U.S. Treasury Department Increases Economic Pressure on Iran, Targeting Its Oil Reserves and Human Rights Violations

U.S. Treasury Department Increases Economic Pressure on Iran, Targeting Its Oil Reserves and Human Rights Violations

On Feb. 6, the United States tightened sanctions on Iran’s access to its oil revenues and further exposed the Iranian government’s “continued abuse of human rights.” In-house counsel have to be careful in interpreting the sanctions because, as one attorney told The Advisory, they are complicated, difficult to implement and come with a huge price tag if implemented incorrectly.

“Key provisions of the Iran Threat Reduction and Syria Human Rights Act of 2012 (TRA) . . . expand the scope of sanctionable transactions with the Central Bank of Iran and designated Iranian financial institutions by restricting Iran’s ability to use oil revenue held in foreign financial institutions as well as preventing repatriation of those funds to Iran. The U.S. Department of the Treasury, in consultation with the U.S. Department of State, also designated one individual and four entities for their involvement in the Iranian government’s censorship activities. These censorship activities restrict the free flow of information in Iran and punish Iranian citizens who are attempting to exercise freedom of assembly and expression,” read the Treasury Department’s statement in announcing the measures.

The statement goes on to say that Section 504 of the TRA amends existing sanctions in the National Defense Authorization Act for Fiscal Year 2012 (NDAA) that target the Central Bank of Iran, designated Iranian financial institutions and Iran’s energy sector. [S]ection 504 narrows the exception for countries that have significantly reduced their purchases of Iranian crude oil so that the exception now only applies to financial transactions that facilitate bilateral trade between the country granted the exception and Iran. For the exception to apply to a financial transaction, funds owed to Iran as a result of such bilateral trade will now have to be credited to an account located in the country granted the exception and may not be repatriated to Iran.”

Humanitarian Goods

The government was careful to point out that the sale of agricultural commodities, food, medicine, or medical devices to Iran were not subject to the increased sanctions. Treasury’s Office of Foreign Assets Control issued guidance to make it clear that such humanitarian trade with Iran is neither subject to these sanctions nor to sanctions previously imposed on Iran. Sanctions also were linked to censorship in Iran.

“[T]he Treasury Department, in consultation with the State Department, designated the Islamic Republic of Iran Broadcasting and its director, as well as three other entities in Iran, pursuant to Executive Order (E.O.) 13628, which implements the TRA by giving the Treasury Department the authority to designate those in Iran who restrict or deny the free flow of information to or from the Iranian people.”

Islamic Republic of Iran Broadcasting (IRIB) was established as the main governmental agency in charge of the broadcasting policy of the Islamic Republic of Iran and is responsible for producing numerous national and international television and radio channels. Ezzatollah Zarghami is the director and head of IRIB. He was appointed as the director in May 2004, and reappointed in November 2009. Since his reappointment, Zarghami has pursued a policy of “modernization in form but restriction in content.”

“Trampling Dissent”

“According to human rights groups,” the Treasury Department said, “Iran is using state media transmissions to trample dissent. They point to distorted or false IRIB news reports and the broadcasting of forced confessions of political detainees, such as one involving Newsweek® journalist Maziar Bahari, who was forced to give a false confession in front of state media outlets while jailed in 2009.” The government noted other broadcasts of forced confessions of detainees and “show trials,” and the jamming of foreign channels, particularly the British Broadcasting Corporation (BBC) and Voice of America (VOA).

The Treasury Department also called out activities by the Iranian Cyber Police, formed in 2009 to assist in filtering websites, monitoring Internet behavior, and hacking email accounts related to political action on the Internet. In collaboration with the state Communications Regulatory Authority and Iran Electronics Industries, the Iranian Cyber Police has filtered and blocked social networking sites, ordered the deletion of Iranian blogs, brought charges against bloggers and arrested blogger Sattar Beheshti for anti-government posts. Beheshti died in custody, allegedly during interrogation.

[Note: A month earlier, on Jan. 8, 2013, The New York Times® cited U.S. government officials and security researchers in reporting that a spate of cyber attacks against U.S. banks were “most likely in retaliation for economic sanctions and online attacks by the United States.”]

Sanctions Not Black & White

Joan A. Koenig, counsel on the Customs & Trade Team at Drinker Biddle & Reath in Chicago cautions in-house counsel to be careful in interpreting the sanctions. “Perhaps the most important thing for in-house counsel to keep in mind when considering the tightening sanctions against Iran,” she told The Advisory, “is that the sanctions are not as black and white as many people assume. There is no ‘one size fits all’ compliance program for any aspect of U.S. export controls―and Iran is no exception. Certainly, companies that sell controlled products or technologies must be extremely careful to avoid potential diversion of their products to Iran. Individuals at these companies are often surprised to learn the extent to which they may be held responsible for the diversion of their product to Iran, even if they did not notice any warning signs.

“For other companies, however, there are exceptions that they may be able to take advantage of and still be in full compliance with the regulations if Iran is an important market for them and their products qualify. For example, there are General Licenses in place for the export or reexport of certain types of products, including foods and medicines. Under the General License, these products may be sold by U.S. companies directly to Iran with no specific authorization required. The General Licenses do not, however, authorize transactions with restricted parties, which includes most of the banks in Iran. Therefore, many companies, both those trying to sell under General License and those who have specific licenses from OFAC, find that they have an authorization to sell their goods, but they cannot get paid, as no bank will process their payment.”

“One other wrinkle that surprises many people when they consider selling to Iran―or find out that their products have been sold to Iran without their knowledge by a distributor―is that products classified as EAR99 (those that are not controlled for any specific reasons related to their performance or potential use in dangerous applications) typically do not require a U.S. license for reexport to Iran by a non-U.S. person. Some consider this a “loophole” and others consider it an opportunity,” Koenig told The Advisory. “The sanctions mandated by Congress that took effect in October 2012 were intended to close this gap in OFAC’s regulations by placing non-U.S. companies owned or controlled by a U.S. parent in largely the same position as U.S. companies. As a result of this change, foreign affiliates of U.S. companies are prohibited from transacting business with Iran if a U.S. company could not do so directly. As a result, companies that manage sales in the Middle East region through an affiliate that they own or control can no longer sell to Iran through that affiliate. This was not a very complete ‘fix,’ however, as companies that sell through unaffiliated distributors are not impacted by the change.”

“Ultimately the critical thing for any company is to keep in mind that the sanctions in place against Iran are complex, extremely detailed, and difficult to implement. Any decision to transact business with Iran should be vetted carefully with all stakeholders, keeping in mind the