Exporting to Iran: The Little Known [?] OFAC Exception

Posted on August 28, 2011 by Farhad Alavi

Most people know that U.S. sanctions on Iran are very comprehensive. Did you know that there are still exceptions to them? Despite having recently had to deal with the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) himself, a client of mine who does quite a bit of work in the Middle East was quite surprised when I told him that U.S. persons can obtain specific licenses to export medical equipment, pharmaceuticals, food and certain agricultural products to Iran. In fact, OFAC issues hundreds of these licenses (commonly referred to as “Ag/Med licenses”) annually. A quarterly report issued by OFAC indicates that over 300 licenses were issued for Iran between July and September 2010 alone!

How does it work?

The U.S. government decided in the early 2000s to legalize certain sales to Iran on humanitarian grounds. The Trade Sanctions Reform Enhancement Act of 2000 or “TSRA” emerged from this, which also provides for licensing of such sales to Sudan. The law does not exempt agricultural and medical products to Iran from the sanctions regime but rather permits U.S. persons to export such products to Iran if they obtain a specific license. Specific licenses are distinguished from activities permitted under general license. Such activities require no formal authorization from OFAC. OFAC issues specific licenses under the Ag/Med program licenses subject to the applicant and the transaction meeting certain criteria.

The Ag/Med program is provided in the Iranian Transactions Regulations, 31 CFR Part 560, the “ITR.” The ITR allows U.S. persons receiving Ag/Med licenses to sell medicine, medical devices, or agricultural products to entities in Iran, including the Iranian government, although obviously sales to entities on the Specially Designated Nationals (SDN) list or those promoting international terrorism are expressly prohibited.

A specific Ag/Med license not only permits one to engage in the actual sale or export, but it also allows related activities, such as entering into agreements for sale. It can naturally authorize payment on cash terms, as well as certain types of financing subject to certain restrictions.

What is covered?

The ITR permits the export of many types of the following goods:

Medical equipment and supplies;
Medicine and medicinal products; and
Agricultural products.

Although there are certain limitations (e.g., you cannot send equipment subject to military restrictions, etc.) the range of eligible products are considerable. For example, medicine is inclusive of vitamins, and agricultural products can include not only seeds and grain, but also goods like meat, vegetables, processed foodstuffs, pet foods, etc. Note, however, that a specific license is not a blank check to sell whatever medical, medicinal, or agricultural product one wishes during the license term – rather, applicants must clearly stipulate in their applications the exact goods they plan on exporting, as the license will only cover those items. Furthermore, an applicant must stipulate that the goods are not prohibited by the Department of Commerce due to export control laws, as described further below.

How do I obtain an Ag/Med License?

First, you will need to submit an application for the specific license. This is a detailed, multi-phased process. It requires not only an actual license application (there is no “application form” per se but rather the application is a free form document something more similar to a legal brief in that it describes the transaction and other facts), as well as a determination by the Department of Commerce’s Bureau of Industry and Security (BIS) that the specified goods are designated as EAR99, in other words not subject to U.S. export control laws. Also, the license application should be very thorough and detailed, providing certain required information. A license application should in reality cover every item you think you may want to export during the course of the year. That said, one can later request an amendment to that license to export additional items to Iran.

How long are the licenses valid?

Licenses are issued for a year, and one can ship up to the last day of the validity. Shipment must be made before the date of expiration. One can also apply to have the license renewed for subsequent years.

Notably, Ag/Med license applications can often hit snags if they are not thorough and complete. Therefore, it is advised that submitted applications be properly prepared in order to help expedite their processing.

Please contact Farhad Alavi at falavi@akrivislaw.com or (202)686-4859 should you have any questions.

This document and its content are solely intended for informational purposes and should not be interpreted as constituting legal advice. You should consult with legal counsel with regard to all topics and issues discussed herein.