A review of MENA Region Legal and Business Affairs
May 28, 2012 Leave a comment
As of this week, all new sanctions post will be moved to the sister US Sanctions website, available at ussanctions.com. Make sure you sign up for this page.
MENA Lawyer will continue to serve its readers, but with a stronger focus on MENA-region specific business and legal issues. Stay tuned!
May 20, 2012 Leave a comment
An increasing issue I am seeing with Iranian-American clients is banks in the United States closing their bank accounts. Why? Reasons can vary, but perhaps the sanctions and anti-money laundering (AML) regulations have a role in this. Indeed from national banks to small banks, we have seen a number of people receive notice from their bank that their account will be shut down. Believe it or not, OFAC regulations on Iran, Cuba, Syria, and other countries could have a role here. Clearly it does not happen for everybody, but it does happen. In the past, the fear was mainly that your bank may reject an innocuous incoming wire coming into your account. That concern is still very, very real, but fear not, there are ways to help reduce the risk of account closure happening to you.
Why is my bank closing my account?
There can be a number of reasons here, but we’re only going to focus on the sanctions issues. Due to many regulations aimed at preventing money laundering and sanctions violations, many banks appear to be taking increasingly conservative positions and more carefully scrutinizing account activity. Each bank has its own criteria as to what constitutes “high risk” in a given bank account and discretion over what accounts they will close. Reasons can vary – too many foreign wires coming into your account (for example, from Kuwait, Hong Kong, Dubai, etc.) or perhaps transactions that are not consistent with your financial profile (say receiving $200,000 in cash over 5 months when your annual salary is $120,000).
It’s obviously not per se illegal to receive a lot of money in your bank account or receive money from overseas, but don’t forget that the private sector has often taken a much more conservative position that what may be required by the applicable sanctions regulations and laws (I once had a case where a client’s bank in the US had no issue with a licensed transfer, but the same bank’s UAE subsidiary did!). This means a lot of legitimate activities can face issues. You should really put yourself in the bank’s position – they have responsibilities and they don’t know you that well. So that inheritance from Iran or that gift mom and dad are sending you could look like money laundering to somebody else’s eyes. Why have you (an engineer in Orange County, for example) been receiving wires from Kuwait, Hong Kong, and Turkey in recent months?
How can I prevent a closure from happening?
Each bank has its own standards and criteria in determining what accounts to close and there’s no straight formula. However, there are things one can do to make sure the funds don’t cause problems (don’t forget, another possibility is your bank holding your funds and/or sending the money back to the currency exchange or “sarraf” that sent the funds!).
1. Communicating with the bank. I often tell clients that it’s safe to say that their branch managers generally don’t make the calls on their account. It’s necessary to talk to the higher ups. I have found many bank officials to be very accommodating and friendly after a conversation and/or correspondence with them explaining the outstanding logistics issues. In fact, even I have been presently surprised at the willingness of a number of them to handle legitimate transactions once the conversation or correspondence exchange occurs.
2. Giving your bank written assurances. Preparing affidavits and other supporting documents (depending on the situation) are steps I generally take to help our clients from facing problems. “Papering the transaction” is a way to show the bank that the transaction is authorized, as sometimes an OFAC license might not be enough.
3. If necessary, get a license! It’s amazing how many people muster the bravado to engage in transactions in Iran that require OFAC licenses, well, without a license. Then they try to send the funds. Be they profits from a family business you have had no role in, or the proceeds of a house you sold in Iran, some transactions definitely need license. I will note, however, that not all transactions need a license. You should make sure of the status of your transaction – is it generally licensed or does it require specific authorization? An OFAC license can help move things quicker (and help you in a potential enforcement issue – remember, rejected funds result in reports to OFAC, which can then follow-up with you through an Administrative Subpoena).
4. Use the OFAC License Number! As specific licenses issued by OFAC often tend to state, you should use the OFAC License number in the payment description. This will help the bank see that the incoming transfer is licensed, likely helping reduce potential red flags. Even when a transaction does not need an OFAC license (as not all transfers do) it is still important to make sure you have crossed all your t’s and dotted all your i’s.
Naturally, these are just some of the steps that can be done. You still have the natural requirements that you ensure that no Specially Designated Nationals (SDNs) are involved in the transfer and that the funds from Iran are processed through a non-U.S., non-Iranian bank in a third country. While there is no guaranteed way to prevent problems, the above steps could potentially help you a great bit.
May 6, 2012 Leave a comment
Earlier this week President Obama issued a new Executive Order enabling the Secretary of the Treasury to impose tight restrictions on entities deemed to be helping the evasion of U.S. sanctions on Syria and Iran.
