On June 8, 2016, in an effort to provide further clarity on the scope of the lifting of sanctions that occurred on Implementation Day on January 16, 2016, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) added certain guidance relating to financial and banking measures, as well as the area relating to foreign entities owned or controlled by U.S. persons. Previous Duane Morris Alerts have discussed Implementation Day under the Joint Comprehensive Plan of Action. Please see our January 19, 2016 Alert, “Implementation Day Occurs Under the Joint Comprehensive Plan of Action: Highlights of the Sanctions Lifted on Iran” and our October 20, 2015 Alert, “Obama Issues Presidential Memorandum on Preparing for Implementation of Joint Comprehensive Plan of Action Related to Iran’s Nuclear Program.”
Regarding the banking/financial section, OFAC states that U.S. financial institutions can transact with—including by opening or maintaining correspondent accounts for—non-U.S., non-Iranian financial institutions that maintain correspondent banking relationships with Iranian financial institutions that are not on the Specially Designated Nationals List and Blocked Persons List (SDN List).
Non-U.S. financial institutions are not permitted to route Iranian-related transactions through U.S. financial institutions or involve U.S. persons in such transactions, unless the transactions are exempt from regulation or authorized by OFAC.
Where U.S. persons serve on an entity’s board of directors or in senior management positions of a non-U.S., non-Iranian entity, OFAC states that transacting business with Iran or the Government of Iran or Iranian persons that are not on the SDN List is not necessarily precluded. Unless authorized by OFAC, U.S. persons must be walled off or, as said by OFAC, “ring-fenced” from Iran-related business because with limited exceptions, U.S. persons are broadly prohibited from engaging in or facilitating transactions or dealings with Iran or its government. OFAC recommends that a blanket recusal policy be in place to protect U.S. persons from engaging in prohibited activity. If there is any doubt as to whether the activity by the U.S. person is a prohibited activity, OFAC recommends consultation with counsel and/or OFAC.
Regarding foreign entities owned or controlled by U.S. persons, OFAC has further clarified certain aspects of General License H, which authorizes transactions relating to foreign entities owned or controlled by a U.S. person.
OFAC states that General License H authorizes a U.S. parent company to alter its policies and procedures, and/or the policies and procedures of its owned or controlled foreign entities, to allow the U.S.-owned or -controlled foreign entity to establish a physical presence inside Iran. U.S.-owned or -controlled foreign entities continue to be prohibited from the exportation, re-exportation, sale or supply, directly or indirectly, from the United States of any goods, technology or services if the items are destined for Iran or the Government of Iran at the time they leave the United States. See 31 CFR 560.204 regarding prohibitions relating to non-U.S. persons re-exporting from a third country, directly or indirectly, of any goods, technology or services that have been exported from the United States if they know or have reason to know that re-exportation is intended specifically for Iran or the Government of Iran and that the items are controlled for export from the United States to Iran. Certain prohibitions also apply to foreign-produced products that contain 10 percent or more of U.S. controlled content, if undertaken with knowledge or reason to know that the re-exportation is intended specifically for Iran or the Government of Iran.
The exportation or re-exportation of U.S.-origin goods that are designated EAR 99 from a third country to Iran without knowledge or reason to know at the time of export from the United States that the goods are intended specifically for Iran would not be prohibited. It is important to note, however, that additional export controls under the jurisdiction of the Department of Commerce’s Bureau of Industry and Security (BIS) may apply.
OFAC clarified that U.S.-owned or -controlled foreign entities are not considered a “U.S. person” as defined in 31 CFR 560.314.
In addition, OFAC further clarified that General License H authorizes U.S.-owned or -controlled foreign entities to engage in transactions with individuals and entities that are covered by Executive Order 13599 List.
OFAC has also clarified that in making a determination whether an entity established or maintained abroad is a “U.S.-owned or -controlled foreign entity,” OFAC will aggregate the interests of multiple U.S. persons. Therefore, if in aggregate, one or more U.S. persons holds a 50-percent or greater equity interest by vote or value in the entity, or if one or more U.S. persons holds a majority or seats on the board of directors of the entity by aggregate, the entity would fall within the definition of U.S.-owned or -controlled foreign entity for purposes of General License H. Therefore, aggregated ownerships held and indicia of control exercised by all relevant U.S. persons are factors considered by OFAC. For further guidance regarding permitted activity under General License H, please refer to K. 18, K. 19, K. 20, K. 21 and K. 22 of OFAC’s Frequently Asked Questions, dated June 8, 2016.