EAR that are regulated by BIS, but careful examination of each OFAC sanctions program should be undertaken. This authorization generally does not apply to transactions involving a person named on the OFAC List of Specially Designated Nationals and Blocked Persons (the SDN List), blocked property of SDNs, or other transactions excluded by the terms of the relevant GL, which, for example, may limit dealings with departments, branches, or instrumentalities of a foreign government that is blocked by OFAC, even if not included on the OFAC SDN List.
Persons who are subject to US jurisdiction who engage in transactions that are not authorized by a GL – even transactions involving humanitarian goods or services – can violate OFAC’s primary sanctions. It is essential to review the relevant GL carefully to ensure an underlying export or reexport is covered and authorized. For example, several OFAC GLs do not authorize US banks to process payments for humanitarian exports by non-US persons.
US Secondary Sanctions
Generally, US secondary sanctions contain statutory exemptions for humanitarian trade that does not involve persons on the SDN List (in particular, persons designated as Specially Designated Global Terrorists). OFAC has published this position in multiple statements and advisories. Nevertheless, depending on the circumstances, significant transactions for the export or reexport of humanitarian goods to Iran could potentially be subject to secondary sanctions risk if those transactions involve the Central Bank of Iran (CBI) or other SDNs, as implied in OFAC’s guidance on the Iran humanitarian mechanism discussed below.
With respect to Iran, the US Treasury Department has published GL Number 8 (GL-8) and also issued a guidance on "Financial Channels to Facilitate Humanitarian Trade with Iran and Related Due Diligence and Reporting Expectations" (also known as the "humanitarian mechanism").[7] The humanitarian mechanism allows non-US persons engaged in payments related to humanitarian exports to Iran to receive written confirmation from the US Treasury Department that those payments will not result in a secondary sanctions designation under, inter alia, Executive Order (EO) 13846. (For more information on GL-8 and transactions involving the CBI, read Steptoe’s post on our International Compliance Blog.)
We note that the OFAC guidance does not mandate that the non-US persons or financial institutions use the humanitarian mechanism outlined in the guidance. However, by using the mechanism, non-US exporters and financial institutions may be able to get assurance from OFAC that the transactions involving Iran would not subject the participants to designation risk under US secondary sanctions.[8]
EU Sanctions and Humanitarian Trade
Unlike the wide-ranging measures used in the past, the European Union does not have comprehensive trade embargoes in place, but has rather shifted to a more targeted approach. Even the most restrictive EU sanctions regimes, for example the EU sanctions targeting North Korea, do not strictly restrict humanitarian trade. Consequently, the European Union has not needed to adopt any exemptions from its sanctions frameworks in order to support COVID-19 relief efforts.
However, humanitarian aid granted in the context of the COVID-19 crisis may be affected by an Implementing Regulation[9] issued by the European Commission due to concerns about the continued availability of medical equipment in the European Union. According to these rules, exports of specified personal protective equipment,[10] whether or not originating in the European Union, to most non-EU countries are subject to authorization. Export authorizations shall be granted by the competent authorities of the EU Member State where the exporter is established and shall be issued in writing or by electronic means. (For more information on the European Union's measures regarding trade with medical equipment, read Steptoe’s Client Alert.)
Nevertheless, the European Union continues to provide humanitarian aid to third countries. For example, on March 23, 2020 the European Union's chief diplomat, Josep Borrell, announced that the bloc would send around €20 million in humanitarian aid to Iran.[11] A week later, France, Germany, and the United Kingdom announced[12] the first transaction enabling the export of medical goods worth €500,000 from Europe to Iran had been carried out through the financial channel called the Instrument in Support of Trade Exchanges (INSTEX). This is a big step, as the INSTEX mechanism, set up to shield lines of trade with Iran from US sanctions, had failed to operate since its creation in early 2019. Now that the first transaction is complete, INSTEX and its Iranian counterpart Special Trade and Finance Instrument (STFI) will work on more transactions and enhancing the mechanism. The European Union also supported requests by Iran and Venezuela for support from the International Monetary Fund.[13]
A printable version of the chart is available for download here.
[1] The Appendix provides a non-exhaustive summary of GLs contained in OFAC’s Cuban Assets Control Regulations (CACR), 31 CFR Part 515, Iranian Transactions and Sanctions Regulations (ITSR), 31 CFR Part 560, North Korea Sanctions Regulations (NKSR), 31 CFR Part 510, Syrian Sanctions Regulations (SSR), 31 CFR Part 542, and Ukraine-Related Sanctions Regulations (URSR), 31 CFR Part 589, Venezuela Sanctions Regulations (VSR), 31 CFR Part 591, as well as select provisions of the EAR.
[2] Additional, temporary restrictions may apply to the export of certain items from the United States that are needed to fight the COVID-19 pandemic, which are beyond the scope of this alert.
[3] Pursuant to Section 7121 of Title LXXI of the National Defense Authorization Act for Fiscal Year 2020, OFAC is expected to issue regulations extending its North Korea sanctions to foreign entities owned or controlled by US financial institutions.
[4] Id.
[5] https://www.treasury.gov/resource-center/sanctions/Pages/licensing.aspx
[6] CACR §515.421; ITSR §560.405; NKSR §510.404; SSR §542.404; URSR §589.404; and VSR §591.404.
[7] https://www.treasury.gov/resource-center/sanctions/Programs/Documents/iran_humanitarian_20191025.pdf
[8] To date, only Switzerland has publicly instituted an arrangement for exports to Iran (the Swiss Humanitarian Trade Arrangement (SHTA)) under the auspices of the US Treasury Department's humanitarian mechanism. Parties making use of SHTA may have additional disclosure obligations to the Swiss government, in addition to the US Treasury Department.)
[9] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2020:077I:FULL&from=EN
[10] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2020:077I:FULL&from=EN#page=6
[11] https://video.consilium.europa.eu/en/webcast/eeb658b2-d6dc-48bf-b53e-dfe5888ee488
[12] https://www.gov.uk/government/news/instex-successfully-concludes-first-transaction
[13] https://www.france24.com/en/20200323-eu-to-give-%E2%82%AC20-million-to-aid-sanctions-hit-iran-in-coronavirus-fight
