The Civilian Aircraft Exemption

The Civilian Aircraft Exemption:
The Economic Benefits of Commercial Diplomacy

Mohsen Farshneshani
Legal Fellow, USIRCC

April 26, 2018

In the Summer of 2015, history was made when world powers – the United States, United Kingdom, Germany, France, China and Russia ? collectively signed the Joint Comprehensive Plan of Action (“JCPOA”) with Iran. The agreement aims to regulate Iran’s nuclear program under the monitoring regime of the International Atomic Energy Agency (“IAEA”) in exchange for sanctions relief. Although U.S. primary sanctions continue to largely bar U.S. persons from doing business with Iran, the JCPOA includes three exceptions to that general rule. One of those exceptions is for the sale of commercial passenger airplanes. The JCPOA establishes a favorable licensing policy under which persons may request specific authorization from the Office of Foreign Assets Control (“OFAC”) to engage in transactions for the sale of commercial passenger aircrafts and its related parts and services to Iran (of course, provided such transactions do not involve any persons on OFAC’s Specially Designated Nationals list or for whom a due diligence investigation is unsatisfactory.)

The commercial aircraft provision in the JCPOA opened the floodgates for companies like Boeing, Airbus, and the sea of associated suppliers and manufacturers in the aviation industry. These companies have billions of dollars in incentives to furnish the needs of Iran’s deprived passenger fleet. The February 18, 2018 crash of Aseman Airlines Flight 3704, which claimed the lives of all 65 people on board, attests to the urgency of this civilian crisis.

Iran Air’s $16.6 billion deal with Boeing included the sale of 50 twin-jet, narrow-body 737s and 30 long-range, wide-body 777 airplanes. The delivery of American aircraft was expected to begin this year as Iran’s Minister of Roads and Urban Development Asghar Fakhrieh Kashan specified in January that the first Boeing would be received in the last quarter of 2018. However recent reports tell that the three planes Boeing had tentatively scheduled for delivery in 2018 has been reshuffled with other orders due to the “U.S. government process.”

Boeing also secured another deal with Iran’s Aseman Airlines: $3 billion for 30 Boeing 737s. The agreement provides Aseman the purchase rights for 30 additional jets, a guarantee Aseman officials are keen to utilize so long as domestic U.S. politics “do not disrupt the contract.” Nevertheless, Boeing has yet to receive the OFAC license on which the deal is contingent, and had expected to receive the license by September 2018.

In December 2016, Iran Air signed another contract worth an estimated $27 billion to purchase 100 aircraft from Airbus, Boeing’s European rival. However, business dealings akin to those with Boeing and Airbus are currently on ice as uncertainty clouds the future of the JCPOA.

With the approaching May 12th deadline to renew sanctions waivers, President Trump continues to express his intention of either “fixing” the Deal or withdrawing from it. The Trump administration has initiated talks over a follow-on deal with European powers that would impose new restrictions on Iran. Conversely, the EU has said that it remains “fully committed” to the JCPOA, just as Iran is, given the nation’s enduring compliance.

Following a visit to Tehran by Sukhoi personnel, Aseman Airlines and an Iran Air subsidiary signed deals on April 25th to each buy 20 Sukhoi SuperJet-100s. Sukhoi’s February 12th delegation bore fruit as the Russian aircraft company capitalized on the complications of Iran’s various aircraft deals. An Iranian official announced that modifications made to the Sukhoi Superjet-100 would allow for sales to Iran without OFAC approval given that less than 10 percent of the aircraft’s components are American-made.

At the time the Iran Air deal was announced, Boeing said in a statement that the deal would support tens of thousands of U.S. jobs directly associated with production and delivery and nearly 100,000 American jobs in the U.S. aerospace value stream for the full course of deliveries. According to the U.S. Department of Commerce, an aerospace sale the size of Boeing’s $3 billion deal with Aseman Airlines creates or sustains nearly an additional 18,000 U.S. jobs.

Failure of these deals, either by OFAC license denial or U.S. withdrawal, would have consequences for Boeing’s manufacturing jobs and Iran’s aviation safety.

This niche exemption to U.S. sanctions on Iran stands as a model to the potential benefits that the free flow of commerce can bring to both the American and Iranian people. This demonstration of trade diplomacy rewards the U.S. with jobs, while Iranians receive a much-needed upgrade to their aviation standards by improving transportation safety for the general public. Both parties to the long-estranged relationship benefit when diplomacy and trade prevail. In the absence of this specifically tailored trade opportunity, not only do commercial airlines and manufacturers lose, but so do every day Americans and Iranians.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the US – Iran Chamber of Commerce.

The Use of Confidentiality Advisers Under the Permanent Court of Arbitration’s “Optional Rules for Arbitration of Disputes Relating to Outer Space Activities”*

On December 6, 2011, the Permanent Court of Arbitration (PCA) of the International Chamber of Commerce (ICC) issued its “Optional Rules for Arbitration of Disputes Relating to Outer Space Activities” (the Optional Rules).  In large part, the Optional Rules are modeled on the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules[i] developed in 2010, which provide comprehensive procedural rules that parties may agree to apply for the conduct of arbitral proceedings arising out of their commercial relationships and disputes.  However, the Optional Rules contain noteworthy distinctions from the UNCITRAL Arbitration Rules with respect to the treatment of confidential information.[ii]  The Optional Rules address the confidentiality of information in greater detail than the UNCITRAL Arbitration Rules, and offer certain unique provisions designed to safeguard information produced by parties to a dispute in an arbitral proceeding.[iii]  This article examines the specific distinction between the UNCITRAL Arbitration Rules and the Optional Rules with respect to the use of “confidentiality advisers” in arbitral proceedings under the Optional Rules.

