Category Archives: Banking

Doing Business With Iran: Prohibitions and Permissions

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 are (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!) and companies formed under U.S. law.  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:

  1. 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.;
  2. Export certain limited types of free communications software;
  3. Export most types of food products to Iran;
  4. Obtain a specific license from OFAC to export or deal in medical supplies, medical equipment, and pharmaceuticals for use in Iran;
  5. 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);
  6. Engage in certain travel related business with Iran (such as sell plane tickets to Iran);
  7. Provide certain legal services to people in Iran;
  8. Register U.S. intellectual property such as patents and trademarks  in Iran (or Iranian IP here in the United States); and
  9. 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:

    1. Sell most goods to Iran from the U.S. or from any third country jurisdiction, like Germany or Dubai;
    2. 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;
    3. 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);
    4. Run a business in Iran such as a bookstore, or an engineering firm;
    5. 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;
    6. Deposit and maintain money in banks in Iran, even in non-sanctioned private banks; or
    7. Import most goods from Iran, even through a third country like Australia or India;
    8. Set up a company overseas to deal with Iran.

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 just 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.


High-Interest Deposits in Iranian Banks: Intelligent or Ignorant?

An often-repeated statement you hear in the Iranian-American community is that depositing money in Iranian banks is a great investment.  Interest rates in some Iranian banks have hovered in the double digits for years, at one point even exceeding 20%.  Word has it that some Iranian banks offer Dollar or Euro-denominated accounts.  Deposit your money in Dollars, receive high interest in Dollars – sounds particularly enticing when you see how low our interest rates here in the United States are.  Anybody with half a brain would withdraw some of his or her savings in the U.S. and deposit in one of these private banks in Iran, right? Wrong.

A U.S. person taking money from the U.S. (or anywhere else) and
depositing it in any Iranian bank unless authorize authorized is violating U.S. sanctions against Iran.

Aside from selling and dealing in property in Iran without specific authorization from the Office of Foreign Assets Control (OFAC) (which I addressed at length in this article months ago), one of the most common violations of the U.S. sanctions regime committed by Iranian-Americans is  deposits in these high-interest accounts in Iran.

The common logic goes as follows: “I am a U.S. citizen or Green Card holder, but I am an Iranian national.  As any other citizen in most if not all other countries, I can put money in a bank in my own country.”  Yes, it does theoretically make, but it not true.  As I have discussed in previous postings, if you meet the definition of a “United States person” under the Iranian Transactions Regulations (the “ITR”) you are bound by OFAC’s sanctions regulations on Iran.  If you are a U.S. citizen or permanent resident (regardless of where you live) or if you are physically present in the U.S. (such as students or those here on work visas) you are a U.S. person.  It does not matter if you also have an Iranian passport, a Canadian passport or a Japanese passport.

As a U.S. person, you cannot make any new investment in Iran without proper authorization.  A U.S. person taking money from the U.S. (or anywhere else) and depositing it in any Iranian bank unless authorize authorized is violating U.S. sanctions against Iran.  That is new investment and prohibited unless permitted otherwise.  Not only that, but you are effectively “importing” a service (by the Iranian bank to you) from Iran, which is also generally prohibited.  If the money is invested in a bank labeled by OFAC as a Specially Designated National (SDN) you have another problem – U.S. persons are generally prohibited from conducting even permitted Iranian transactions with SDN banks (such as Saderat, Melli, Mellat, Sepah).

You may have any one of the following questions, which I have answered below:

1. Can I deposit money in a private Iranian bank that is not government-owned?

No. Unless otherwise permitted, such deposits, irrespective of the bank, are prohibited.  Even if you have a license, unless you meet some type of narrow exception you still will not be able to utilize the services or generally deal with Bank Saderat, Bank Melli, Bank Mellat, Bank Sepah and any other bank designated as an SDN.

2. I actually deposited some money years a few years ago in an Iranian bank as the interest was high. What should I do now?

Violations of the ITR can reach up to the maximum of $250,000 or twice the value of the violation, whichever is greater.  Not every violation is obviously fined this much as various factors can come into play. However, violations of the ITR have at times met with steep penalties.  You can also submit a voluntary self-disclosure (a written disclosure) to OFAC what the violation was, etc.  If your disclosure meets that definition, that can reduce the maximum penalty by 50%.

