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.

Interpreting the New US Sanctions on Iran

President Obama signed into effect the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 on July 1.  Just when you thought the United States had exhausted all its recourse against the Islamic Republic of Iran (due to very comprehensive, existing sanctions), a new legal framework has been implemented that makes full use of the U.S.’ economic prowess and influence over third countries.  I was quoted on this law in the Financial Times on July 14, 2010.  Click here for a link to the article.  The Los Angeles Times has also quoted me – click here.

How Does the Bill Affect Iran?

As mentioned above, the United States maintains comprehensive unilateral sanctions on Iran, preventing U.S. persons (as defined in the applicable regulations) from engaging in transactions for the provision of most goods and services to Iran.  As the United States has fewer levers to pull given the breadth of the current sanctions, Congress did the next best (and possibly better) thing – implementing sanctions on third country entities that assist or do business with Iran in key sectors, such as the country’s nuclear, finance, and energy sectors, not to mention the Islamic Revolutionary Guards Corps (IRGC) and related entities.

What’s Covered?

The new bill covers a range of entities and activities. Additionally, it requires that the administration periodically collect data on Iranian business done by G20 nations.  Notably, human rights play a key role as well – with the placement of sanctions on individuals responsible for human rights violations in Iran following that country’s June 2009 presidential elections.

A summary I wrote on the new law is available on the Iranian-American Bar Association (IABA) website.  Click here.

Setting a Standard in Sharia Finance

The ArabianBusiness.com website featured an article on Friday stating that Gulf Cooperation Council (GCC) states may move towards a single Sharia-compliant standard for Islamic financings.  This follows another article earlier this month in the New York Times about the rising demand

Dubai International Financial Centre

DIFC - Dubai

and short supply of Sharia Finance Scholars.  This short supply has in some respects led to some consolidation in the Sharia finance sector – by having the same scholars sit on multiple boards, one group is having substantially large influence in determining the industry’s direction.  This helps in turn create a de facto standard for Sharia compliance.

The Sharia finance industry has two primary regulatory authorities at present – the Bahrain-based Accounting and Auditing Association for Islamic Financial Institutions (AAOIFI) and the Kuala Lumpur-based Islamic Financial Standards Board (IFSB) both of which have issued certain standards on Shariah finance.  IFSB is considered by some to be more the liberal standard-bearer and the two organizations have in some way helped bifurcate the industry into a MENA sector and a Southeast Asian Sector.  That said, both of these organizations’ rulings and policy guidelines are non-binding and voluntary.

The challenge of a broad set of Sharia standards becomes more problematic when taking into consideration the introduction of Sharia finance in non-Islamic jurisdictions such as the United States, the UK and France.  The UK Financial Services Authority (FSA) has taken certain initiatives, as have other governments. However, the legal structures in these nations mean that Sharia finance will need to conform to local laws – something that may cause deviation with a standard set in say, the GCC.

Taking the above into consideration, given the high concentration of capital in the GCC, the consolidation of GCC standards in Sharia finance can be a crucial step towards creating a global standard for the industry (a standard that can perhaps be modified slightly to comply with the laws of other jurisdictions as well).  This will help the industry grow in the region first, and that in turn will create competition – perhaps creating a situation where investment entities will have to come up with attractive, high-return Sharia-compliant vehicles to compete.