Commercial space activity is an emerging, highly technical and proprietary industry, which is driven by rapid technological advancements.  According to a May 19, 2014, report by the Space Foundation,[iv] the global space industry grew to $314.17 billion (USD) in commercial revenue and government budget allocation in 2013, with commercial activity, primarily space products and services and commercial infrastructure, driving much of this growth.[v]

This industry may give rise to a wide range of disputes, including not only activities specifically relating to outer space, but also those relating to the construction of communications satellites, the launching and maintenance of satellites, and the investments underlying these and other space activities.  The Optional Rules were designed to be broad enough to encompass these sorts of disputes, “to reflect the particular characteristics of disputes having an outer space component involving the use of outer space by States, international organizations and private entities.”[vi]  The Optional Rules contain confidentiality provisions to address the unique concerns of an evolving, highly sensitive industry with inherent military and national security implications, demonstrating the flexibility of international arbitration to fashion procedural tools to a particular industry.

Specifically, Article 17(8) of the Optional Rules provides for the appointment of a “confidentiality adviser” as an expert in an arbitral proceeding.  The confidentiality adviser may report to the arbitral tribunal on specific issues involving confidential information, without disclosing the information either to the party from whom the confidential information does not originate or to the arbitral tribunal itself.  This provision is significant and unique, and reflects consideration for the highly proprietary and commercially sensitive nature of the technology being developed for space activities.  Commercial entities in particular may take note of this provision, given the significant expenditures in research and development that underlie space-related technologies, as well as commercial concerns relating to espionage and competitiveness in an emerging and rapidly changing field.  For these reasons, arbitration under the Optional Rules may be more attractive to parties than litigation in national court systems, even where domestic courts have a reputation for even-handed, reliable and efficient justice.

In theory, the provision for “confidentiality advisers” under the Optional Rules provides an attractive benefit to parties in that reflects consideration of a highly specialized, evolving and technical industry.  For example, Article 17(8) may foster greater willingness on the part of parties to produce confidential documents.  In practice, it remains to be seen whether this benefit also may trigger other concerns on behalf of parties in an arbitral proceeding, in light of the potentially disproportionate access to information on the part of confidentiality advisers vis-à-vis the arbitral panel in a particular dispute.

Finally, the use of confidentiality advisers under the Optional Rules may influence the overall development of arbitrator expertise relating to outer space activities.  Given the relatively nascent stage of the global space industry, and the shifting paradigm of space law as a function of rapid technological change, the development of arbitrator expertise in managing disputes relating to outer space activities will be important for the just and efficient resolution of disputes, as well as encouraging parties to make use of arbitration for disputes relating to outer space activities.

*Written by: Elika Eftekhari, Esq., Director of Trade Compliance at USIRCC. This article originally appeared in the April 2016 bulletin of the Centro Especializado de Arbitraje Peruano Arbitration.


[i] See UNCITRAL Arbitration Rules (as revised in 2010), G.A. Res. 61/33, art. 1, U.N. Doc. A/61/33 (Jan. 10, 2011), available at: https://www.uncitral.org/pdf/english/texts/arbitration/arb-rules-revised/arb-rules-revised-2010-e.pdf.

[ii] See Permanent Court of Arbitration, “Optional Rules for Arbitration of Disputes Relating to Outer Space Activities,” (Dec. 6, 2011), available at: http://www.pca-cpa.org/Outer%20Space%20Rules4fd4.pdf?fil_id=1774, at Introduction (i) and (vi); Article 17.

[iii] Id. at Article 17.

[iv] The author of this article has no affiliation with the Space Foundation.

According to its website, the Space Foundation “was founded March 21, 1983, as an IRS 501(c)(3) organization ‘to foster, develop and promote, among the citizens of the United States of America and among other people of the world…a greater understanding and awareness…of the practical and theoretical utilization of space…for the benefit of civilization and the fostering of a peaceful and prosperous world.’…we represent the entire global space community: space agencies; commercial space businesses and associated subcontractors; military, national security and intelligence organizations; cyber security organizations; federal and state government agencies and organizations; research and development facilities; think tanks; educational institutions; space entrepreneurs and private space travel providers; businesses engaged in adapting, manufacturing or selling space technologies for commercial use; and museums, publishers and entertainment media that inspire and educate the general public about space.”  See Space Foundation History, available at: http://www.spacefoundation.org/about/history.

[v] See Space Foundation, “Space Foundation’s 2014 Report Reveals Continued Growth in the Global Space Economy in 2013,” (May 19, 2014), available at: http://www.spacefoundation.org/media/press-releases/space-foundations-2014-report-reveals-continued-growth-global-space-economy.

[vi] See Optional Rules at Introduction (i).

Press Release: Statement on the Inauguration

PRESS RELEASE

Inauguration of 45th POTUS on Friday; new President inherits landmark Iran Deal and future of US-Iran trade relations

Washington, DC, January 20, 2016 – This Friday, January 20th, marks the Inauguration of the 45th President of the United States Donald Trump. Under the new Administration, the United States-Iran Chamber of Commerce (the Chamber) looks forward to continuing its important role of informing and advising business and financial institution leaders, trade associations and government officials on US-Iran trade relations.

Iran’s economy offers access to a consumer-oriented population of over 80 million and a broader regional market of over 300 million people, facts which are not lost on European and Asian companies. Many American companies want a level playing field in international trade, and the ability to consider the full spectrum of market opportunities available to them. One recent study found that from 1995-2014, Iran sanctions cost the US between $203.1 and $271.8 billion in potential export revenue.

Under the Iran Deal, companies are eager to consider or already have started to invest in new market opportunities and sources of revenue in Iran’s diverse economy. As the only chamber of commerce devoted to US-Iran trade relations, the Chamber utilizes its strategic position and expertise to provide guidance to entities regarding the changing US-Iran trade landscape.

