The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) today made a sweeping change to laws governing the exportation by US persons (as defined in the Iranian Transactions and Sanctions Regulations or ITSR) of certain computer, telecommunications, and internet technologies to Iran. From the perspective of average individuals and retail businesses in both countries this is perhaps one of the most important changes to the sanctions regime against Iran in recent years.

General License D now allows the export by US persons or from the US of many software and hardware products to Iran. These include certain:

1. Laptops and tablets
2. Internet connectivity devices (e.g., for WiFi, etc)
3. Personal communications software
4. Personal internet-related services

There are certain limitations and this is clearly not a blanket general license for all tech exports to Iran (note for example that these exports must generally be related to personal communications). Notably, the limitations are very critical and must be fully understood before exporting any of the now authorized goods and services.

This development is arguably very significant for three reasons.

First, it creates a new avenue of trade with Iran. While such technologies are reportedly available in Iran, legal trade from the US can help widen their availability due to greater supply and lower cost.

Second, the new General License can have noticeable effects on the flow of information and the spread of broadband internet in Iran. This can impact political and societal issues as well.

Third, General License D may effectively end part of the de-facto struggle of US governmental entities (including federal prosecutors) against entities (in the US, Iran and third country reexport points like Dubai) who had been violating US laws by sending goods like these to Iran (notably many companies in places like the UAE have been subject to enforcement measures for violating US laws and individuals have faced prosecution on this front). This has been a substantial part of International Emergency Economic Powers Act (IEEPA) enforcement.

This development is notable and will surely be noticed beyond the US and Iran. As detailed above, General License D is not a blanket general license and is wrought with limitations. As such, compliance will be key to know the limits of authorizations in the law and the compliance measures (such as due diligence, etc.) that companies and exporters should take to ensure that they act well within the confines of the law.

A case presently on the docket in the Southern District of Texas is proving to be quite interesting and perhaps indicative of a new trend of Assistant US Attorneys going after individuals for International Emergency Economic Powers Act (IEEPA) violations.  This case is not your typical laptop reexport case, however.

Billy L. Powell, Sr., a US citizen has been charged on a number of alleged violations of the IEEPA, the Iranian Transactions Regulations (ITR, now the Iranian Transactions and Sanctions Regulations or ITSR), and the Export Administration Regulations (EAR) for exporting hundreds of shipments of pieces of oil equipment through his company Oil Services and Trading, Inc. to Iran.  Oil Services allegedly made these sales through the United Arab Emirates (UAE and the sales were used for the Foresight Driller-V offshore drilling platform, being managed by the Iranian Offshore Oil Company (IOOC), a subsidiary of the now-OFAC-designated Iranian National Oil Company (NIOC).  The Alborz rig is similarly another offshore drilling platform.  These sales were made over a span of almost 8 years ending in 2008.

The U.S. Attorney charges that between January 2006 and April 2008, Powell knowingly and willfully caused Oil Services to make and ship 325 sales of oil field equipment (valued at $3,179,625.05) from the U.S. through the U.A.E. to the Foresight and Alborz rigs in Iranian waters, without first having obtained OFAC authorization.

It will be interesting to see what becomes of this case.  There is little out there about Oil Services and Trading, Inc. Was it an alter ego of Mr. Powell? It is interesting that the case, if true, demonstrates a very egregious violation. It’s not every day that a U.S. company is relatively overly supporting the Iranian oil and gas industry.  While Iran’s oil and gas is generally one focus out of a number for the US government from a sanctions perspective, recent IEEPA cases seem to focus more on computer equipment.  There is an export-control element here too, but with a different industry. Will AUSAs be prosecuting more such cases in the future?

A review of federal court dockets throughout the United States highlights a general trend – the U.S. Department of Justice is bringing forth numerous criminal cases against individuals and entities which have traded with Iran in vioation of the US embargo against that country. Here are a few pending cases:

US v. Tehrani. This is an indictment from the Eastern District of Wisconsin. Mostafa Saberi Tehrani was indicted for violations of 18 USC §371 (Conspiracy to Commit Offense or to Defraud United States), 50 USC §§ 1702 and 1705 (part of the International Emergency Economic Powers Act, known more commonly as IEEPA) and 31 CFR §§ 560.203 and 560.204 (part of the Iranian Transactions and Sanctions Act or ITSR, which is implemented under IEEPA authority). The facts behind this case are not clear, but it is clear that the charges are violation of US sanctions laws.

US v. Sarvestani. This case is out of the Southern District of New York. Seyed Amin Ghorashi Sarvestani and his companies have been charged with exporting sensitive satellite-related equipment to Iran over the span of 7 years.

US v. Saboonchi. Ali Saboonchi and Arash Rashti Mohammad were indicted in the Southern District of Maryland last month for, again, conspiracy to violate the IEEPA. This case, like others, involves the use of exportation of goods to the United Arab Emirates (UAE) as a transit point for reexport to Iran. Examples of the goods in this case are as cyclone separators (used in oil refining processes) and thermocouples (used to measure oil and gas temperatures). Rashti Mohammad was based in the UAE and the two conspired to create Saboonchi’s company, Ace Electric Company to sell the prohibited goods through the UAE to buyers in Iran.

The list really goes on. What is interesting is that these cases dovetail a story last summer involving an Iranian-American lady who, along with her tourist uncle was denied the sale of an Apple iPad allegedly due to their speaking Persian (see this article on the BBC website fom last June, where I was quoted) . The theory posited for the Apple employee’s decision was that it would be a violation of export control laws if Apple knowingly sold the device to somebody who the company had reason to know would take the product to Iran. Export controls apply to many products that have so-called “dual use,” in other words both civilian and military use. These can include computers, certain industrial parts, etc.