Sanctions evading has been big business in certain corners of the world for years if not decades. While U.S. persons evading the sanctions can be penalized by civil and criminal penalties, this new executive order threatens third country as well as Iranian and Syrian entities that have a role in evading sanctions. What can evading sanctions be? Consider banks that cover up payment instructions related to Iran or third country companies that are effective fronts for Syrian and Iranian entities (e.g., a company in say, a third Middle Eastern country that is effectively buying U.S. goods for one of these two sanctioned countries). This could substantially put a damper not just on companies used to skirt sanctions on dual use goods such as computer chips and sensitive machinery but also on companies dealing in comparatively innocuous products.
What this Executive Order will likely lead to is more entities abroad being designated, and therefore preventing that entity from dealings with U.S. persons. It also heightens the responsibilities of third country entities.
April 10, 2012 Leave a comment
The Office of Foreign Assets Control (OFAC) today released its civil penalties for March. The single case featured involved the sale of cosmetic nail care products by a U.S. company (Essie Cosmetics Ltd.) and its former CEO (a Mr. Max Sortino) to an Iranian purchaser. These sales were made pursuant to a distribution agreement between the U.S. party and OFAC found intent to violate the sanctions. The total fine was $450,000, part of which was satisfied a civil forfeiture. Do the math – $450,000 is about 13.5 times the value of the business, clearly no small amount.
This case, which clearly involves goods that are not sensitive, supports the opinion held by some that OFAC is ramping up enforcement of sanctions violations relating to Iran. Not every violation is enforced, and not every penalty is necessary this high (proportionately), as OFAC considers many factors. Nonetheless, this is a significant case. You may remember a January post on this blog about doing business with Iran, which you can ready by clicking here. OFAC takes these violations very seriously and it shows that companies should take exceptional care to comply with U.S. sanctions regulations.
April 7, 2012 Leave a comment
One of the most prominent issues that has emerged from the US’ broad sanctions on Iran is US (and other) banks’ increasing reluctance to deal with anything having a connection to Iran. Why? For one, the US Department of Treasury has avidly gone about discouraging foreign banks from dealing with Iran. Further, several years back, it removed the previous exception for “U-Turn” transactions, whereby certain Iranian transactions could be processes through US banks. To this day, certain transfers (even somewhat direct) are permitted between the two states but they have become nearly impossible.
What is message here? Presumably fearful of having something illicit fall through the cracks and facing hefty OFAC penalties the way certain major international institutions have in recent years, banks have increasingly turned their backs towards even permitted transactions. BHFA Law Group regularly sees cases where Iranian origin from third countries are rejected by US banks or even situations where U.S. banks close down depositors’ accounts.
Although each case is different, the pattern seems to be that banks are increasingly weary of average individuals engaging in what may appear as awkward behavior. Having faced the wrath of sanctions for the past 30+ years, many Iranian-Americans in large part have in large part become “immune” to strange activities that others in their community go through to receive funds or even the nature of these transactions. For example, many of us know that Iranian-origin funds generally need to arrive in the US from a third country. However, few seem to notice that to the eyes of the outside world, the idea of average people with average incomes receiving large funds from banks in Kuwait or Dubai is not, well, an average issue. Further, inheritance and family monetary gifts, as I have often stated, tend to be large in the Iranian-American community. This is in part related to cultural matters, but also events in Iran, such as high inflation (including real estate), and the increasing concentration of wealth. Therefore, many Iranian-Americans who receive funds in the US, be it their own money or gifts, may be receiving money in much larger quantities or from arguably more unusual sources than other individuals. This may give their US banks pause, causing them to send the money back, close accounts, and in some cases, even freeze funds. Imagine if you worked in a bank compliance department and suddenly saw a customer with a $70,000 income receiving a $2 million inheritance or a $500,000 gift that came in through a wire from Turkey? Happens in our community all the time, but could be quite strange to others.
What’s the take home message here? On top of ensuring that your transaction is legal, you should also take proactive steps. Educate your bank as to who you are and what you do. If you have an OFAC license, share it with your bank. File transfer affidavits with appropriate language before your money comes in. The minute a wire is rejected, the US bank has to notify OFAC, and that can lead to an Administrative Subpoena being sent to you – a hefty request that can take a lot of your time, and if you hire a lawyer, a fair bit of money. If a bank has certain assurances that the transaction is authorized and legitimate, then it will very likely be less averse towards it.