The Chamber’s services include, among others, trade compliance, due diligence, legal services, OFAC license assistance, export regulation analysis, guidance on US laws and regulations concerning Iran, and informational presentations and conferences.

The Chamber is a nonpartisan, nonprofit organization based in Washington, DC consisting of business leaders, legal experts, and former federal and congressional employees.

Please contact Reza Khanzadeh at info@USIRCC.org if you would like more information regarding the Chamber’s work and services.

 

Arbitration: An Introduction and the Iranian Context

  1. What is arbitration?

Arbitration is the use of a neutral third party or parties to listen to evidence and argument, usually in a confidential proceeding, and decide on a binding award generally not reviewable upon appeal. It may be initiated by one party or parties to an agreement, usually under a provision that requires disputes to be resolved by arbitration. Parties can also agree to arbitrate their disputes regardless of any contractual obligation, barring a provision that denies the use of arbitration.

  1. What are the benefits of arbitration?

There are certain benefits to arbitration over litigation and these should be thoroughly evaluated before adding or revising an arbitration clause to an agreement. Arbitration proceedings typically are private and therefore are not in public records, which is favorable for parties seeking to preserve and protect confidential, proprietary and other sensitive information. In arbitration, discovery generally is limited as compared to litigation, particularly litigation in common law jurisdictions, and thus reduces the cost and duration of an arbitration proceeding. However, this expediency may be reduced if the rules of the proceeding allow litigation-style discovery.

As compared to litigation, the higher burden required to invalidate or set aside an arbitral award generally results in greater certainty of the result of the proceeding. Under most circumstances, arbitration awards are final and binding on the parties, and the grounds upon which a court can review an arbitral award are extremely limited. These grounds include undisclosed bias or conflict of interest on the part of the arbitrator(s), an error in the calculation of the award which is apparent from the face of the award itself, or a manifest disregard of the law. Although these grounds appear to be broad, they are not, and courts have held that even where an arbitrator incorrectly applies the law, or disregards certain evidence in coming to a conclusion, the court will not disturb the arbitrator’s opinion and overturn an award. Thus, once the arbitrator issues an award, it is generally binding on the parties.

Arbitration also is less expensive in general than litigation, although costs can vary based on the complexity of a matter, and the extent of discovery or other litigation-style rules. Importantly, arbitration is customizable, allowing parties to an agreement to set the terms on selection of the arbitrator(s) (including the number and expertise of the arbitrators), the arbitration institution, venue, and the rules that will govern the proceeding. Arbitration also may be less formal than litigation, as many proceedings are held in conference rooms rather than courtrooms.

  1. What are the potential drawbacks of arbitration?

Certain drawbacks of arbitration include the limited review of decisions, and the potential for high expenses, particularly if not accounted for during arbitration clause drafting. Many parties turn to arbitration because of the ability to source arbitrators with expertise in particularly complex subject matter. This aspect of arbitration means that some disputes will be more costly by virtue of their complexity. In addition, there may be difficulties in initiating arbitration proceedings where an arbitration clause is vague or a party to an agreement is non-cooperative.

Further, in arbitration, arbitrator(s), rather than a jury, hear the case and issue an award. Depending on the nature of the matter, some parties may believe that juries, properly instructed by a court, will provide a more fair and just resolution to a dispute, and that it is easier to convince a jury to issue a higher award than it would be to convince an arbitrator to issue a similar award. Thus, parties should closely examine the considerations involved in foregoing the option to have a matter heard by a jury.

One of the most significant concerns with respect to arbitration involves post-judgment enforcement, which largely turns on the location of assets and the degree to which judges in national court systems may review arbitral awards. The ability to enforce an arbitral award often necessitates that the national courts where the assets are located also afford deference to the award. Parties may seek to set aside or invalidate an arbitral award in national courts, and depending on the degree of autonomy in the judicial system, the potential for misuse exists.

  1. Are Iranian entities familiar with arbitration clauses?

Yes, arbitration has had a long history in Iran. Informally, local custom employed the use of village elders who acted as arbitrators in the resolution of local disputes. Formally, arbitration was enshrined in the original Iranian Code of Civil Procedure 1911, which allowed referrals to arbitration as a method of resolving disputes. Iran also has employed various arbitration clauses in its bilateral investment treaties, which often invoke application of the United Nations Commission on International Trade Law (UNCITRAL) rules. Generally speaking, arbitration has become a preferred method of resolving disputes, particularly in relation to international commercial disputes. Parties to an agreement often are most concerned with having a neutral third party or parties hear all the evidence relating to their claim and determine the outcome of a proceeding. Because the large majority of arbitrators are well-regarded experts in their respective fields, and strive to render fair, just, and equitable decisions based on applicable law and the facts, parties have become increasingly comfortable with arbitration.

  1. Which law governs international arbitration in Iran and what does it include?

The Law on International Commercial Arbitration (LICA) entered into force on November 15, 1997 and governs international arbitration in Iran. Like many other countries, Iran has modeled its arbitration law on the UNCITRAL Model Law, with several significant changes. Important provisions of the LICA include: (i) the arbitrator does not have to be of Iranian nationality; (ii) the arbitrator can decide jurisdiction and can determine whether the arbitration agreement existed (i.e., whether the arbitration clause is void ab initio); (iii) the parties are free to agree upon the procedure to be adopted with regard to arbitral proceedings; (iv) the parties can agree on the seat of the arbitration and the language to be used; and (v) the arbitration award is binding. The LICA is silent on the terms and conditions of “confidentiality,” and therefore this issue should be addressed by the parties in the arbitration agreement. Further, the LICA makes no reference to the costs of arbitration, and it is prudent for the parties to decide and include an expense provision in the arbitration agreement.

