The United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has discretion to both specifically license particular transactions, as well as broadly generally authorize–i.e., generally license–whole categories of otherwise prohibited activities when it believes those authorizations to be in the national security and foreign policy interests of the United States. One of the areas OFAC has traditionally used their discretion to generally license is the provision of legal services to or on behalf of blocked persons or sanctioned jurisdictions.
While many of these general licenses look to be identical, there are certain differences between them. These differences mainly stem from how they address payments from blocked persons or for work done with respect to sanctioned jurisdictions.
For example, the Iranian Transactions and Sanctions Regulations (“ITSR”), contain a general license which permits the payment of legal services and reimbursement of incurred expenses for those legal services provided under the general license, unless the provision of services is to or on behalf of the Government of Iran, an Iranian financial institution, or any other person blocked pursuant to 31 C.F.R. § 560.211. If authorized legal services are provided to those parties, then the payment for those services or reimbursement for any incurred expenses must be specifically licensed or comply with 31 C.F.R. § 560.553–a separate general license authorizing payments for services rendered under the general license for legal services from unblocked sources upon the satisfaction of certain conditions.
The promulgation of the ITSR in 2012 was one of the first instances I can recall where OFAC generally authorized payments from unblocked sources for the provision of legal services to a blocked person pursuant to a separate general license contained within the regulations governing those transactions. At the time the ITSR was issued, the regulations typically required specific license authorization to allow payments from blocked persons for generally authorized legal services provided to that blocked person.
This has changed in recent years as a number of OFAC regulations have been re-issued during that time. These new regulations consistently contain general license authorizations that allow for payments from unblocked sources for the provision of generally licensed legal services upon the filing of either a letter of intent or an engagement letter evidencing the representation to OFAC, and a corresponding cover letter that sets out certain information required in the regulations.
Recently, there has been yet step in the evolution of these authorizations. Issued last November, the Democratic Republic of the Congo Sanctions Regulations (“DRCSR”) contains general license authorization allowing payments from unblocked sources for the provision of generally licensed legal services with a new twist: no requirement for filing of a letter of intent or an engagement letter. Indeed, the only conditions 31 C.F.R. § 547.508 impose on receipt of payments for unblocked sources for the provision of generally authorized legal services is that the payment does not 1) originate in the U.S.; 2) from any source in the possession or control of a U.S. person; and/or 3) from any other blocked persons. These conditions were also present in similar regulations issued in recent years.
Reporting requirements with respect to general or specific licenses for payment of professional fees from unblocked sources related to the provision of generally authorized legal services to blocked persons have also evolved over recent years. Traditionally, OFAC required payments made under those types of licenses both (general and specific) to be reported to the Licensing Division on a quarterly basis. Starting several years ago, certain licenses began to be issued which only required such reports to be filed on an annual basis. For example, specific licenses issued under the Foreign Narcotics Kingpin Sanctions Regulations (“FNKSR”) for payments related to the provision of legal services to parties blocked under the Foreign Narcotics Kingpin Designation Act (“Kingpin Act”) now only require annual reports to made on an annual basis.
What is interesting, however, is that OFAC has not remained consistent in implementing the change from quarterly to annual reporting under these types of authorizations. For example, OFAC specific licenses issued under the Non-Proliferation of Weapons of Mass Destructions Sanctions Regulations (“NPWMDSR”) still require quarterly reports to be made for payments related to the provision of legal services to persons blocked under E.O. 13382. In addition, the Global Terrorism Sanctions Regulations (“GTSR”)–which governs dealings with parties designated under E.O. 13224 and contains a general license authorization allowing payments for the provision of generally authorized legal services from unblocked sources–also maintains a quarterly reporting requirement. Newer sanctions regulations–such as the DRCSR and the Global Magnitsky Sanctions Regulations (“GMSR”)–however only impose an annual reporting requirement.
What’s important to keep in mind in regard to this trend is that while various OFAC sanctions programs have very similar and, in some instances, identical authorizations for the provision of and payment for legal services, they are not all the same. For instance, just because you don’t need a license to receive payment from a party designated under E.O. 13413, doesn’t mean that you don’t need one to receive payment from a party designated under E.O. 13382. Likewise, just because you are required to file quarterly reports of payments related to the provision of legal services to blocked persons under the GTSR, doesn’t mean that you have to do the same for provision of legal services to persons blocked under the GMSR.
Thus, it is important to read the regulations carefully each time you take on a legal representation for or on behalf of a blocked person, as the authorizations for payment, and the reporting requirements with respect to those payments vary from program to program and have been changing as new regulations are issued.