The GCC Health Care Boom: What to Expect

Last week I attended a lunch sponsored by the US-UAE Business Council in honor of Mr. Mahmood  Al-Ansari, Executive Director of the health care division of Mubadala, the major investing arm of the Abu Dhabi  government.  Given my own recent work in the area of GCC health care projects, I felt it would be useful to highlight some key points about this area of growing interest.

For those of you that keep up with business developments in the Persian Gulf region, health care is hot.  It makes sense – the Gulf states are now leveraging decades of heavy investments in infrastructure, hospitality, and real estate into creating health networks that serve not only domestic needs, but those of the greater region, from Africa to the Central Asian States to India.  This holds particularly true as the Gulf Cooperation Council (GCC) focuses on increasing health care tourism (the Dubai Health Care City announced  issued a health care tourism guide in June). One estimate in Arabian Business late last year estimated the market could be worth $44 billion by 2015.

For those in the health care industry, entering the market may seem like a no-brainer.  The prospects are undoubtedly attractive.  Before you begin your rush to the region, however, it would be good to keep some key strategies in mind.

1. Complying with Import Requirements

I have addressed local laws more broadly in the next paragraph, but import requirements are a critical concern for entities that intend to import medical devices into the GCC for their facilities.  Getting equipment in is a critical part of establishing a health care facility especially given the technology-intensive nature of the business these days.  The same goes if you intend to export medicines and supplies into the region.

2. Ensuring You Satisfy Local Laws

Health care tends to be very regulated in many jurisdictions and there are key issues you need to consider.  Particular attention must be paid to issues such as building codes, health standards, etc.  All these can add to costs and increase wait times for approvals.

3. Safeguarding Your Territory

Companies in the region tend to act very strategically, but remember, there is a lot of redundancy in many key sectors of the market. A one-of-a-kind facility in Abu Dhabi or Dubai could easily become replicated in more than one other place in the nearby vicinity. In a region where intra-regional travel is easy and commonplace, you must take great care that your exclusivity and territory are contractually well-protected.  If you are using a technology that is unique to the region, you may want to secure comprehensive territorial rights from the foreign manufacturer.

4. Protecting Yourself from Your Personnel

While the situation may have improved markedly in recent years, skilled health care human resources are not as readily available in the Gulf as they may be in the U.S., Canada, or Europe. As with anywhere else, it is important to ensure that you can attract and keep top talent. However, in this cash-rich region with a near insatiable demand for talent, you must also be careful not to train your competition.

5. Ink a Solid Agreement with a Reputable Local Partner. In some cases a local partner is not necessary, but oftentimes in the GCC it is a must. It is imperative that you pick the right partner. Risk can be reduced by due  diligence beforehand. There are services that provide business intelligence on players in the local markets.  Local or foreign, you want to make sure you have a solid contract with the partner (as well as any vendors, naturally). This can be required by local law but even if it is not, your agreement should envision and plan for key contingencies to help avoid potential financial and reputation loss later.

The market for the health care business in the MENA region is naturally very bright and promising.  However, it is not without its challenges. Accordingly, it is critical that opportunities be assessed well and that planning be thorough.

Myths about the new OFAC Sanctions

I just got a very funny call from a lady in the Los Angeles area tonight. She asked if it is true that “OFAC has been repealed?” What was more odd was that she had hired somebody to file for an OFAC license on her behalf who did so today (it was not me). Indeed, OFAC did drastically revamp the Iranian Transactions Regulations (renamed the Iranian Transactions and Sanctions Regulations) last week (see the last post on this blog), but OFAC still very much exists and in full force.

The amount of misinformation in the Iranian-American community about US sanctions regulations is purely fantastic. Ironically, it appears this mainly comes from California, which is odd as Southern California has the largest population of Iranians outside Iran, so you’d think that the right word would spread. Here are some basic truths to debunk the myths:

1. The sanctions were not repealed. Indeed, OFAC is still open for business (well not today as Washington was shut down for Hurricane Sandy). OFAC did revise part of the Iran sanctions and created certain general licenses – meaning certain transactions no longer need specific authorization. But this does not mean you can go open a business in Iran, deposit money in a bank in Iran, empty and send your late relative’s Bank Melli bank account and sell whatever assets you have over there. You really need to look at each of your intended transactions and determine whether or not they fall under the exceptions. The laws have simplified some things but they have made certain things harder – there are still ambiguities about the channels by which you send money and very, very fine lines. Also, even if a transaction is exempt, the burden falls on you to take the right steps to make sure everything moves smoothly (arguably easier when you would get a license from OFAC). Make sure you do not get caught up in a mess by taking an overly-brave attitude that is undeserved.