With respect to post-judgment enforcement, on October 15, 2001, Iran acceded to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention. Therefore, foreign arbitral awards can be enforced in Iran.

  1. What arbitration institutions exist for contracts with Iranian entities?

The selection of arbitration institution generally is a function of the parties’ own making. With that in mind, it is worth noting that there are arbitration institutions within Iran, as well as international institutions that regularly appear in arbitration agreements with Iranian entities.

 

Tehran Regional Arbitration Centre (TRAC)

TRAC has a number of international arbitrators and functions under the Asian-African Legal Consultative Organization. The rules are based on the UNCITRAL rules and allow the possibility for the parties to determine the number of arbitrators, appoint the arbitrators of their choice, define the procedure for their appointment, venue selection, procedural rules, and substantive law that may be applied to the arbitration.

Arbitration Centre of the Iran Chamber (ACIC)

ACIC is the first independent Iranian arbitration institution established for the purpose of settlement of both domestic and international disputes through arbitration or conciliation. ACIC rules are based on the LICA and essentially adopt the UNCITRAL arbitration rules. As is the case with other arbitration centers, ACIC rules do not allow appeals and require advance payment of costs.

Other Institutions: International Chamber of Commerce, London Chamber of International Arbitration, Arbitration Institute of the Stockholm Chamber of Commerce, and Dubai International Financial Center

Traditionally, the International Chamber of Commerce and increasingly, the London Chamber of International Arbitration and Arbitration Institute of the Stockholm Chamber of Commerce have been the preferred institutions used for international commercial arbitration with Iranian parties. Many parties now are using Dubai International Financial Center arbitration as well. The International Court of Justice is used to assist with arbitrator selection in certain Iranian bilateral investment treaties, where the parties have failed to appoint arbitrators. Other international arbitration institutions may be used as well, depending on the parties’ needs and agreement.

Authored by: Sofia Jannati, Summer Associate 2016. The views expressed in this article are solely those of the author; they do not necessarily represent the position of the United States-Iran Chamber of Commerce or of any other entity.

OFAC Do’s & Don’ts

Implementation day for the Joint Comprehensive Plan of Action (JCPOA) caused significant confusion regarding authorized business dealings with Iran by a United States person.  The JCPOA lifted most U.S. secondary sanctions on non-U.S. entities dealing with Iran.  However, the agreement had little effect on the U.S. primary sanctions on trade with Iran, the Iranian Transactions and Sanctions Regulations (ITSR).  Both U.S. persons and non-U.S. entities remain prohibited from dealing with persons on the Treasury Department’s Office of Foreign Asset Control’s (OFAC) Specifically Designated Nationals List (“SDN List”).  See 31 C.F.R. § 562.201 (2016).  Despite the ITSR’s prohibition on U.S. trade with Iran, certain exceptions to the ITSR do exist.  See, e.g., 31 C.F.R. § 560.530.

How do U.S. sanctions define a U.S. national?

The ITSR defines a “United States person” as a U.S. citizen, permanent resident alien, any person within American borders, or entity organized under U.S. law.  See 31 C.F.R. § 560.314 (2016).  Entities organized under U.S. law include partnerships, associations, corporations, or any other organization, group, or subgroup.  See 31 C.F.R. § 560.305.  Foreign branches of entities organized under U.S. law still qualify as a “United States person.”  31 C.F.R. § 560.314.

How do U.S. sanctions define facilitating trade or a transaction with Iran?

A United States person cannot “approve, finance, facilitate, or guarantee” a non-U.S. person’s transaction if the Iranian Transactions and Sanctions Regulations would prohibit the transaction within the United States or a United States person from performing the transaction.  See 31 C.F.R. § 560.208 (2016).  Non-U.S. entities with United States persons as employees should establish policies to exclude U.S. employees from participating in transactions with Iran.   A United States person’s involvement in a transaction with Iran would violate 31 C.F.R. § 560.208 by facilitating a transaction with Iran.

Can a United States person without an OFAC license still trade with Iran?

A United States person without an OFAC license cannot export or import goods, services, or technology to or from Iran.  See 31 C.F.R. § 560.201-204 (2016). Furthermore, a U.S. person cannot export U.S. goods to a third country with knowledge or reason to know that the goods are ultimately destined for Iran.  Id. § 560.205.  However, OFAC issues two types of licenses for trade with Iran: specific licenses and general licenses.  See 31 C.F.R. § 501.801.  OFAC only issues specific licenses to particular persons or entities after an application process.  Id.  General licenses are broader and authorize a United States person to engage in a particular type of transaction without the need to apply for a license.  Id.

OFAC has issued general licenses for the exportation of agricultural commodities, medicine, and medical supplies to Iran.  See 31 C.F.R. § 560.530 (2016).  Agricultural commodities mean products subject to, or would be subject to if located within the U.S., the EAR.  Id.  These products also must be meant for use in Iran as food, seeds for crops, fertilizers, and reproductive materials for food production.  Id.  Medicine must fit the definition of “drug” found in 21 U.S.C. 321(g).[i]  Id.  Medical device falls under the definition of “device” found in 21 U.S.C. 321(h).[ii]  Id.  All three general licenses prohibit exporting any of these goods to military or law enforcement entities.  See § 560.530(a).  OFAC authorizes a number of payment options for these exports: payment in advance, sales on an open account, letter of credit, or financing by a non-U.S., non-Iranian financial institution. See 31 C.F.R. § 560.532.  United States persons are also authorized to provide brokerage services on behalf of U.S. persons engaging in business involving these general licenses.  See 31 C.F.R. § 560.533.

