For exporters of food and agricultural commodities for human and animal consumption, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) licensing process for exports to Iran and Sudan has been frustrating, plagued by lengthy delays (in some cases longer than six months) and redundant filings. In an October 12 Federal Register notice, however, OFAC has taken a major step to reduce these burdens by replacing the one year specific license requirement for exports of most food to Iran and Sudan with general licenses that now authorize such exports without prior approval from OFAC. The Federal Register notice is available here.
What this means is that effective immediately exporters will be able to export many qualified food products to Iran and Sudan without applying to OFAC for case-by-case authorization. This development follows OFAC’s recent relaxation of the Libya and Syria regulations in the form of new general licenses for certain transactions (see September 26, 2011 Arent Fox Alert ) and may reflect a trend of more pragmatic administration of US sanctions. It also is consistent with the manner in which the US Government has treated food under the Syria and North Korea sanctions, through an exception for certain items for human and animal consumption, and to a lesser extent Cuba, through the use of License Exception AGR which requires advance notification of intent to export and gives the Government an opportunity to object.
The Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), 22 U.S.C. §§ 7201-7211, lifted unilateral sanctions on commercial sales of agricultural commodities, medicine, and medical products to Iran, Sudan, and other countries, but also imposed relatively strict licensing and financing conditions on such sales. In July 2001, OFAC issued regulations implementing TSRA that imposed one-year license requirements for exports and reexports of agricultural commodities, including food, and other covered items subject to US law to Iran and Sudan. Under this regime, exporters were required to seek specific authorization from OFAC to ship these products to Iran and Sudan.
In November 2009, OFAC issued an interim final rule establishing certain technical changes in the process for OFAC’s consideration of one-year licenses to export agricultural commodities, medicine, and medical devices to Iran and Sudan. See 74 Fed. Reg. 61030 (Nov. 23, 2009). OFAC solicited comments on the interim final rule, but received none – presumably given the non-controversial, technical nature of the changes.
An agency typically finalizes an interim rule without making significant changes, especially if the interim rule is technical in nature and engenders no public comment. In this final rule published October 12, however, OFAC has made a wholesale change in its implementation of TSRA by replacing the one-year license requirement for most food exports to Iran and Sudan with a general license authorizing such shipments. Though under constant pressure from industry for delays in the one-year specific licensing process, OFAC did not articulate detailed reasons for this significant change and the general license authority comes somewhat as a surprise to many in the trade.
GENERAL LICENSE AUTHORITY
The general licenses under the Iranian Transactions Regulations (ITR) (31 C.F.R. Part 560) and the Sudanese Sanctions Regulations (SSR) (31 C.F.R. Part 538) are virtually identical. Some key features include the following:
- Food exports to Iran authorized . With respect to Iran, the general license authorizes the exportation or reexportation of “food” to the Government of Iran, to any individual or entity in Iran, or to persons in third countries purchasing specifically for resale to such persons and entities in Iran.
- Food exports to Sudan authorized . The same authority applies in the context of exports and reexports to the Government of Sudan and individuals or entities in an area of Sudan other than the Specified Areas of Sudan (Southern Kordofan, Nuba Mountains State, Blue Nile State, Abyei, Darfur, and marginalized areas in and around Khartoum). Note that the new country of Southern Sudan formed on July 9, 2011, is also not subject to the sanctions on Sudan, with certain limitations.
- Definition of food . For purposes of the general licenses, OFAC has defined “food” as “items that are intended to be consumed by and provide nutrition to humans or animals in [Sudan or Iran], including vitamins and minerals, food additives and supplements, and bottled drinking water, and seeds that germinate into items that are intended to be consumed by and provide nutrition to humans or animals in [Sudan or Iran].” 31 C.F.R. § 538.523(a)(3)(ii) (Sudan); 31 C.F.R. § 560.530(a)(2)(ii) (Iran).
- Financing and logistics also authorized . The general licenses also authorize related transactions, including the making of shipping arrangements, obtaining insurance, arranging financing and payment, receipt of payment, and entry into contracts, so long as all exports and reexports are shipped within the 12-month period beginning on the date of the signing of the contract for export or reexport.
The export and reexport of items not covered by the above definition of food but otherwise covered by the TSRA authority (i.e., non-food agricultural items, medicine, medical devices) are still subject to the one-year license requirement. However, a general license continues to authorize transactions related to such exports and reexports such as shipping, finance, and payment arrangements and entering into executory contracts for the export and reexport of such goods.
- Certain food items still require specific licenses . The general license does not cover exports of alcoholic beverages, cigarettes, gum, or fertilizer. OFAC has also excepted certain other food items from the general license authority, including castor beans, castor bean seeds, raw eggs, fertilized eggs (other than fish and shrimp roe), dried egg albumin, live animals, Rosary/Jequirity peas, non-food-grade gelatin powder, and peptones and their derivatives.
- Exports/reexports to military, law enforcement, and blocked persons prohibited . The general license also does not authorize exportation or reexportation of food to military or law enforcement purchasers or importers in either Iran or Sudan. Shipments to such entities are still subject to a one-year licensing requirement. Additionally, the existing prohibitions on transacting business with any specially designated national or any person whose property is blocked remain in effect. Thus, exporters must be careful to continue screening for sanctioned customers even if the item for export is covered by the new general license authority.
By eliminating the one-year specific license requirement on exports of food to Iran and Sudan and authorizing such exports under general license, OFAC has lifted a significant burden on exporters and enabled food sales within a commercially viable time frame. The streamlined process should also provide some significant relief for OFAC, which could facilitate more efficient review of the remaining one-year license applications for non-food agricultural items, medicine, and medical devices. Exporters must continue to remain vigilant to ensure that shipments made under general license authority comply with other sanctions provisions, including transactions with prohibited entities and specially designated nationals. Finally, OFAC’s action is consistent with US government policy in other countries (i.e., Syria, North Korea, and Cuba) and the intent of TSRA to avoid using food as a weapon of foreign policy except in extreme cases and to promote US agricultural exports