3. I have an account from long before I became a U.S. person sitting in an SDN Bank such as Saderat. What should I do?

Maintaining such accounts is a violation of OFAC regulations as you are dealing with an SDN.  As such, you can apply for a specific license from OFAC to close that account out.

4. I am going to be selling some property I own in Iran.  I don’t have a bank account there right now, but really can’t carry all the sale proceeds in cash with me to the United States. What should I do?

Naturally, if you are a U.S. person dealing with property in Iran (be it selling it, buying it or renting it out) you need a specific license from OFAC authorizing all such activities you intend to engage in.  In this process, you can also request opening an account in a non-sanctioned Iranian bank to store the money until you transmit it to the United States.  This may be accepted, it may not.  Regardless, you should obviously make sure you are authorized to do any and all things you intend do in this regard (or with Iran).

The reality is that Iran holds immense investment and other economic potential.  It is a relatively rich country and a somewhat untapped economy.  Be sure that you and your friends and relatives are not the only one who has discovered this!   Many U.S. and other companies are waiting for the sanctions to come down so they can do business (and make money) in Iran.  The fact that U.S. companies are really not investing or dealing with Iran (unless you count a very narrow band of permitted activities) should serve as a red flag to you.  It goes without saying that irrespective of your personal beliefs, you should naturally comply with all applicable laws.

Please contact Farhad R. Alavi at +1 (202) 686-4859 or should you have any questions.

© 2011, BHFA Law Group, PLLC

This article and its content are solely intended for informational purposes and should not be interpreted as constituting legal advice.  You should consult with legal counsel with regard to all topics and issues discussed herein.

U.S. State Department Imposes More CISADA Sanctions

The U.S. State Department last week announced a new round of sanctions on entities allegedly aiding Iran’s energy sector.  The announcement on May 26 subjected the following seven entities to sanctions under the Iran Sanctions Act (ISA), as amended by the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (“CISADA”)

  1. Associate Shipbroking (Monac0)
  2. Ofer Brothers Group (Israel)
  3. Petroleos de Venezuela (PDVSA) (Venezuela)
  4. Petrochemical Company International (Jersey)
  5. Royal Oyster Group (UAE)
  6. Speedy Ship (aka Sepahan International Oil Company) (UAE)
  7. Tanker Pacific (Singapore)
Among the more interesting entities are Petroleos de Venezuela (PDVSA), which is Venezuela’s state oil company (and owner of the Citgo gas station chain in the United States) and Ofer Brothers Group, an Israeli concern that has allegedly done other trade with Iran in recent years as well.
The companies named in the directive are for violations of provisions in the ISA prohibiting assistance to Iran’s energy sector beyond certain thresholds, including the sale of refined petroleum.   Some have been accused of hiding their transactions with Iran in an attempt to evade sanctions.
This current round of sanctions is surely to cause concern for many middle tier and smaller companies as it shows that the United States is not simply targeting the major oil giants, a number of which avoided any sanctioning under the ISA by implementing the CISADA “Special Rule,” enabling them to forgo investigation in exchange for a vow to wrap up and business in Iran.  Again, the message sent by State is arguably that it is not just looking at the oil majors but other smaller entities as well.  This is particularly critical to those third country companies that have tried to profit from the recent withdrawal of major giants from Iran’s market.

Farhad Alavi Speaks on U.S. Sanctions Law in Los Angeles

Farhad Alavi delivered a talk titled How U.S. Sanctions Laws on Iran Can Affect You and Your Business at an event sponsored by the Los Angeles chapter of the Iranian American Bar Association (IABA).  The event was held in Century City, California, and was well attended, including a presentation on the basic principles of the application of U.S. sanctions laws on individuals and businesses. Topics covered included general corporate compliance, property/inheritance liquidation and money transfers.

Slides for this event will be forthcoming.

Farhad Alavi Discusses OFAC Sanctions and Regulations on BBC Persian

I appeared on BBC Persian’s Jome Bazaar television program on Friday,February 25, where in a one-on-one interview with Bahman Kalbasi I discussed the impact of U.S. sanctions (specifically OFAC regulations, including those of the Iranian Transactions Regulations or “ITR”) on the Iranian-American community.

