Expanded General License and Updated Guidance Regarding Export of Agricultural Commodities to Iran: US Government Promotes Global Food Security Objectives

Edward Krauland and Jack Hayes
April 22, 2014

On April 7, 2014, the Office of Foreign Assets Control (OFAC) published a final rule in the Federal Register, 79 Fed. Reg. 18,990-18,995, amending a general license in the Iranian Trade Sanctions Regulations (ITSR), 31 C.F.R. § 560.530, that expands authorization for the exportation and reexportation of agricultural commodities, medicines, and medical devices to Iran.  That same day, OFAC updated its Frequently Asked Questions (FAQs) that provide additional guidance and clarification regarding general licenses and specific licenses under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) for agricultural commodities and food items.  Important aspects of the Final Rule and FAQs concerning these products are set forth below.

In addition to the new rule, on April 11, 2014, the  Secretaries of the US Departments of the Treasury and State subsequently sent a letter to global partner countries, civil society groups, and the private sector seeking to expand support for the Global Agriculture and Food Security Program (GAFSP).  The World Bank manages GAFSP, which is a trust fund that promotes food security and sustainability by seeking to provide financing for the agricultural sector in low-income countries, furnish technical assistance to increase agricultural productivity, connect farmers to markets, reduce poverty, and improve rural livelihoods through introduction new crop varieties that could improve nutritional outcomes for farmers and their families. 

Background

OFAC previously issued a rule on October 12, 2011, 76 Fed. Reg. 63,191-63,197, to implement a general license regarding exports of humanitarian items to Iran (and Sudan) that no longer require specific licenses, including bulk agricultural commodities listed in Appendix B to the ITSR.  OFAC also published lists of basic medical supplies, updated on October 22, 2012 and July 25, 2013, that could be exported or reexported to Iran under the general license. 

In response to inquiries from suppliers and financial institutions about expanding secondary sanctions, OFAC also issued public guidance that the general license applies both to US and non-US persons, provided that transactions do not involve Specially Designated Nationals and Blocked Persons (SDNs), such as the Islamic Revolutionary Guard Corps, or other prohibited or deceptive practices.  Notably, OFAC stated that facilitating transactions or financing sales subject to the general license does not trigger sanctions under US law, including processing payments originating from accounts of the Central Bank of Iran (e.g., oil revenues) or from accounts of Iranian financial institutions that have not been named as SDNs. 

Summary of New Rule

The new rule and FAQs establish several important clarifications and expansions of authority.

  • Application to non-US origin items.  Definitions set forth in the new rule include US-origin agricultural commodities, medicines, and certain medical devices that are designated as EAR99 under the Export Administration Regulations (EAR), as well as foreign origin items that would be designated as EAR99 if they were located in the United States.  For example, a US company could arrange for the export from a third country to Iran of agricultural commodities produced in the third country if they would be considered EAR99 under the EAR.  This assumes the exporter or reexporter meets all other conditions of the general license.
  • Application to non-US persons.  Under a new definition of “covered person,” a non-US person may export or reexport agricultural commodities, medicine, or medical devices to Iran if they would be considered EAR99 items whether located in the United States or a third country.  Furthermore, any foreign entity owned or controlled by a US person may engage in generally licensed exports or reexports.  For example, this includes arranging for the reexport to Iran of EAR99 medicines, as well as the export to Iran of foreign produced medicines with no or de minimis controlled US content that would be designated as EAR99 if they were located in the United States.  (OFAC also added a new general license authorizing export or reexport of EAR99 replacement parts for certain medical devices but only if limited to a one-for-one export or reexport transaction.)
  • Certain commodities and users excluded from general license.  Excluded agricultural items include castor beans, castor bean seeds, certified pathogen-free eggs (unfertilized or fertilized), dried egg albumin, live animals (excluding live cattle), embryos (excluding cattle embryos), Rosary/Jequirity peas, non-food-grade gelatin powder, peptones and their derivatives, super absorbent polymers, western red cedar, and all fertilizers.  Additionally, excluded medicines include AID analgesics, cholinergics, anticholinergics, opioids, narcotics, benzodiazapenes, and bioactive peptides.  Finally, the Iranian military and law enforcement are not authorized as end users, nor is any other SDN (e.g., designated for terrorism, weapons of mass destruction proliferation, or narcotics trafficking reasons).  These items and users will continue to require specific licenses to be approved in advance by OFAC.
  • Removal of exclusion for “food items”.  OFAC’s general license published in 2011 included a definition of food items that focused on items that were intended to be consumed by and provide nutrition to humans or animals in Iran.  The term explicitly did not include alcoholic beverages, cigarettes, gum, or fertilizer.  This definition, and the exclusion of all these items, except fertilizer, have been removed and would appear to be authorized as “agricultural commodities” in the amended general license.
  • Specific licenses.  OFAC will no longer be issuing specific licenses for exports or reexports of agricultural commodities authorized under the general license.  Nonetheless, any US person, wherever located, may still submit a specific license application if an item or transaction falls outside the general license.  A non-US entity that is owned or controlled by a US person is also eligible to submit such license applications.  OFAC’s rules still require that items be shipped within the 12-month period beginning on the date of the signing of the contract covered by the specific license.
  • US person brokerage.  Under the general license, US persons may furnish brokering services on behalf of US persons for the exportation or reexportation of agricultural commodities, medicine, and medical devices.  However, US persons will require a specific license to undertake brokering services on behalf of non-US, non-Iranian persons relating to the sale of agricultural commodities to the Government of Iran, entities in Iran, or individuals in Iran.

Conclusion

The new General License, updated FAQs, and joint letter by Secretaries Lew and Kerry, underscore US Government and multilateral policy objectives to increase trade of agricultural and food items to alleviate hunger and malnutrition, as well as the supply of medicines and medical supplies to meet basic human needs.  The new rule should reduce the administrative burden on exporters and reexporters seeking to engage in such trade, and reduce delay in effectuating covered transactions.  Nevertheless, US and foreign persons must continue to undertake due diligence and other reasonable safeguards to determine that parties involved in the otherwise lawful trade-related transactions are not precluded SDNs or otherwise blocked so that end user conditions of the general license can be satisfied.  This compliance aspect, in addition to certain considerations involving US and foreign financial institutions that are reluctant to participate in any Iran-related business, may continue to present challenges for exporters and reexporters.

If you have any questions or concerns, please contact Edward Krauland at 202.429.8083 or Jack Hayes at 202.429.6491 in our Washington office.