Pursuant to JCPOA commitments, OFAC recently issued general licenses allowing imports of Iranian-origin carpets and foodstuffs by U.S. persons.  See 31 C.F.R. § 560.534(a) (2016).  Authorized carpets are classified under chapter 57 or heading 9706.00.0060 of the Harmonized Tariff Schedule of the United States.  See 19 U.S.C.S. § 1202 (LexisNexis 2016).  Authorized foodstuffs are classified under chapters 2-23 of the Harmonized Tariff Schedule of the United States.  Id.  United States depository institutions can transfer funds to the benefit of Iran for transactions underlying this general license.  See 31 C.F.R. § 560.516.  Payment for these imports cannot involve the debit or credit of an Iranian account.  Id.  U.S. depository institutions cannot directly advise, negotiate, issue, or confirm a letter of credit with an Iranian financial institution or the Government of Iran.  See 31 C.F.R. § 560.535(a).  The general license authorizes U.S. depository institutions to issue, advise, negotiate, or confirm letters of credit to pay for Iranian-origin goods with a third-country bank.  Id. § 560.535(b).

General License I authorizes United States persons to engage in negotiations and transactions incident the negotiations for the export of commercial aircraft, related parts, and services to Iran.  See U.S. Dep’t of Treasury, Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions Under the Joint Comprehensive Plan of Action (JCPOA) on Implementation Day 30 (2016), available at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_faqs.pdf.  The negotiated contract remains contingent on whether the United States person obtains a specific license from OFAC.  General License I authorizes the negotiating parties to employ a Nondisclosure Agreement in regards to the contract.  Id. at 31.  However, a breach by an Iranian party would require specific licenses for legal fees.

OFAC General License H now allows non-U.S. entities owned or controlled by U.S. persons to engage in Iran-related business.  See U.S. Dep’t of Treasury, General License H: Authorizing Certain Transactions Relating to Foreign Entities Owned or Controlled by a United States Person, 1 (2016), available at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/iran_glh.pdf.  A United States person owns or controls a non-U.S. entity if a United States person owns an equity share greater than or equal to 50 percent, hold a majority of seats on the board of directors, or controls the entity’s actions, personnel or policies.  Id.  U.S. employees of non-U.S. entities cannot participate in Iran-related operations.  See 31 C.F.R. § 560.208.  A non-U.S. entity owned or controlled by a United States person differs from a United States person’s foreign branch.  See 31 C.F.R. § 560.314.  A non-U.S. entity is organized under the laws of a different country. Id.

General License H allows a United States person that owns or controls a non-U.S. entity to engage in activities prohibited by the ITSR to establish or alter operating policies related to the non-U.S. entity doing business in Iran.  See U.S. Dep’t of Treasury, Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions Under the Joint Comprehensive Plan of Action (JCPOA) on Implementation Day 31 (2016), available at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_faqs.pdf.  This provision allows U.S. persons that are board members or senior management of the U.S. principal or the non-U.S. subsidiary to participate in the policy alterations.  Id. at 33.  The license also allows U.S. persons, including outside counsel and consultants, to provide training on the new operating policies.  Id.  However, these employees cannot participate in the ongoing Iran-related operations or decision making. The United States person can also use an automated business support system that passively transfers data between the U.S. principal and all of its non-U.S. subsidiaries.  Id. at 34.

At first glance, the ITSR and the exceptions to the ITSR prevent a United States person from engaging in any dealings with Iran without a license.  However, a general license allows all U.S. persons to engage in a particular business in Iran without applying for an OFAC-issued license.  Current OFAC general licenses allow U.S. persons to export agricultural commodities, medicine, and medical supplies to Iran.  Current OFAC general licenses now authorize U.S. persons to import carpets and foodstuff of Iranian-origin.  OFAC also has general licenses authorizing U.S. persons to negotiate contingent contracts for commercial airplanes, ­­and the foreign subsidiaries of U.S. persons to engage in business with Iran.  Trade with persons on the SDN List remains strictly prohibited for U.S. and foreign entities.


[i] 21 U.S.C. 321(g)(1): (1) The term “drug” means (A) articles recognized in the official United States Pharmacopoeia, official Homoeopathic Pharmacopoeia of the United States, or official National Formulary, or any supplement to any of them; and (B) articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or other animals; and (C) articles (other than food) intended to affect the structure or any function of the body of man or other animals; and (D) articles intended for use as a component of any article specified in clause (A), (B), or (C). A food or dietary supplement for which a claim, subject to sections 343(r)(1)(B) and 343(r)(3) of this title or sections 343(r)(1)(B) and 343(r)(5)(D) of this title, is made in accordance with the requirements of section 343(r) of this title is not a drug solely because the label or the labeling contains such a claim. A food, dietary ingredient, or dietary supplement for which a truthful and not misleading statement is made in accordance with section 343(r)(6) of this title is not a drug under clause (C) solely because the label or the labeling contains such a statement.

[ii] 21 U.S.C. 321(h): The term “device” (except when used in paragraph (n) of this section and in sections 331(i), 343(f), 352(c), and 362(c) of this title) means an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is:

(1) recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them,

(2) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or

(3) intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intended purposes.

By: Jon Gronbeck

OFAC FAQ

A PRIMER ON OFAC, THE JCPOA & CHANGES IN U.S.-IRAN SANCTIONS

 

What is OFAC?

The Office of Foreign Assets Control (OFAC) is a subsection of the United States Department of the Treasury. OFAC administers and enforces U.S. sanctions based on U.S. foreign policy and national security objectives.  OFAC aims to prevent “prohibited transactions,” which means trade or financial transactions U.S persons are not allowed to engage in without prior authorization.  For more information on OFAC, please see OFAC’s Home Page.

 

What is the JCPOA and how did it affect U.S. sanctions on Iran?

