Co-Authored by Sharath Patil
Background on Iran Sanctions
The United States has imposed restrictions on activities with Iran under various legal authorities since 1979, following the seizure of the U.S. Embassy in Tehran following the Iranian Revolution. In October 2015, the United States, the United Kingdom, France, China, and Russia, as well as Germany (known collectively as the P5 +1) met with Iran and successfully negotiated the Joint Comprehensive Plan of Action (“JCPOA”). Pursuant to the JCPOA, Iran agreed to roll back parts of its nuclear program in exchange for relief from some sanctions. According to United Nations Security Council Resolution 2231, the JCPOA would result in “the comprehensive lifting of all UN Security Council sanctions as well as multilateral and national sanctions related to Iran’s nuclear program, including steps on access in areas of trade, technology, finance, and energy.” The few years of decreased economic sanctions towards Iran came to an end in May 2018 when the Trump administration unilaterally withdrew from the JCPOA. The return of increased U.S. sanctions towards Iran came into effect in November 2018.
Further Iran Sanctions
On January 5, 2021, the Trump administration announced further sanctions on Iran – this time on Iran’s steel sector. The sanctions were imposed as a way to cut off revenue to the Iranian government, which Trump administration officials alleged of using to fund the regime’s destabilizing activities around the world. The sanctions were imposed on 17 companies and one individual in connection with Iran’s metals industry. The sanctioned parties include:
- China-based Kaifeng Pingmei New Carbon Materials Technology Co., LTD (KFCC)
- Hafez Darya Arya Shipping Company (HDASCO), a subsidiary of the Islamic Republic of Iran Shipping Lines (IRISL)
- Pasargad Steel Complex
- Vian Steel Complex
- Gilan Steel Complex Company
- Khazar Steel Co.
- South Rouhina Steel Complex
- Yazd Industrial Constructional Steel Rolling Mill
- West Alborz Steel Complex
- Esfarayen Industrial Complex
- Bonab Steel Industry Complex
- Sirjan Iranian Steel
- Zarand Iranian Steel Company
- Middle East Mines and Mineral Industries Development Holding Company
“The United States will continue to aggressively implement sanctions with respect to the Iranian regime, those who evade sanctions, and others who enable the regime to fund and carry out its malign agenda of repression and terror,” Secretary of State Mike Pompeo said Tuesday.
Treasury Secretary Steven Mnuchin said: “The Trump Administration remains committed to denying revenue flowing to the Iranian regime as it continues to sponsor terrorist groups, support oppressive regimes, and seek weapons of mass destruction.”
OFAC’s Clarifying Guidance
On December 7, 2020, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) published two new Iran-related Frequently Asked Questions (“FAQs”): FAQ No. 855 and FAQ No. 856. OFAC routinely publishes FAQs to offer interpretive guidance on sanctions matters. All OFAC FAQs can be accessed here.
FAQ No. 855
FAQ No. 855 provides guidance on how transactions related to official activities of international organizations be treated for purposes of secondary sanctions under Executive Order (“EO”) 13902. EO 13902, signed on January 14, 2020, sought to deny the Iranian government revenues derived from the export of products from key sectors of Iran’s economy including the construction, mining, manufacturing, and textile sectors. The EO authorized the Secretary of the Treasury to impose sanctions on foreign financial institutions that knowingly facilitated transactions pertaining to the three sectors identified in the order. The sanctions imposed by EO 13902 against foreign financial institutions are known as ‘secondary sanctions’ because they target third-country actors doing business with targeted regimes or entities.
FAQ No. 855 clarifies that the secondary sanctions imposed by FAQ No. 855 do not apply to international organizations engaged in official activities. Examples of international organizations for the purposes of this FAQ are the United Nations, the World Bank Group, and the World Health Organization.
FAQ No. 856
Similarly, FAQ No. 856 provides guidance on how OFAC will treat transactions related to Iran’s participation in legal proceedings before international courts and tribunals. FAQ No. 856 clarifies that under General License L, transactions pertaining to legal proceedings before international courts and tribunals are authorized.
