Doing Business With Iran: Prohibitions and Permissions

Posted on January 15, 2012 by Farhad Alavi — Leave a comment

I’ve often joked that many people in the U.S., particularly within the Iranian-American community, engage in business with Iran with a lack of knowledge about the sanctions and in a matter as if they are dealing with a non-sanctioned country like Switzerland or Japan. Some of this is understandable – U.S. sanctions with Iran are very complicated and there are many laws one could never assume exist based on simple common sense. For example, who would have thought that a U.S. citizen or Permanent Resident generally cannot sell his or her own property in Iran without a license from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), or that he or she cannot even work in most jobs in Iran without an OFAC license?. Today’s posting is about doing business with Iran and what you should know.

Most Business By U.S. Persons with Iran is Prohibited

Before we get into what is permitted and prohibited, let’s first determine whether you meet the definition of a “U.S. person.” The Iranian Transactions Regulations, 31 CFR Part 560 (2011) (the “ITR”) define “U.S. Person” as any individual with U.S. citizenship or permanent residency wherever they live or work (including Iran) and U.S. companies around the world. It also includes individuals physically in the United States (such as people here on work and student visas, or even tourist visas!). It is irrelevant if you also hold an Iranian passport, a Canadian passport, a French passport, or any other nationality. If you meet the above criteria, you are a U.S. person, and this status does not magically disappear when you set foot on Iranian soil.

What types of activities are U.S. Persons prohibited from engaging in with Iran? Most business by U.S. persons with Iran is prohibited, including dealings with non-U.S. goods. But let’s first start with what is allowed.

What type of business can be done by U.S. persons in Iran?

As a U.S. person, you generally can:

Engage in certain dealings in informational materials, such as exporting books, movies, music and art from the U.S. to Iran, and importing such products from Iran to the U.S.;
Export certain limited types of free communications software;
Export most types of food products to Iran;
Obtain a specific license from OFAC to export or deal in medical supplies, medical equipment, and pharmaceuticals for use in Iran;
Obtain a specific license from OFAC to rent out property you may have owned from before you came to the U.S. (as an example);
Engage in certain travel related business with Iran (such as sell plane tickets to Iran);
Provide certain legal services to people in Iran;
Register U.S. intellectual property such as patents and trademarks in Iran (or Iranian IP here in the United States); and
Apply for a license for most other transactions – although OFAC will review and accept on a case-by-case basis (note OFAC is not bound by precedent and is generally not fond of most activities that will promote U.S.-Iran trade ties)

A fairly narrow window of activities I would say!

What can you not do with Iran?

As a U.S. person, unless you have a specific license from OFAC, you cannot, among other things:

Sell most goods to Iran from the U.S. or from any third country jurisdiction, like Germany or Dubai;
Facilitate trade with Iran, such as arrange for a shipment of Chinese goods from China to Iran, provide credit to enable such a transaction, work for a Korean company on most deals related to Iran, or work in a Dubai company on reexport transactions with Iran;
Invest in Iran, such as building an apartment building, opening a factory, running a factory, etc. (bear in mind one Iranian American was fined $30,000 in late 2010 for a “non-egregious” investment in a family catering business);
Run a business in Iran such as a bookstore, or an engineering firm;
Work in Iran or for Iranian companies, whether you are sitting in your house in the United States and working remotely for a company in Iran, or whether you move to Iran and work for a company there, or even work for an Iranian company in London, Istanbul, or Dubai;
Deposit and maintain money in banks in Iran, even in non-sanctioned private banks; and
Import most goods from Iran, even through a third country like Australia or India.

One can effectively sum up U.S. policy on this issue as follows: outside the spread of informational materials which promote the free flow of ideas between the countries and the sale of humanitarian goods such as most foods, medicines and medical supplies, the United States generally does not want U.S. persons to do business with Iran. As such, once you become a U.S. person you effectively have to sever business ties with Iran. It may be very fashionable or convenient to live in the United States but live on money you make in Iran, but realize this can lead to exceptional civil and criminal liabilities under U.S. law. Note that you can apply for a specific license from Iran to sell your commercial interests in Iran (be it a company you owned, shares of stock, rental property, or inherited interests in a business venture, etc.).

Despite the many economic problems in Iran, the reality is that Iran is a very rich country with high liquidity and plenty of business opportunities. However, the more significant reality, arguably, is that Iran is under comprehensive U.S., and increasingly European Union (EU) sanctions. Given the hostilities between the United States and Iran, it should be expected that commercial relations are very limited. There’s a reason you don’t see direct flights, banking relations, Starbucks Coffee, the Gap, McDonald’s, Wells Fargo, Accenture, General Motors dealerships, or Crate & Barrel etc. in Iran (further, it’s not so odd that you do see many non-U.S. chains like Benetton, Mango, and Carrefour, which are not limited by U.S. sanctions). Be sure that it has already occurred to most U.S. giants that Iran could be profitable. Many people have already wanted (and already have, when relations were better) thought of exporting Caterpillar bulldozers and Levi’s jeans to Iran. (I should note some of these types of goods are in Iran legally, but there is an exceptionally complex story behind that). The sanctions are not a government-to-government matter, and having dual citizenship does not give you special rights.

What if you have committed a violation?

It is critical that one evaluate any history of violations, and if you are a business in the U.S. doing international work, you should seriously consider implementing a compliance program. I have seen certain U.S. businesses that have a heavy risk factor with respect to Iran – employees shuttling back and forth (or even moonlighting on projects in Iran!), or in one case a business where the owner also owned ongoing businesses in Iran. I even heard of one case where a gentleman in the U.S. was monitoring his factory in Iran via webcam! These are all exceptionally prohibited activities and one should take an abundance of caution.

The ITR and related regulations tend to be incredibly nuanced. Therefore, when in doubt always seek the advice of an expert. Business activities with sanctioned countries (not just Iran but others such as Cuba and Syria) is not a place for guesswork.