The U.S. State Department is recommending to the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) that OFAC issue a general license authorizing the free download to Iran of certain mass market software used for personal internet-based communications. On December 15, 2009, the State Department issued a letter setting out its plan to waive the statutory requirement to impose economic sanctions on Iran with respect to the export of such free mass market software. Once implemented by OFAC, this waiver will allow Iranians to download certain software from U.S. companies necessary for email, chat, instant messaging, and social networking.

The State Department has notified the relevant Congressional committees of this waiver, which will become effective no earlier than December 30, 2009. Under Section 1606 of the Iran-Iraq Arms Non-Proliferation Act of 1992, the President may waive the requirement to impose certain sanctions if it is “essential to the national interest of the United States.” This waiver authority has since been delegated to the Undersecretary of State for Arms Control and International Security. This week, the State Department determined that it is essential to U.S. national interests to allow the free download to Iran of mass market software necessary for the exchange of personal communications and sharing of information over the internet.

The State Department’s report states that “U.S. sanctions on Iran are having an unintended chilling effect on the ability of companies such as Microsoft and Google to continue providing essential communications tools to ordinary Iranians.” Internet-based communications products such as email, instant messaging, and social networks were instrumental in allowing Iranians to organize protests after last summer’s Iranian elections, and continue to allow Iranians to share information, organize demonstrations, and promote democracy. The U.S. Government has been aware of these benefits since the Iranian elections.

Specifically, the State Department is recommending that OFAC authorize “free downloads to Iran of certain nominally dual-use software (because of low-level encryption elements) classified as mass market software by the Department of Commerce and essential for the exchange of personal communications and/or sharing of information over the internet.” This waiver appears to apply primarily to portal and instant messaging entities that require the download of free software for the provision of personal communications. The specifics of this new authorization are still unclear, as OFAC must implement this waiver in a general license. However, the State Department envisions that the general license will be comparable to that already in effect for telecommunications and mail, which authorizes all transactions incident to the transmission or receipt of such communications. It is reasonable to assume, therefore, that OFAC’s general license will also authorize incidental transactions, such as software updates, related communications with the service provider, and presumably the use of these companies’ Internet-based communications services themselves.

How OFAC will implement this waiver in practice will not be known until OFAC issues the general license or other guidance. In fact, it is not clear whether OFAC is required to issue the general license (the State Department “is recommending” it, not ordering it), although presumably OFAC will implement the policy decision of the U.S. Government. Based on the language of the State Department report, however, a few aspects of the waiver are notable.

  • First, the waiver explicitly excludes any direct or indirect export of services or software “with knowledge or reasons to know that such services of software are intended for the Government of Iran.” This is not surprising, since the waiver is in large part aimed at empowering Iranians to organize against the current regime and to push for social and political change. It remains to be seen whether OFAC will clarify how exporters are to “know” where the software at issue is typically downloaded on demand by the user unless blocked. This exclusion may leave to companies a less than clear cut task of determining when an export is indirectly intended for the Government of Iran.
  • Second, the waiver is limited by its terms to free mass market software necessary for internet-based personal communications. “Mass market” software is generally defined in this context as products available to the public by being sold, without restriction, from stock through electronic transactions. Accordingly, it is not anticipated that companies will be able to export to Iran any paid software or software not distributed on a mass market basis (e.g., software customized for the user, software requiring additional support from the supplier, software in which the user can change the cryptographic functionality, etc.). Nor are companies anticipated to be authorized to export to Iran products other that those related to the exchange of personal communications. It will be important for companies not to overstep the bounds of this new authorization once issued. While the U.S. Government is relaxing the sanctions against Iran in this narrow situation, it continues to actively enforce Iranian sanctions violations.
  • Third, the State Department’s report contains a vague reference to dual-use software involving “low-level encryption elements.” The value of the waiver ultimately may depend on how OFAC interprets this reference. Currently, the Commerce Department classifies products as “mass market” without regard to the level (or strength) of encryption included within the product. It is possible that the waiver reflects this same policy, notwithstanding the reference to “low-level encryption.” On the other hand, if OFAC’s general license only authorizes the export of software incorporating “weak” encryption (e.g., up to 64-bit algorithms), then the license may be of limited utility, because most commercial software products routinely use stronger encryption for a variety of functions.
  • Fourth, the waiver appears to deal mainly with text-based communications, such as email, chat, and text messaging. However, many instant messaging and social network products also allow for the exchange of voice, image, and video communications. It is not currently clear whether these media will be included in OFAC’s general license. This is one issue among many that OFAC must consider in determining how broad to write its authorization.
  • Finally, to the extent that the Commerce Department prohibits unlicensed export of any of these mass market products, an OFAC general license would serve as authorization under the Export Administration Regulations as well.

As described above, while this waiver may have certain limitations, it is certainly an important exception to the Iran sanctions program. Its timing is also interesting. While this waiver may have been in the works since last summer’s Iranian elections, it comes at a time when Congress is actively working to strengthen U.S. sanctions against Iran. One common thread, however, may be that the U.S. Government continues to seek measures targeted at the Iranian government, while allowing programs that promote the free flow of information to ordinary Iranians.