The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) yesterday announced a series of key revisions to the Iranian Transactions and Sanctions Regulations (the “ITSR”), one of the key bodies of regulations implementing the still far-reaching U.S. sanctions infrastructure in place against Iran. Most specifically, OFAC has made key changes to existing regulations allowing the exportation to Iran of many humanitarian items that make such exporters in some ways more commercially feasible to U.S. persons. It also has substantially revised the definition of what constitutes goods of Iranian origin.
These recent changes are consistent with a general trend towards clarifying the complex U.S. sanctions framework and loosening restrictions on transactions that have traditionally been licensable.
Iran Sanctions Generally
Iran remains subject to a very comprehensive unilateral U.S. embargo. The January 2016 implementation of the Joint Comprehensive Plan of Action (JCPOA) between Iran and the so-called “P5+1” states (the United States, United Kingdom, France, Russia, China, and Germany) over Iran’s nuclear program removed many so-called “secondary sanctions” limiting third country commercial activity with Iran across a wide spectrum, but left the unilateral U.S. embargo intact. The ITSR is perhaps the cornerstone of these sanctions, impacting “United States persons” and barring their ability to export or import most goods, services, and technologies to and from Iran.
TSRA Revisions Impacting Medical and Agricultural Exports to Iran
Yesterday’s changes continue the Obama Administration’s ongoing trajectory of easing restrictions on the flow of humanitarian goods to Iran, for which there has been a licensing scheme for nearly two decades. The Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) covers three key areas with respect to Iran – specifically medicine, medical supplies, and agricultural commodities.
In the medical field, OFAC has announced that it will be replacing its list of authorized medical supplies, which was a list of items that could be exported to Iran by U.S. persons under general license – meaning, so long ascertain parameters were adhered to, specific licensing from OFAC was unnecessary. This effective “white list” is being replaced with a List of Medical Devices Requiring Specific Authorization, which will be published in the Federal Register today. If a given item is named on the List of Medical Devices Requiring Specific Authorization, a specific license will still be needed to export the item to Iran. This presumably widens the scope of items that can be exported to certain parties and end-users in Iran without having to first obtain an OFAC license.
With respect to agriculture, the scope of general license commodities is also being expanded somewhat, albeit more narrowly.
Most notably, OFAC is also allowing the exportation of software needed to operate, maintain, or repair such medical items, so long as the item is EAR99 or would be EAR99 if in the United States.
Very importantly, OFAC has added a general license authorizing training related to medicines, medical products and agricultural commodities exported to Iran. The re-importations of such exported goods to the United States for repair and safety purposes (such as product recalls). Training previously required specific licensing.
The second key area of OFAC’s revisions to the ITSR is the revision of the definition of what constitutes “goods of Iranian origin.” The new changes do not allow more “Iranian” goods to enter the United States but insead clarifies that this term does not include items that have transited through Iranian waters or were unloaded and reloaded in Iran. It also excludes goods lawfully exported to Iran under the ITSR (for example, lawful medical supplies) that are then taken out of Iran. The limitation on goods that have entered Iranian commerce remains, and therefore the exclusions of this clarified definition do not cover foreign, non-U.S. goods that have been traded in Iran. This revised definition can help reduce some of the confusion that may exist with respect to goods that have transited through Iran and their position vis-à-vis the United States and U.S. persons.
What can we make of these revisions?
The significance of the changes announced yesterday are twofold. On one hand, the most apparent impact is that they somewhat broaden the scope of goods and services that can be exported to OFAC without having to first obtain specific authorization. Most of these activities were arguably licensable before, meaning OFAC would issue a license for them if one applied for such authorization. Secondly, and arguably more importantly, these revisions render the business aspect of exporting TSRA categories of items more aligned with those of non-sanctioned countries. In other words, this makes the export of such items much easier and practical – instead of merely allowing the export of certain goods, ancillary and necessary products and services can also be exported to Iran. This may give U.S. companies substantially more comfort In addition to having more scenarios under which certain goods and services can be exported to Iran without obtaining specific licensing. Placing the engagement of ancillary activities such as training, repairs, and recalls can help alleviate the reservations some U.S. companies in the medical and agricultural space may have with regarding to exporting to Iran as it can help dramatically reduce transactions costs.
Notably, the ITSR continues to remain a web of very complex laws, and professional guidance is always highly recommended. Even lawful, general license and exempt transactions often have many legal caveats, requiring diligent, painstaking attention to the nuances of applicable laws and regulations. Furthermore, given the continued reservation of many U.S. and global businesses to deal with Iran, explanation of the legalities of TSRA and other lawful transactions with Iran to U.S. vendors, banks, and shippers remains imperative.