Remember, the staff members at your bank branch likely want to help you, but they generally have limited authority. Playing golf with your branch manager every day will not guarantee that your funds arrive or that your account won’t be closed. More broadly, banks have to deal with numerous compliance issues, from anti-money laundering to various OFAC regulations and sanctions that have nothing to do with Iran. They do not spend all their time on Iran and it’s not common for a bank compliance officer to know all the ins and outs of US sanctions on Iran Therefore it is exceptionally helpful to have the necessary conversations and provide the necessary paperwork (referencing applicable laws and regulations, providing correct narratives, etc.) to your bank to demystify legitimate transactions that unfortunately often seem to bear illegitimate appearances. It goes without saying I’ve had a number of very productive calls with bank personnel who seem relieved and happy when I tell them I’m going to be sending them documents (such as letters and/or affidavits) regarding the clients’ upcoming transactions. Do yourself and your bank a favor – make sure you are doing everything in a compliant way and make sure your bank knows that you are!
March 15, 2012 Leave a comment
The Association of International Petroleum Negotiators (AIPN) held a seminar in Washington on Wednesday regarding Iran, Iraq and Kuwait. A panel talked on the three countries and recent developments in their hydrocarbons sector.
What is most interesting is the cases of Iran and Iraq and oil development (or undevelopment in the case of the former). The Iraqi government and foreign concessionaires have very lofty goals for Iraqi oil development, which could do much to shaken some long standing influences within OPEC. Furthermore, will the Iraqi oil bonanza force a post-sanctions Iran to offer foreign energy companies investment terms far more favorable than the relatively unpopular “buy back” method?
Another notable aspect of the discussion was the issue of Liquefied Natural Gas (LNG), of a large portion of world supplies are held by Iran and Qatar. It will be interesting to see how these develop. The potential of Iran’s oil fields opening to investment increasingly call into question the issue of whether or not we will see a breakthrough in the P5+1 talks coming up over Iran’s nuclear file.
March 11, 2012 Leave a comment
The Financial Times today quoted Farhad Alavi in an article titled US Sanctions See Iranian Consumer Demand Fall. The article can be read here. In the article, Mr. Alavi is quoted as stating that while the sanctions have not entirely closed the door to Iranian trade, Iranian business is increasingly seeing itself forced to use alternative payment arrangements.
The Financial Times is a London-based business daily with global circulation.
March 10, 2012 Leave a comment
The recent news on increased sanctions on Iran has stirred concern among many that transferring funds out of Iran is no longer permitted. This is not true. Although the Iranian government has itself placed certain limits on foreign exchange trading, transfers for specifically or generally licensed activities are still permitted, subject to certain conditions.
How does this work? President Obama Issued an Executive Order (13599) in early February which effectively called for the blocking of any funds coming into US jurisdiction in which Iranian financial institutions have an interest. Remember, blocking is different from rejection – blocking is when the entity (such as the bank) coming into control of the funds effectively freezes the money and places it in an interest-bearing account (which you cannot access until the block is removed), whereas rejecting is when the money is sent back to the sender.
Does this mean that all types of family gifts, inheritances, and sale proceeds of real estate holdings in Iran will be blocked? No. Along with Executive Order 13599 came General License B, which preserves a previously existing exception in the Iranian Transactions Regulations (ITR). General License B states that US banks can still process authorized funds such as family remittances, to and from Iran. This is of course conditioned upon the the funds being processed through a third country (e.g., Turkey, Kuwait, or UAE) bank subject to certain other restrictions.
What has become increasingly important is that individuals conducting banking activities with foreign countries need to be exceptionally careful that their bank in the US knows what is going on. There are several ways to help reduce the risk of your bank mistakenly rejecting the funds or closing your account altogether (a phenomenon I’m seeing increasingly).
March 6, 2012 Leave a comment
The Office of Foreign Assets Control on Monday added the Syrian General Organization of Radio and Television to the Specially Designated Nationals (SDN) list. This is a very interesting designation as the entity at issue is a media outlet. The designation follows the release by OFAC of Syria General License Number 15 (which covers intellectual property issues) and the amendment of Syria General License Number 5A, both of which were announced on February 23.
February 10, 2012 Leave a comment
Moneylaundering.com, a premier industry newssite aimed at the financial sector, quoted BHFA Law Group, PLLC partner Farhad Alavi in an article titled U.S. Guidance on Latest Iran Order Leaves Due Diligence Unclear: Sanctions Experts. In the article, Mr. Alavi refers to the recent designation by the Office of Foreign Assets Control (OFAC) of Bank Tejarat, and the fact that banks generally adopt more conservative positions than those required by the confines of the law. The designation of Bank Tejarat narrows the window of permissible banks for Iran trade to private banks in Iran such as Karafarin Bank, Pasargard Bank, and Saman Bank.