2. There is arguably no such thing as a generic “permit to bring money” allowing you to bring any kind of money from Iran. I don’t know where this comes from but it is a very, very common misunderstanding. You do need a permit to bring certain types of funds, but it is not like the OFAC license equivalent of a blank check.   The focus on the regulations in some part is arguably the transaction(s) involved. The sanctions laws treat different types of money, well, differently. Money that your grandfather left in a vault in his house in Iran is different from money you earned from selling your house in Iran from money that you have earned from the sale of food to Iran. In other words, a “permit to bring $500,000” is arguably, well, likely to be nonsensical, unless you have say, exactly $500,000 in earnings from your family business which you are indirectly related that you want to bring to the U.S. Asking for a permit for $5k or $50k or $500k is a bit silly – it does not allow you to scrape up $500k from multiple sources (parental gift, shares of a business you own, sale of your land, bank interest) – OFAC cares where each dollar comes from and treats each dollar differently.  There are certain times when you do not even need a license from OFAC, and certain cases which you definitely do.

You should check if each type of money needs a license and plan accordingly. If you want to sell your family business, OFAC wants to know that.. Whether the business’ value goes up 500% when you sell it or drops by half (or if something similar happens with the Rial) that is in part irrelevant if you have a license. You do not get a permit to sell a business for what you think it is (or a little extra) – if you are licensed to sell your business and the value at the sale skyrockets, that is fine. You have been authorized to sell your business, not to bring $x to the United States from Iran.

3. Ask an Expert. OFAC regulations are very detailed, intricate and sophisticated. Excepting a break of about 8-9 months, I have been practicing OFAC continually since 2005, yet even I find myself having to review the regulations. The laws change constantly and as I always say, following regulations on the sanctions is not a matter of just a matter of complying with the law and avoiding a fine, it’s also a matter of minimizing your own risk, making sure your money doesn’t get turned back and that your bank account doesn’t get closed. So, in short, be careful, don’t second guess, educate yourself, and beware of rumors and misinformation.

OFAC Revamps Iran Sanctions

New Laws Reduce Some Red Tape, but Create Some Confusion and Ambiguity

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today issued a major revamp of Iranian Transactions Regulations, the core body of sanctions laws maintained by the United States on Iran. The regulations, renamed the Iranian Transactions and Sanctions Regulations (ITSR), preserve many of the same regulations but create certain exemptions (known as general licenses). Naturally this creates much confusion, ambiguity and even challenges as to what the laws now permit and what they do not. The law also better reflects certain realities regarding U.S.-based Iranians and their legal needs by providing certain clarifications as to what is and is not permitted.

Reducing the Red Tape

The regulations do not reflect a loosening of the sanctions, but rather a reduction of bureaucratic hassle. In other words, OFAC has effectively authorized by general license certain activities it traditionally authorized by specific license. Examples include certain sales of properties in Iran by U.S. persons. More notably, there is now a general license for certain “basic medical supplies” and medicines. Therefore, a license is no longer needed for these types of exports to Iran provided certain criteria are met (more sophisticated medical supplies, equipment and certain medicines continue to require a license). Also, funds transfers for certain immigration visas are now permissible without the need for a specific license (this is useful for Iranians these days who fret that the value of the Rial will plummet as they sit and wait for their OFAC license).

New Permissions, But Same (or More) Problems

The general licenses for the sale of property, transfer of funds for immigration visas, the export of basic medical supplies and export of certain medicines do not eliminate the logistical issues. In fact, it may make things more complicated. When you obtain a specific license, you effectively receive a multi-page document tailored for your transactions. This document contains a specific number that can be exceptionally useful when included in wire transfers. Basically, the license number can help reduce the risk of your wire transfer being rejected by your U.S. bank and your bank account being closed. Additionally, the letter is an authoritative confirmation of legality to banks, shippers, cargo inspectors and other entities that the licensee has to deal with.

Now that many of these transactions no loner need a specific license, the responsibility will effectively shift to the entity who is transacting in Iran – the individual selling his or her house, the business exporting the medical supplies, etc. – to show his/her/its bank, shipping companies, vendors that the transaction is permissible. Given that there are many conditions and limitations, plus the fact that not all goods are permitted, this creates more ambiguity and places more work on the businesses.

I have noticed this has become an increasingly interesting exercise – my firm is often retained by clients to help convince clients’ banks that their transactions are authorized and do not need a specific OFAC license. Preparing the right materials to provide vendors and other entities explaining the law and what is actually permissible and not, not to mention documenting the transaction is imperative. Also, one should not forget that there are still many regulations, from which banks one can and cannot deal with in Iran and how funds transfers can be effectuated.

More Ambiguity!