Courtesy BBC Persian

The discussion focused on money transfer and the engagement of services and entering into commercial dealings in Iran, where I emphatically stated that most transactions related to Iran require authorization from OFAC generally in the form of a license.

Watch the link here (forward to roughly 15:40).

A Follow-up to the OFAC Primer on Personal Affairs

The posting immediately below on how the United States’ Department of Treasury’s Office of Foreign Assets Control (OFAC) regulations governing dealings with Iran garnered significant attention to say the least. The only real advertisement this posting had was on my law firm’s Facebook page, but nonetheless it resulted in a skyrocketing of daily hits to this blog as well as countless phone calls to my firm.

While I took great care in crafting this article to make sure that people understand the nuances of the law, I am still seeing some of the same misconceptions. As such, I have posted the below “Frequently Asked Questions” (FAQ):

1. What part of a personal transaction requires a specific license from OFAC?

Many people are still under the impression that licenses from OFAC are for the movement of money from Iran to the United States.  In reality, you need a license for most of the underlying transactions that result in cash, such as selling property, hiring a realtor, a lawyer,  giving a power of attorney to somebody in Iran to sell property on your behalf, or opening a bank account in Iran in order to transmit proceeds to the United States.  People with cash in Iran (i.e., no sale of property involved) have submitted applications for licenses, but the law is quite clear that if you (as a U.S. person) have property in Iran that you need to sell, then a license is required.

2. How long have these laws been in effect?

In reality, this regulation has little to do with the new round of regulations that were signed into law in July, the Comprehensive Iran Sanctions Accountability and Divestment Act of 2010, the “CISADA.”  President Clinton imposed a very comprehensive trade embargo on Iran in 1995.  These regulations, codified largely in the Iranian Transactions Regulations (the ITR) have been modified over the years, but many of the basic provisions have been on the books for over 10 years.  This is not a new requirement.

3.  Can a U.S. person work in Iran?

Generally no, unless your situation fits in an exception or you are licensed.  As a U.S. person, working in Iran constitutes the exportation of a “service” to Iran.  Therefore, this is largely prohibited.  Examples would be a U.S. person (remember, the law does not provide any exceptions to individuals also holding Iranian citizenship) who goes and practices medicine in Iran or teaches in a university a few months a year.  These such activities typically require prior authority from OFAC, namely in the form of a specific license issued.

Navigating the web of U.S. sanctions against Iran (or any other country for that matter) is complicated.  Make sure you seek expert advice and are adequately informed.

Indian Central Bank Stops Clearing Payments for Iranian Oil

The Reserve Bank of India (RBI), India’s central bank, announced that it will no longer clear payments for purchases of Iranian oil and other raw materials.   This could likely be interpreted as a result of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA).

Is this news important? Considering India buys roughly 20% of Iran’s oil, the answer would be yes.  It also signals that one of Iran’s few remaining channels of international finance, India, is closing its doors to Iranian trade.

The RBI’s recent decision highlights another key issue of the sanctions – that the sanctions are biting Iran indirectly.  As this article in the Times of India indicates, although the UN (or even U.S. sanctions such as those provided in the CISADA) do not ban the purchase of Iranian oil by non-US companies, there is pressure on purchasers of Iranian oil as well.  So, even if the sale of certain goods to Iran is not per se prohibited, the inability to finance, ship, or insure these goods makes it very difficult for these goods to reach Iran, and if they do, their prices will invariably go up.  Also, the Iranian Financial Regulations, 31 CFR Part 516 poses a substantial threat to third country banks that deal with Iran’s Revolutionary Guards Corps (IRGC) and related entities, imposing potential sanctions on those banks’ activities in the U.S.  Also, with the IRGC’s increasing role in Iran’s economy as well as the IRGC’s expanding use of Iranian and non-Iranian front companies, many third country entities are finding it increasingly difficult to distinguish between IRGC and non-IRGC controlled businesses and are just forgoing business with Iran all together.

India is not the first country to effectively pull the brakes on its purchases of Iranian oil.  Other countries have done the same – a clear rebuff to those who claim that the Iranian government has unrestrained access to the cash cow that is the country’s oil reserves.  With less purchasers of Iranian oil, and the drying up of Iranian oil wells thanks to a lack of access to proper technology and investment, Iran’s role as an oil exporter is increasing day by day.