OFAC goes on to clarify that the scope of legal transactions and activities authorized include those:
relating to the initiation and conduct of legal proceedings authorized or otherwise permitted pursuant to section 560.510 or 560.525 of the ITSR, such as transactions or activities related to the defense of individuals in legal proceedings in Iran brought by the Government of Iran, including any arrest, investigation, prosecution, or detention. Such permissible transactions and activities may include reasonable and customary payments for the provision of legal services, bail and/or bond payments, judicial costs and fees, costs for the production of documents and appearances of witnesses, and payment of experts.
U.S. sanctions laws govern whether international transactions may occur. OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy, or economy of the United States. Violations of OFAC-administered sanctions carry hefty civil and criminal penalties.
Fortunately, there is a lot you can do to be proactive about your sanctions compliance. To ensure compliance with OFAC regulations, businesses should develop and maintain a sanctions compliance plan that is thoughtful, proactive, and well-executed. While having a sanctions compliance plan is not a guarantee that a sanctions violation will not occur, a coherent sanctions compliance program can minimize the risk of non-compliance.
Diaz Trade Law’s OFAC-related services include:
- Developing an effective sanctions compliance program – A key foundation of proactive and effective sanctions compliance requires the development of a sanctions compliance plan. A sanctions compliance plan establishes a set of procedures for your organization to ensure that everyone is on the same page about how standard processes work, who is responsible for what, how to identify violations, what to do when violations occur, etc. A sanctions compliance plan helps build consciousness in your organization that compliance is critical – both to avoid costly penalties and also to protect national security. Diaz Trade Law helps businesses create sanctions compliance manuals that help prove you have a process in place to vet proposed transactions and ensure you can prove you can take compliance seriously and implement all of the important great weight mitigating factors. Diaz Trade Law has significant experience in developing sanctions compliance plans for organizations without plans. Additionally, Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape.
- Sanctions compliance training – A foundation of a strong sanctions compliance program is sanctions compliance training. Training is important because it (1) ensures that all employees understand the sanctions regulations and reinforces internal policies and procedures, (2) demonstrates to federal government agencies that your business is proactive about sanctions compliance, and (3) avoids your business from being subject to costly penalties and even criminal liability. Fortunately, sanctions compliance training can be highly tailored to meet your company’s needs. All of your training events include assessments for comprehension, certificates for successful participation, and ample opportunities for Q&A. For your next sanctions compliance training event, trust Diaz Trade Law to provide highly-effective, engaging training.
- Transaction vetting – Unsure whether a proposed transaction violates OFAC sanctions? Diaz Trade Law has significant experience vetting your potential transaction against U.S. sanctions laws. Through research and due diligence, Diaz Trade Law ensures that your transaction won’t get you in trouble later down the road.
- Voluntary self-disclosures – If your business believes it may have violated OFAC sanctions, it can be in your business’ strategic interest to submit a voluntary self-disclosure (“VSD”). OFAC encourages anyone who may have violated OFAC-administered regulations to disclose the apparent violation to OFAC voluntarily. Voluntary self-disclosure to OFAC is considered a mitigating factor by OFAC in enforcement actions, and pursuant to OFAC’s Enforcement Guidelines, will result in a reduction in the base amount of any proposed civil penalty. Diaz Trade Law has significant experience filing VSDs and mitigating penalties.
- Specific license applications – A specific license is an authorization from OFAC to engage in a transaction that otherwise would be prohibited. Businesses may apply for OFAC specific licenses to release blocked funds, generally authorize transactions, permit travel to Cuba, and many other purposes. Diaz Trade Law has significant experience submitting specific license applications and receiving authorization for proposed transactions on behalf of our clients.
- Mitigation and corrective action – If your business has violated U.S. sanctions laws, there is a lot you can do to mitigate penalties and prevent future violations. Diaz Trade Law has significant experience representing businesses in dealing with the U.S. Treasury Department’s Office of Foreign Assets Control. Specifically, Diaz Trade Law has successfully assisted clients in (1) submitting voluntary self-disclosures to mitigate penalties, (2) negotiated agreements with OFAC, and (3) built corrective action systems to help ensure that your business does not make the same violation again.
If you have questions on sanctions or export-related matters, contact Diaz Trade Law today at firstname.lastname@example.org or 305-456-3830.