Building on what I explained above, the laws are a bit ambiguous. Do you fit under the general license requirements or not? An example: the general license for the sale of property covers property acquired before the individual became a U.S. citizen or property you inherited from somebody who died in Iran. What if you bought a condominium in Iran while you were living there but happened to have been born in the United States (or held a green card then)? Or, what if your relative died in Canada and left you property in Iran? Not all exports are permitted, not all sales in Iran are authorized. It is absolutely critical that you examine and analyze the law thoroughly and make sure you fall under the exception and if you do not, that you proceed with the filing and ensure compliance.

Sending Funds to Iran in the Currency Crisis

The drastic fall these two weeks of the Iranian Rial’s value versus the U.S. Dollar and other hard currencies may be prompting some Iranian expatriates to consider what they can do to help family in their home country.

Sending money to Iran is surprisingly less difficult under U.S. law than one may think. Granted there are limitations on investing there and importing most goods from Iran, but non-commercial, family remittances (e.g., sending financial gifts or support to parents or spouses in Iran). As with receiving funds from Iran, certain safeguards that should be followed.

1. Money must be genuinely non-commercial and personal. In other words, you cannot invest in businesses (even family businesses) in Iran. Funds sent there must be genuine gifts or funds for your personal use while in Iran. Therefore, no loans, no investment made on your behalf, etc.

2. Money must go through a third country. This is to be expected, since no U.S. bank can directly wire funds to Iran. But beyond that, giving money to exchange brokers or “hawalah-dars” in the United States who can have their cousin, friend, associate give a reciprocal amount of Iranian currency in Iran is dangerous and can make you the subject of an OFAC Administrative Subpoena (where they can ask you all kinds of questions about your dealings, if any, with Iran). The funds should leave the U.S. through a bank wire initiated by you.  Therefore, it is best to send the money to a third country like Turkey or the UAE first then have the money sent to Iran.

3. Inform your financial institution. Typically one would be well-advised to inform his or her bank about the transactions. Banks may wonder why you are sending so many foreign wires. Therefore, providing the right documentation to your bank, while not required by law, is critical to help prevent issues.  Maintaining adequate records is also highly advisable.

Provided one takes the necessary precautions, sending family remittances to Iran can be done in a legal, effective way.

How is the Sanctions Landscape Looking These Days?

It’s been a long time since my last post.  People often come up and ask what has been going on recently with respect to sanctions matters.  This of course is an open-ended question.  Syria has been in the news as have other countries, but of course given that Iran has been the topic du jour for over the past year now (only to heighten in importance these coming weeks), I figured I’d post this quick rehash of what has been going on.

1. The Iran laws have stayed the same.  Indeed the value of the Iranian Rial has absolutely plummeted, but that really cannot possibly be due to any new sanctions issues, right? Exactly, the legal landscape is still the same. What is constantly changing is the logistical landscape – activities that are legal become increasingly challenging. It’s amazing how much banks and other companies have to learn in terms of what types of transactions are possible and which ones are not. A lot of “good” gets weeded out with the “bad,” and that’s where folks like yours truly come in, explaining the laws to those who don’t know them. 

2. General License C for the Iranian earthquake. Late in August, OFAC issued a general license allowing certain charitable organizations in the U.S. to each raise and transfer up to $300,000 for victims of the August earthquake in Iranian Azerbaijan. This general license is aimed at making the transfer of humanitarian aid easier, although there are certain strings attached, including a reporting requirement.

Basically, the licensing regimes for basic dealings in Iran and certain types of funds transfer (remember, not all funds transfers necessarily require specific licenses from OFAC) remain the same. Turnover time at OFAC seems to be increasing, however, and while I used to tell clients they’d likely have to wait 2.5-4 months, I’m finding myself giving longer estimates now. 

Farhad Alavi on BBC Persian regarding Apple Debacle

Farhad Alavi was on BBC Persian (and quoted in the English language BBC website – click here) regarding the recent controversy over the apparent denial of a sale by an Apple store employee in Georgia to an Iranian-American student . Click here to watch the video.  A rough translation of Farhad Alavi’s quote:

“With regards to goods like this which have dual-use, meaning goods that have military and civilian use, naturally, the U.S. government has placed a series of very strict legal conditions on the sale and dealing of these goods to sanctioned destinations or sanctioned entities; consequently, these companies have very serious legal obligations, and to what extent they want to implement/satisfy these obligations, or to what extent they want to question the purchaser or the party who comes on behalf of the purchaser, well, that’s dependent on the company itself and the risk that it wants to assume.”


Will Sanctions Cost You Your Bank Account?

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.

New Executive Order Targets Sanctions Evaders

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.

$450,000 in OFAC Fines for a $33,299 Prohibited Transaction

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.

A review of MENA Region Legal and Business Affairs.