Yesterday the Office of Foreign Assets Control (“OFAC”) announced that it had levied a $17,500 fine against Aban Offshore Ltd. (“AOL”), an Indian oil rig company, because AOL’s subsidiary in Singapore arranged to have oil rig equipment, presumably U.S. origin although not stated as such, re-exported from Saudi Arabia to Iran. This was alleged to have been in violation of section 560.204 of the Iranian Transactions and Sanctions Regulations (“ITSR”) which prohibits re-exportations from the United States to Iran.
The OFAC action is more than a little peculiar. Both AOL and it’s Singapore subsidiary are not U.S. persons and so it would seem that section 560.205 of the ITSR, which covers “reexportation of goods … by persons other than United States persons” would be the applicable provision. Of course, that section only penalizes re-exports of items that require a license from BIS for export to Iran. See § 560.205(a)(2). The oil rig equipment was almost certainly EAR99, although the OFAC document is oddly silent on this point, and would not have required a license under either sections 742.8 or 746.7 of the EAR.
It looks like what OFAC is doing here is pretending that section 560.205 does not limit section 560.204 at all. On its face, and without reference to section 560.205, section 560.204 prohibits re- exports by anyone, U.S. persons and non-U.S. persons alike, from the United States to Iran without regard to whether the item would require a BIS license. But if section 560.204 is intended to be read that broadly, there is no reason for section 560.205 to exist at all. It would simply be swallowed up by the breadth of section 560.204 rather than serve as a qualification of the scope of 560.204 for non-U.S. persons.
Granted agencies have broad latitude to interpret their own regulations, but that latitude does not go so far as to allow an agency to read one rule in a way as to render another rule absolutely meaningless. As it stands, OFAC has read section 560.205 out of its rules and held that non-U.S. persons can now be held liable for re-exports of U.S. origin EAR99 items to Iran.
Copyright © 2017 Clif Burns. All Rights Reserved. (No republication, syndication or use permitted without my consent.)