The Joint Comprehensive Plan of Action (JCPOA) is a multilateral agreement, commonly known as the “Iran nuclear deal” that removed various sanctions on Iranian entities.  The JCPOA lifted U.S. secondary sanctions on non-U.S. entities doing business with Iran. However, the JCPOA had little effect on U.S. primary sanctions restricting trade with Iran under the Iranian Transactions and Sanctions Regulations (ITSR). Several important general licenses were issued after the implementation day of the JCPOA and they can be found in OFAC’s JCPOA Guidance.

 

What is the SDN List?

The Specially Designated Nationals (SDN) List names various people, entities, organizations, and vessels, which U.S. persons are prohibited from doing business with. Under no circumstance should a U.S. person engage in any transactions or dealings with persons or entities on this list.

 

Are there any other lists that I should be concerned with and how can I find or search these lists?

Yes, other lists that name sanctioned people, entities, organization, and vessels are called the Non-SDN Iran Sanctions Act List, E.O. 13599 List, and the Foreign Sanction Evaders List.

To search these lists, please use OFAC’s Sanctions List Search feature Here.

 

What is the difference between a General License and a Specific License?

OFAC only issues specific licenses to particular persons or entities after an application process. General licenses are broader and authorize a U.S. person to engage in a particular type of transaction without the need to apply for a license.

 

What general licenses have been granted by OFAC as it relates to U.S.-Iran trade?

OFAC has issued general licenses for the exportation to Iran of certain agriculture products, medicine, and medical supplies. These general licenses do not allow any export of these goods to military or law enforcement entities in Iran.

The agricultural license applies to products that are covered by the U.S. Export Administration Regulations (EAR). Agriculture products exported to Iran must be meant for use in Iran as food for humans (including vitamins and minerals) and animals, seeds for crops, fertilizers and organic fertilizers, and reproductive materials for food production.

If you are interested in engaging in business under the medical supplies general license, you should consult the list of approved products for export available Here.

If you are interested in engaging in business under the medicine general license, you should examine the definition of “medicine” in the U.S. regulations. The definitions for “medical device” and “medicine” are found in the U.S. Federal Food, Drug, and Cosmetic Act. Some items under this license also may be covered by the EAR, and would be marked as “EAR99.” The current list of Bureau of Industry and Security (BIS) EAR99 medical devices is available Here.

Finally, OFAC also issued general licenses allowing persons to bring into the United States Iranian-origin carpets, textile floor coverings and carpets used as wall hangings, and Iranian-origin food items intended for human consumption. For more information on these general licenses, please see the Department of the Treasury’s website Here.

 

How would my company obtain a specific license?

The USIRCC can inform you about the license application process required under U.S. laws and regulations. For your specific transactional needs, the USIRCC maintains a legal referral database, and can provide referrals to specialized sanctions or OFAC attorneys. For further guidance, please contact us at info@USIRCC.org.

 

Where can I learn more about U.S. sanctions as it relates to U.S.-Iran trade?

The USIRCC regularly provides guidance to businesses and individuals interested in learning more about the status of U.S.-Iran trade relations. In addition, you can visit OFAC’s resource center Here. You may also find updated answers relating to the JCPOA and Iran-related sanctions questions Here.

Iran Deal Reaches One Year Milestone

PRESS RELEASE

By Mohsen Farshneshani

Washington, DC – July 14, 2016 marked the first anniversary of the signing of the Joint Comprehensive Plan of Action (JCPOA) between the P5+1 and Iran. The United States-Iran Chamber of Commerce applauds the show of diplomacy and progress made in the past year. Despite some setbacks upon reaching this historic conclusion, much progress has been made in restoring commercial relations.

The JCPOA was signed with provisions to allow Iran to purchase commercial airplanes from the United States, in part due to Iran’s unsafe and aging fleet, which was impacted by sanctions. The proposed multi-billion dollar Boeing deal to sell commercial passenger airplanes to Iran benefits both American businesses and the Iranian people, while solidifying the lasting legacy of the JCPOA. However, this deal is being threatened by the passage of H.Amdt. 1262-1263 to H.R. 5485. On this day, we urge members of the U.S. Senate to put a stop to efforts to undermine the JCPOA, which impede U.S. economic competitiveness and influence abroad.

With its strong focus on American economic security through trade diplomacy, the Chamber provides guidance to U.S. companies seeking to leverage market opportunities within the Iranian economy, and regularly consults with members of Congress, businesses, and trade associations. Iran is home to nearly 80 million people with a median age of 28. This, coupled with a highly educated population and wide-ranging economic potential, has made Iran a fertile landscape for today’s global market. The JCPOA offers a new realm of market opportunities for American companies, and helps to harmonize business relationships in the international economic system.

The United States-Iran Chamber of Commerce was established with the aim of informing and advising American and Iranian entities to ensure they are working within the proper legal and regulatory framework. The founders of the Chamber are business leaders and former diplomats with a profound understanding of U.S.-Iran trade relations. This Chamber operates and is registered as a nonprofit organization in Washington, DC.

Who Are We Sanctioning? America or Iran?

 

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By Reza Marashi

In the aftermath of a historic nuclear deal, U.S.-Iran relations are in flux. Washington and Tehran communicate more directly and frequently today than at any time since 1979 – but this fact alone does not guarantee that all remaining points of contention will be resolved. With political and cultural ties improving incrementally, the sparsity of economic ties between Washington and Tehran stand out. As the rest of the world’s economies reinvigorate trade relationships with Iran, a litany of unilateral American sanctions prevents U.S. businesses from pursuing similar opportunities. The cost of sanctions to the American economy is often overlooked, yet continues to grow.

