Overview
Overview
Effective February 6, 2012, President Obama issued an Executive Order (EO 13599) expanding sanctions against the Government of Iran and Iranian financial institutions. EO 13599 implements portions of the recently enacted National Defense Authorization Act (NDAA) of 2012, described in our previous advisory, which requires the President to block (i.e. freeze) the property of any Iranian financial institution in the United States or held by US persons. The new EO 13599 also blocks the property of the Government of Iran, including the Central Bank of Iran. EO 13599 follows a proposed rule, as discussed in a prior advisory, by the US Department of the Treasury’s Financial Crimes Enforcement Network, which designated Iran as a “Jurisdiction of Primary Money Laundering Concern” under Section 311 of the USA Patriot Act.
Blocking Property of the Iranian Government and Iranian Financial Institutions
Consistent with the Iranian Transaction Regulations (ITR), 31 CFR Part 560, EO 13599 applies to “US persons,” defined under subsection 7(c) to mean any: (1) US citizen or lawful permanent resident, wherever located in the world; (2) entity organized in the United States, as well as its foreign-located branch offices; and (3) persons physically located inside the United States, including non-US citizens or branch offices of foreign entities. EO 13599 blocks the property and interests in property of the following three groups of persons and entities:
1. The “Government of Iran” (GOI), defined by subsection 7(d) to include any subdivision, agency, or instrumentality of the GOI, including the Central Bank of Iran, as well as any person (meaning any entity or individual) owned or controlled by, or acting for or on behalf of, the GOI. Frequently Asked Question (FAQ) Guidance issued by the US Department of the Treasury, Office of Foreign Assets Control (OFAC) indicates that persons bearing the [IRAN] tag on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List) now must be blocked unless exempt or authorized by OFAC.
2. Any “Iranian financial institution,” defined by subsection 7(f) to include: 1) any financial institution organized under the laws of Iran, including foreign branches; 2) any financial institution in Iran; 3) any financial institution, whether in Iran or abroad, that is owned or controlled by the GOI, and 4) any financial institution, wherever located, owned or controlled by any of the above. Consistent with the ITR, “Iran” is defined under subsection 7(e) of EO 13599 to mean “the territory of Iran and any other territory or marine area, including the exclusive economic zone and continental shelf, over which the Government of Iran claims sovereignty, sovereign rights, or jurisdiction, provided that the Government of Iran exercises partial or total de facto control over the area or derives a benefit from economic activity in the area pursuant to international arrangements.”
3. Any person or entity owned or controlled by blocked persons or entities, or any persons acting or purporting to act on behalf of persons whose property or interests in property are blocked, pursuant to EO 13599.
The FAQ Guidance states that, going forward, the [IRAN] tag on the SDN List will connote that a person meets the definition of the “GOI”, an “Iranian financial institution,” or other individual or entity blocked and restricted under EO 13599. However, any person that meets the definition of GOI or Iranian financial institution is blocked, regardless of whether such person actually appears on the SDN List. This pronouncement could increase the amount of due diligence that US persons must conduct to determine whether a proposed transaction or business party constitutes the GOI or an Iranian financial institution, or both.
Prior to EO 13599, property and property interests of the GOI and SDNs identified as [IRAN] were not blocked. The blocking of such property under section 1 means that US persons are prohibited from engaging in any payment, transfer, export, withdrawal, or other dealings involving such property or interest in property. US persons must block any such property currently in or that comes within their possession. In addition, section 3 of EO 13599 prohibits a US person from providing funds, goods, or services by, to, or for, or receiving any funds, goods, or services from, the GOI, any Iranian financial institution, or any other person or entity blocked under EO 13599. These blocking requirements and prohibitions apply not only to persons named on the SDN List as [IRAN], but also, pursuant to OFAC Licensing Guidance, any entity owned 50% or more by such blocked persons, even if that entity is not specifically named on the SDN List.
Under the existing ITR, US Persons and financial institutions are prohibited from engaging in directly, or facilitating or approving indirectly, transactions or dealings with, or exporting goods, services, or technology to, the GOI. As explained in FAQ Guidance, because the property of the GOI was not blocked prior to EO 13599, US financial institutions receiving funds transfers with instructions to execute transactions with the GOI or GOI-owned entities had to reject the transaction, i.e. refuse to undertake the request. Under the new EO 13599, however, US persons now are required to block the transaction, meaning that such funds or property must be frozen, placed in a blocked account, and reported to OFAC within 10 days.
General Licenses for Authorized Transactions and Personal Remittances
When enacted, the provisions of the NDAA blocking the property of Iranian financial institutions had raised a number of questions regarding whether US Persons possessing licenses to undertake transactions with Iranian entities pursuant to a specific license, e.g. under the Trade Sanctions Reform and Export Enhancement Act (TSRA), would be able to continue to do so. Questions also arose regarding whether US Persons could continue to send personal remittances to Iran. Two General Licenses issued along with the new EO 13599 address these questions.
General License A: Transactions Authorized Pursuant to Specific and General Licenses Still Authorized
Under General License A, and in accordance with FAQ Guidance, virtually all transactions authorized under existing general licenses set forth in the ITR, or under existing OFAC specific licenses, including TSRA licenses among others, continue to be authorized under the new EO 13599. General License A thus makes clear, for example, that a US person holding a TSRA license would be able to receive payment from an Iranian customer originating from an Iranian bank, provided that the funds transit through a third country bank (since US banks may not conduct business with Iranian banks) and the original Iranian bank is not an SDN. According to the FAQ Guidance commentary of General License A, transactions authorized under specific licenses issued pursuant to TSRA (e.g., for certain agricultural based products) and the ITR are authorized, until the specific license’s stated expiration date.
FAQ Guidance clarifies, however, that General License A does not authorize any payments from blocked funds or debits to blocked accounts unless authorized by specific licenses from OFAC—with a limited exception for payments from funds or debits to accounts blocked under 31 CFR Part 535, the Iranian Assets Control Regulations (the hostage crisis blocking program that began in 1979), that are authorized by specific licenses issued by OFAC. In addition, the closing of accounts of the GOI or any Iranian financial institution, and the lump sum transfer of the balances to an account outside of the United States, which were previously allowed under an existing ITR general license, are not authorized under General License A.
General License B: US Depository Institutions and Broker/Dealers May Process Personal Remittances
General License B allows US depository institutions and registered brokers or dealers in securities to process noncommercial, personal remittances, to or from Iran, or for or on behalf of individuals ordinarily resident in Iran. Such individuals may not, however, fall within the definition of “the Government of Iran”. Moreover, FAQ Guidance clarifies that such transactions may not be made by, to, or through a blocked financial institution blocked pursuant to the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 CFR part 544 or the Global Terrorism Sanctions Regulations, 31 CFR part 594, or a blocked person under other OFAC sanctions programs and Executive Orders not related to EO 13599. It appears that exempt or authorized transactions to or from Iran also may also be processed subject to the above conditions.
