OFAC issues additional Iran sanctions guidance

On 08 June 2016, the US Treasury Department’s Office of Foreign Assets Control (OFAC) issued new guidance on the scope of US sanctions on Iran. The new guidance is particularly relevant for the following:

• financial institutions (US and non-US)
• non-US entities that employ US staff, and
• non-US entities that are owned or controlled by a US person.

The new guidance serves to clarify OFAC’s position in relation to its lifting of certain Iranian sanctions on 16 January 2016 (Implementation Day). The guidance takes the form of eleven new questions and answers to OFAC’s existing Frequently Asked Questions (FAQs). A complete set of the revised FAQs is available here.

Further information on the background to the lifting of sanctions is available in our related articles: Iran's "Implementation Day": nuclear-related sanctions automatically lifted and Nuclear sanctions lifted: a new dawn for Iran?

Financial institutions

Implementation Day: A number of major financial institutions were not clear as to whether a US financial institution could transact with a non-US financial institution that maintained banking relationships with Iranian financial institutions which are not on the Specially Designated National List (SDNL).

New guidance:

• US Financial Institutions: Can transact with non-US, non-Iranian financial institutions that maintain correspondent banking relationships or otherwise transact with Iranian financial institutions that are not on the SDNL. Opening or maintaining correspondent accounts for non-US, non-Iranian financial institutions is permitted.
• Non-US Financial Institutions: Cannot route Iran-related transactions through US financial institutions or involve US persons in such transactions, unless the transaction is exempt from regulation or authorised by the OFAC. Appropriate systems and controls should be put in place to ensure compliance with these obligations.

Non-US entities that employ US staff

Implementation Day: OFAC declared that non-US entities with US staff would be free to carry out transactions with Iranian persons not on the SDNL.

New guidance:

• The presence of a US person on the Board of Directors or serving as a senior manager of a non-US entity does not necessarily preclude that entity from transacting with Iranian persons that are not on the SDNL.
• Unless otherwise authorised by OFAC, US persons should be ring-fenced from any Iran-related business.
• US persons should be ring-fenced pursuant to blanket policy rather than relying on case by case decisions.

Non-US entities owned or controlled by a US person

Implementation Day: OFAC issued a new licence (Licence H) authorising non-US entities that are owned or controlled by a US person to carry on business with Iranian parties (including the Government of Iran), subject to limited exceptions. Licence H also authorises U.S. persons to establish or alter corporate policies or procedures to the extent necessary to comply with the terms of the licence.

New guidance:

• Ownership/Control: An entity will be owned or controlled by a US person if the US person:
  • holds a 50% or greater equity interest by voting rights or value in that entity
  • holds a majority of seats on the board of directors of that entity, or
  • otherwise controls the actions, policies or personnel decisions of that entity.

OFAC will generally aggregate the interests of multiple US persons in determining whether an entity established or maintained outside the US is subject to US ownership or control. An exception to this rule is where shares in the relevant entity are listed.

• Change of Operating Policies: changes to operating policies and procedures may be effected at both the US parent company level and the non-US subsidiary level to the extent necessary to allow either entity to engage in authorised business with Iranian parties. US persons may modify a foreign subsidiary’s policies and procedures to allow it to establish a physical presence in Iran (subject to continued restrictions). Changes to operating policies may be effected more than once.
• Reporting: US persons may receive reports about business activities undertaken by the relevant non-US entity detailing transactions with Iran, provided that the US person does not take any action itself to facilitate the transaction.

Conclusion

The new guidance provides valuable clarification regarding the easing of US sanctions on Iran post-Implementation Day. Nonetheless, the issues explored above demonstrate that organisations focusing on Iran must maintain effective systems and controls to ensure continued compliance with the sanctions and must ensure that any further developments in this area are carefully monitored and reviewed.