The above cases highlight two key themes – first, obviously that the Department of Justice is pursuing trade violation cases, particularly with sensitive goods. Also, it highlights something those in the compliance industry have known for a long time – the illegality of the use of third countries as reexport points. Sending goods to a third country does not legitimize an illegal export. It is sufficient that one merely have reason to know that the goods will be exported to the prohibited destination.

The Office of Foreign Assets Control (OFAC) today added Iranian businessman Babak Morteza Zanjani and a Malaysian bank connected with him to the Specially Designated Nationals (SDN) list.  Zanjani, a largely UAE-based magnate considered by some to be among the richest men in Iran is accused of being a channel to facilitate Iranian oil transactions subject to sanctions.  First Islamic Investment Bank of Malaysia was also added on the list. This bank is linked with Zanjani.  Other entities were also added today.

An article in today’s Wall Street Journal can be found here.

The issue of First Islamic Investment Bank highlights a critical theme in these sanctions – Iran’s alleged masking of illicit transactions.  With its banks shut off from the international banking system and the country falling under the increasing weight of sanctions, the Iranian government and its agents and instrumentalities have reportedly engaged in an increased pattern of setting up and relying on foreign front companies through which it conducts business.  Companies doing business in the Middle East and other high exposure areas like Turkey and Malaysia should take great care to conduct due diligence on business partners, even if they feel that they are not dealing with Iran.  There has been substantial “cloning” of Iranain companies overseas in neighborhing countries, and this creates more windows of risk.

This is one of the many isntances in which a written compliance program comes in handy.  Companies that are dealing overseas should have written policies available aimed at detecting and preventing activities that could be violations.  This will also be viewed favorably by the regulators in the event that they were to impose a fine.  Arguably, no company is too small for such a policy, though the depth can obviously vary for reasons such as company size. The policy should take into consideration the nuances of the company’s business and clientele and should create a reporting method aimed at sorting out potential problems before they occur.

Al Jazeera yesterday carried a report that the European Union intends to lift sanctions on certain individuals affiliated with the Zimbabwean government.  This, along with recent news regarding Iranian banks winning lawsuits in the EU General Court over their allegedly wrongful designation on the EU sanctions lists prompted me to ponder the efficacy of US sanctions versus the potentially more nimble EU ones.

Indeed, Europe has long been more reluctant to resort to sanctions as a foreign policy tool. However, in recent years we have arguably seen more action by the Europeans on the sanctions front. This is possibly most visible in the case of Iran. Although EU sanctions on Iran are in many ways much lighter than those imposed by the United States, they are still very stringent, particularly considering Europe’s longstanding trade ties with Iran. With Zimbabwe, like the US, the EU has also singled out individuals and has placed various bans on their activities in the EU (as the US similarly does internally).

The US State Department has reportedly stated this week that it is “concerned” by the decisions by the EU General Court to lift designations on Iran’s Bank Mellat and Bank Saderat. Efforts are being made to undermine this decision. This reminded me of discussions I’ve had with certain circles where the common refrain is that even if President Obama wanted to lift the sanctions on Iran (say if Iran was to reduce its uranium enrichment), he would have a hard time doing so due to all the necessary legislative obstacles.  It took years to repeal the sanctions against Iraq, and based on a simple glance at the conference schedule at OFAC’s Financial Symposia last week, Iran stands front and center of the agency’s sanctions regime.

Furthermore, the more the EU decides to cut back on its sanctions regimes, the more likely we will see exposure points in the US increase. If the Europeans once again are allowed to deal with entities also subject to US sanctions, there may be more probability that US businesses can be affected – be it subsidiaries abroad or relationship partners.

I was in Abu Dhabi and Dubai on business last week and spent quite a bit of time trying to determine what is going on there with respect to sanctions on Syria and Iran. Speaking with different people in various industry sectors, my observation is that indeed, Dubai is the frontline of the global (particularly US) sanctions regime, particularly Iran.

So what are the key observations?

1. Banks in the Persian Gulf states are increasingly vigilant. It used to be that banks in the U.S. and Europe were more careful and banks in the Gulf Cooperation Council (GCC) states were less subject to regulations. That may still be the case, but my understanding is that US and to a lesser extent European depository institutions have devoted the resources (internally and externally) to really learn the limits of the law. Therefore, if they are assured as to the legality of a transaction (even if it is of Syrian or Iranian origin) they may not take any issue with it. Banks in the Gulf may be less likely to do that. They most likely do not have U.S. lawyers advising them on the limits and instead just pursue an exceptionally conservative approach that filters out legitimate transactions with the illegitimate. It is even difficult for many nationals of these sanctioned countries to open bank accounts with some institutions – something very rarely seen in the United States.

2.  Even Currency Exchangers are afraid. Many currency exchangers have stopped working for Iran. These entities were formally eager in many ways to pick up where the banks dropped off – handling remittances. This is a huge business in the GCC, especially given the plethora of foreign workers sending remittances. People needing to send money out of Iran appear to often need  to use a number of small exchangers to transfer funds. It’s not a matter of simply handing say, $50,000 or $100,000 to one entity who will send the funds to Dubai. This still happens, but not as easily.

Is the GCC effectively shutting down the funds transfer business and limiting its own role as a east-west financial hub? In our work, it appears that less and less funds of Iranian origin are transiting through the GCC. As the GCC clamps down, we are seeing countries like Turkey and Hong Kong fill in that role. One lady yesterday told me she recently received funds through an exchanger in Lithuania!

It will be particularly interesting to see how these developments evolve and how things will transpire if there is the slightest move towards the status quo ante of the sanctions.