In a recent report, I worked with two colleagues to examine these costs, and the results were astounding. Using an econometric “gravity model,” we assessed the trade that America lost as a result of sanctions on Iran since 1995. Based on the U.S. government’s statistics on the number of job opportunities that $1 billion of foreign trade produces, our report also assessed the number of job opportunities lost in the U.S. due to the Iran sanctions. Finally, our report estimated the states in the U.S. where these job opportunities likely were lost.

Unsurprisingly, the United States is by far the biggest loser of all sanctions enforcing nations. From 1995 to 2012, the U.S. sacrificed a whopping $134.7 to $175.3 billion in potential export revenue to Iran – greater than the losses of all other countries combined. This is surprisingly high, particularly compared to the non-existing debate about the cost of sanctions. Over the past four years, this number has continued to rise.

Congress has passed most sanctions on Iran with no more than a handful of nay votes. In 2011, the Senate even passed sanctions against Iran’s Central Bank 100-0, in spite of objections from the Obama administration about the potential havoc these sanctions could cause in the oil markets. Concerningly, none of the lawmakers’ debates raised the cost of sanctions to the U.S. economy. The absence of such discussion was concerning mindful of the ongoing efforts to reduce the U.S. unemployment rate – an objective directly undermined by the thousands of job opportunities lost due to the Iran sanctions.

These estimates reflect the loss solely from export industries, and do not include the detrimental economic effects of other externalities of Iran-targeted sanctions, such as higher global oil prices. Moreover, since Iran’s imports would be higher in the absence of sanctions, and sanctions have depressed Iranian GDP, the economic costs to sanctions-enforcing nations are greater due to lost exports. Consequently, the full cost to the U.S. economy is likely even higher than the report indicates.

The dollar loss of foregone export revenue represents only part of the cost of sanctions enforcement. There is also a human element, measured in terms of jobs needed to support higher export levels. On average, the lost export revenues translate into between 51,043 and 66,436 lost job opportunities each year. In 2008, the number reached as high as 214,657-279,389 lost job opportunities. Texas and California are likely the biggest losers in terms of lost employment, due to their size as well as the attractiveness of their industries to Iran’s economy.

The structure of Iranian imports also provides important insight into lost trade between the U.S. and Iran. To understand future potential losses (or gains), it is instructive to study the Iranian government’s stated areas of economic emphasis, which include, among others: energy-intensive industries; power generation; telecommunications; automobiles; aviation and shipping; roads and railways; banking and insurance; and mining. Taking both U.S. and Iran perspectives into account, a diverse range of sectors stand out as likely areas of future trade – or future losses, depending on whether remaining U.S. sanctions are lifted.

The cost of sanctions to the U.S. economy must be recognized as America deliberates how to proceed in its trade relations with Iran. Any debate that does not acknowledge such costs will be incomplete at best, and misleading at worst. The nuclear deal has proven that diplomacy can accomplish in two years what decades of sanctions could not. Looking ahead, decision-makers in Washington must ask themselves if the cost of sanctions to the U.S. economy is worth bearing, where other diplomatic options exist.

Reza Marashi has been the Research Director of NIAC since 2010

Update on Iran’s Re-Entry into the Global Economy

Delisting of Entities on the U.S. Sanctions Lists

January 16, 2016, marked the Implementation Day for the Joint Comprehensive Plan of Action (“JCPOA”) – known in Iran as Barnamey-e Jame Eghdam-e Moshtarek (“BARJAM”). On Implementation Day, the International Atomic Energy Agency (“IAEA”) verified that Iran implemented key nuclear-related commitments set forth in the JCPOA, and the U.S. Secretary of State confirmed the IAEA’s verification. As a result of Iran meeting its JCPOA commitments, as part of the lifting of nuclear-related sanctions, the United States Government removed over 400 individuals and entities listed in the following:

  • the Specially Designated Nationals (“SDN”) List;
  • the Foreign Sanctions Evaders (“FSE”) List; and
  • the Non-SDN Iranian Sanctions Act (“NS-ISA”) List.

The above Lists are overseen and published by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). SDNs are individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries, and also lists non-country-specific individuals, groups, and entities. SDN assets are blocked and U.S. persons are generally prohibited from dealing with SDNs. FSEs are foreign individuals and entities determined to have violated, attempted to violate, conspired to violate, or caused a violation of U.S. sanctions on Iran, as well as foreign persons who have facilitated deceptive transactions for or on behalf of persons subject to U.S. sanctions. Transactions by U.S. persons or within the United States involving FSEs are prohibited. As of Implementation Day, sanctions imposed on all persons named on the NS-ISA List were terminated, and that list is now empty.

Following Implementation Day, noteworthy delisted entities include, among others:

  • the Central Bank of Iran and most Iranian financial institutions;
  • a number of American, Asian, and European shipping and trading companies;
  • almost all of the aircrafts and vessels that belong to Iran Air, Iran Shipping Lines, and the National Iranian Tanker Company;  
  • Iran’s Ministry of Energy and its Ministry of Petroleum; and
  • major Iranian energy companies and their foreign affiliates, including the National Iranian Oil Company (“NIOC”), and Naftiran Intertrade Company (“NICO”).

The names of the approximate 400 delisted individuals and entities are set out in Attachment 3 to Annex II of the JCPOA. Nevertheless, more than 200 Iranian or Iran-related individuals and entities continue to remain on the SDN list.

Simultaneous with delisting of Iranian aircrafts from the SDN list, OFAC established a favorable licensing policy regime through which U.S. persons may request specific authorization to engage in transactions for the sale, export, lease, or transfer of commercial passenger aircraft and related parts and services to Iran. OFAC’s licensing policy also applies to associated services including the supply of parts, warranty service, brokering, insurance and financing, as well as the involvement of individual U.S. persons in the transaction.

