On June 5, 2020, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) published four new Iran-related frequently asked questions (FAQs) regarding Executive Order (EO) 13902 of January 14, 2020, “Imposing Sanctions with Respect to Additional Sectors of Iran.”
In relevant part, EO 13902 authorizes sanctions against any person the Secretary of the Treasury, in consultation with the Secretary of State, determines to operate in the construction, mining, manufacturing, or textiles sectors in Iran (and any additional sectors that may in the future be designated by the US government). In addition, EO 13902 authorizes sanctions against any persons or foreign financial institutions engaged in sanctionable activity related to the targeted sectors such as providing material assistance to a blocked person or knowingly engaging in a significant transaction in connection with a targeted sector.
These new FAQs from OFAC provide definitions to clarify the scope of these sanctions. (Click here to view FAQ 831, which defines each of the targeted sectors. Click here to view FAQ 832 and its broad definition of “significant goods or services.” Click here to view FAQ 833 and the guidance it provides on the terms “knowingly” and “significant” for the purposes of EO 13902.)
While the clarifying guidance provided in the new FAQs is helpful, the most noteworthy aspect of the FAQs are statements that US secondary sanctions under EO 13902 do not apply to certain types of activities in these otherwise targeted sectors in Iran when dealing with the provision of goods or services for humanitarian, hygiene, or safety needs for domestic use within Iran.[1]
Specifically, FAQ 830 states that secondary sanctions under EO 13902 do not apply to persons in Iran who are engaged in the manufacture of “medicines, medical devices, or products used for sanitation, hygiene, medical care, medical safety, and manufacturing safety, including soap, hand sanitizer, ventilators, respirators, personal hygiene products, diapers, infant and childcare items, personal protective equipment, and manufacturing safety systems, solely for use in Iran and not for export from Iran . . . .” The reference to “for use in Iran and not for export” presumably would disqualify certain manufacturing entities and facilities in Iran that might produce items not just for domestic consumption but also for export. How due diligence will be conducted to determine if a manufacturer is not producing for export from Iran could be a challenge, particularly without easy access to the manufacturer’s management and corporate location.
FAQ 830 also restates OFAC’s policy that persons engaged in transactions related to the provision of agricultural commodities, food, medicine, or medical devices to Iran will not be subject to sanctions under EO 13902.
Similarly, FAQ 832 states that OFAC would not sanction the provision of “goods that ensure the protection of life and prevention of injuries to persons operating” in the targeted sectors, such as personal protective equipment, safety devices, and alarm systems, or “services that ensure the protection of life and prevention of injuries to persons operating in” these sectors, such as cleaning, safety inspections, and services necessary for use of the aforementioned protective goods.
Presumably, this policy is intended to avoid targeting purely domestic Iranian businesses (including state-owned entities) otherwise operating in targeted sectors as long as these businesses are: (i) involved only in activities related to the provision of goods or services for humanitarian, hygiene, or safety needs for use only domestically within Iran, as specified above, and (ii) are not affiliated with the IRGC or designated under the terrorism or proliferation authorities. This policy therefore allows limited types of continued trade with Iran in the interest of humanitarian, hygiene, and safety concerns, including items for preventing and treating COVID-19 in Iran. For more on this topic, see our earlier posts on sanctions guidance issued by the EU and by the US on trade with sanctioned countries during the COVID-19 crisis.
For more information on how OFAC’s Iran-related sanctions may impact your business, contact a member of Steptoe’s Economic Sanctions team.
[1] OFAC makes clear that parties in Iran’s export sector are still subject to sanctions under EO 13902, and that sanctions continue to apply to activities involving the Islamic Revolutionary Guard Corps (IRGC) or its affiliates, or Specially Designated Nationals (SDNs) listed under authorities relating to support for international terrorism or proliferation of weapons of mass destruction.