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October 10, 2016

Treasury Department’s FAQ Update Will Not Resolve Iran Sanctions Complications

FOR IMMEDIATE RELEASE
Contact: Tyler Cullis
Phone: 203-907-7529
Email: tcullis@niacouncil.org

Washington, DC – The United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) updated its Frequently Asked Questions (FAQS) regarding the lifting of sanctions under the nuclear accord with Iran this week.  The revised FAQs are a simple restatement and clarification of existing U.S. sanctions laws – not an “easing” of U.S. sanctions as some reports have erroneously claimed.

There is a simple reason for this: Regulatory guidelines – like these FAQs – cannot change the operative law, but can merely explain and interpret that law.  Under the Joint Comprehensive Plan of Action (JCPOA) – the nuclear agreement between the U.S., other major world powers, and Iran – the United States is expressly obligated to “take adequate administrative and regulatory measures to ensure clarity and effectiveness with respect to the lifting of sanctions under [the] JCPOA,” and is also committed to “consult[ing] with Iran on the content of such guidelines and statements, on a regular basis and whenever appropriate.”  The purpose of this provision is to ensure that parties interested in undertaking legitimate business activities involving Iran have a clear and precise understanding of the scope of the sanctions-lifting under the JCPOA and the application of remaining U.S. sanctions targeting Iran.

In line with this U.S. JCPOA-related obligation, OFAC revised certain of its FAQs and included additional FAQs to provide clarification over matters that remained under question.

Specifically, the revised FAQs clarified that foreign banks can engage in U.S. dollar-denominated transactions involving Iran or Iranian parties so long as those transactions do not pass through the United States or otherwise involve a U.S. person.  This is not a new position, but is rather a simple jurisdictional fact: the United States is able to assert jurisdiction over a transaction only insofar as it takes place within the United States or otherwise involves a U.S. person, but does not have jurisdiction over transactions that take place wholly outside of its borders and do not involve U.S. persons in any capacity whatsoever.  This position was also stated back in May, when the U.S. Department of the Treasury’s Undersecretary for Terrorism and Financial Intelligence Adam Szubin testified before the House Foreign Affairs Committee.

Moreover, the revised FAQs restated the fact that foreign parties are not necessarily engaged in sanctionable activities when they transact with an entity that is not on the SDN List but that is otherwise controlled by an Iranian or Iran-related SDN.  This is consistent with OFAC’s Revised 50 Percent Rule, announced in August 2014 – the FAQs of which state that “an entity that is controlled (but not owned 50 percent or more) by one or more blocked persons is not considered automatically blocked pursuant to OFAC’s 50 Percent Rule.”  Indeed, OFAC’s 50 Percent Rule “speaks only to ownership and not to control.”  It is for this reason that proposed Congressional legislation seeks to decrease the ownership threshold to 25% and to include the element of “control” as grounds for automatic blocking.  Those who are trying to sell the idea that this revised FAQ changed operative law are simply and factually wrong.

Finally, OFAC reiterated its long-held position that it “does not expect a non-U.S. financial institution to repeat the due diligence its customers have performed on an Iranian customer unless the non-U.S. financial institution has reason to believe that those processes are insufficient.”  Indeed, the Treasury Department and U.S. Federal Banking Agencies recently issued a Joint Fact Sheet on Foreign Correspondent Banking, which noted that “[u]nder existing U.S. regulations, there is no general requirement for U.S. depository institutions to conduct due diligence on an FFI’s customers.”  It is hard to understand why some in the U.S. believe that the United States imposes a higher standard of due diligence on foreign banks than it does on U.S. banks.

Those trafficking in the conspiracy that somehow these revised FAQs have “loosened” sanctions on Iran are the same people who have been ardently opposed to President Obama’s diplomacy with Iran since day one.  These are regime-change enthusiasts who are conning the media by propagating false information about the steps that the United States is taking to continue complying with the nuclear accord.    

Because the revised FAQs merely restate and clarify existing law, there should be no expectation that these revised FAQs will somehow resolve lingering problems associated with the lifting of sanctions under the JCPOA.  More dramatic action will be required to do so.  It is our position that the Obama administration should take the steps required to resolve lingering issues with the lifting of sanctions under the JCPOA – not just because the U.S. is expressly obligated to do so under the nuclear accord, but also because doing so serves important U.S. interests in ensuring that the nuclear accord is sustainable over the long-term.

Such measures could include not just the re-authorization of the U-turn license – which provided Iran indirect access to the U.S. financial system – but also institution of a direct banking channel between the U.S. and Iran to facilitate permissible transactions between the two countries.  This will help instill confidence in European banking institutions that have proven reluctant to re-engage their Iranian counterparts so long as the United States retains its primary trade embargo with Iran and will also provide the U.S. much greater transparency over transactions involving Iran.

Moreover, the administration should take steps consistent with the U.S.’s stated policy that it will not stand in the way of legitimate business involving Iran.  Such measures include licensing U.S. person employees of foreign companies to engage in transactions involving Iran and licensing U.S. persons in general to facilitate transactions between foreign persons and Iran.  It is hard to understate the immense difficulties that foreign entities – especially large- to medium-sized enterprises with substantial U.S. person employees – are having so long as such U.S. persons are subject to the U.S. trade embargo with Iran. 

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