In addition, non-U.S. persons are no longer subject to sanctions for investing in Iran’s oil, gas, or petrochemical sectors, provided that transactions do not involve persons on the SDN list. In addition, U.S.-owned or controlled foreign entities are now permitted to engage in transactions that would otherwise be prohibited if engaged in by a U.S. person.

With the removal of over 400 individuals and entities from the SDN, FSE, and NS-ISA Lists, particularly the Central Bank of Iran, Iran Air, and the National Iranian Oil Company, the global marketplace can expect changes to emerge within the spectrum of transactional options available with respect to Iran, particularly its civilian aerospace and natural resource sectors.

 

The views expressed in this article are solely those of the author; they do not necessarily represent the position of the Department of Labor or of any other agency.

Emad Maghsoudi is a 2016 Juris Doctor candidate at Fordham University School of Law, and holds an MA in Management from Harvard University. Emad served as an International Trade Analyst for the U.S. Department of Labor.

 

Understanding US Trade Embargo with Iran

Despite the implementation of the Joint Comprehensive Plan of Action (“JCPOA”) – the nuclear accord between the United States, other major world powers, and Iran – U.S. persons remain broadly prohibited from engaging in most transactions with Iran or Iranian parties.  Nonetheless, the JCPOA did herald certain new license authorizations that permit U.S. persons to engage in specific trade-related activities with Iran.  It will be important for U.S. persons – defined to include U.S. citizens, permanent resident aliens, entities organized under the laws of the United States (as well as their foreign branches), and persons physically located within the United States – seeking to engage in trade-related activities with Iran – to ensure their compliance with U.S. sanctions regulations, including by consulting legal counsel as necessary.

For nearly three decades, the United States has imposed a comprehensive trade and investment embargo with Iran with only limited and narrowly construed exceptions.  This trade embargo is codified at 31 C.F.R. Part 560, where it is otherwise known as the Iranian Transactions and Sanctions Regulations (“ITSR”).  The ITSR imposes broad prohibitions on the import into the U.S. of Iranian-origin goods and services; the export and re-export to Iran of U.S.-origin goods, technology, and services; U.S. person facilitation of transactions by a foreign person with Iran if such transactions would be prohibited if engaged in by a U.S. person; and all trade-related dealings or transactions by U.S. persons with Iran or Iranian parties.  The purpose of these sanctions prohibitions is to restrict U.S. economic activity with Iran.

However, the ITSR does contain certain exemptions and license authorizations and exceptions.  These include license authorizations for the export and sale of certain agricultural commodities, medicines, and medical supplies to Iran, as well as for the provision to Iran of certain hardware, software, and services incident to personal communications (such as smartphones and tablets).  A full list of such exemptions,  license authorizations and exceptions can be found at 31 C.F.R. § 560.210; Subpart E of 31 C.F.R. Part 560; and on the U.S. Department of the Treasury’s Iran Sanctions webpage.

While the JCPOA did not terminate the broad prohibitions of the ITSR, it did authorize certain additional trade-related activities with Iran.  Pursuant to the JCPOA, the Office of Foreign Assets Control (OFAC) issued a general license authorization (codified at 31 C.F.R. § 560.534) for the importation into the United States of Iranian-origin carpets and certain foodstuffs.  This means that U.S. persons can now engage in the importation of Iranian-origin carpets and certain foodstuffs into the United States without first obtaining specific license authorization from OFAC – provided that U.S. parties comply in full with the terms of 31 C.F.R. § 560.534 and other applicable U.S. law.

Further, OFAC issued a Statement of Licensing Policy (“SLP”) for U.S. and non-U.S. persons to request specific license authorizations to engage in transactions for the sale of commercial passenger aircraft and related parts and services to Iran under certain restrictive conditions.  OFAC’s issuance of a SLP is intended to signals that U.S. persons are entitled to submit specific license applications and OFAC will review such applications with a presumption in the applicant’s favor.  Nonetheless, U.S. persons are required to receive specific license authorization before engaging in any transactions that would be covered under the terms of the SLP.

Finally, OFAC issued General License H, authorizing U.S.-owned or –controlled foreign entities – as defined at 31 C.F.R. § 560.215(b) – to engage in transactions, directly or indirectly, with Iran or Iranian parties that would otherwise be prohibited under 31 C.F.R. § 560.215, which addresses prohibitions on foreign entities owned or controlled by U.S. persons.  Some have interpreted this provision as authorizing U.S. persons to engage in certain activities with Iran that had otherwise previously been prohibited.  With one limited exception, this is not the case.  General License H is intended to permit foreign entities that meet the definition of U.S.-owned or –controlled to engage in trade-related dealings with Iran.  However, U.S. persons at those entities are not permitted to engage in or otherwise facilitate transactions with Iran or Iranian persons, as U.S. persons remain prohibited from such transactions under the ITSR.

The JCPOA opened certain limited avenues for trade with Iran or Iranian persons, but the broad prohibitions of the ITSR remain in place.  U.S. persons considering engaging in trade-related activities with Iran should consult legal counsel prior to undertaking any proposed dealings and strive to deepen their understanding of legal implications in this context.  Violations of the ITSR can be met with serious civil and criminal penalties, and U.S. authorities have imposed such penalties on violating parties in the past.

* The contents of this communication are not and should not be regarded as constituting legal advice.  As noted above, U.S. and other persons should discuss any proposed activities involving Iran with legal counsel to ensure compliance with U.S. law.

Tyler Cullis is the Legal Fellow and Policy Associate at NIAC. He provides legislative and advocacy outreach, research and writing, and legal analysis. A law graduate of the Boston University School of Law, he specialized in the U.S. sanctions on Iran and the Iran nuclear issue. Tyler tweets at @TylerCullis.