Sanctions Prosecutions Abound in US

A review of federal court dockets throughout the United States highlights a general trend – the U.S. Department of Justice is bringing forth numerous criminal cases against individuals and entities which have traded with Iran in vioation of the US embargo against that country. Here are a few pending cases:

US v. Tehrani. This is an indictment from the Eastern District of Wisconsin. Mostafa Saberi Tehrani was indicted for violations of 18 USC §371 (Conspiracy to Commit Offense or to Defraud United States), 50 USC §§ 1702 and 1705 (part of the International Emergency Economic Powers Act, known more commonly as IEEPA) and 31 CFR §§ 560.203 and 560.204 (part of the Iranian Transactions and Sanctions Act or ITSR, which is implemented under IEEPA authority). The facts behind this case are not clear, but it is clear that the charges are violation of US sanctions laws.

US v. Sarvestani. This case is out of the Southern District of New York. Seyed Amin Ghorashi Sarvestani and his companies have been charged with exporting sensitive satellite-related equipment to Iran over the span of 7 years.

US v. Saboonchi. Ali Saboonchi and Arash Rashti Mohammad were indicted in the Southern District of Maryland last month for, again, conspiracy to violate the IEEPA. This case, like others, involves the use of exportation of goods to the United Arab Emirates (UAE) as a transit point for reexport to Iran. Examples of the goods in this case are as cyclone separators (used in oil refining processes) and thermocouples (used to measure oil and gas temperatures). Rashti Mohammad was based in the UAE and the two conspired to create Saboonchi’s company, Ace Electric Company to sell the prohibited goods through the UAE to buyers in Iran.

The list really goes on. What is interesting is that these cases dovetail a story last summer involving an Iranian-American lady who, along with her tourist uncle was denied the sale of an Apple iPad allegedly due to their speaking Persian (see this article on the BBC website fom last June, where I was quoted) . The theory posited for the Apple employee’s decision was that it would be a violation of export control laws if Apple knowingly sold the device to somebody who the company had reason to know would take the product to Iran. Export controls apply to many products that have so-called “dual use,” in other words both civilian and military use. These can include computers, certain industrial parts, etc.

The above cases highlight two key themes – first, obviously that the Department of Justice is pursuing trade violation cases, particularly with sensitive goods. Also, it highlights something those in the compliance industry have known for a long time – the illegality of the use of third countries as reexport points. Dubai in particular has been a focus of US authorities as it is considered a reexport point to many sensitive jurisdictions, Iran among them. Sending goods to a third country does not legitimize an illegal export. It is sufficient that one merely have reason to know that the goods will be exported to the prohibited destination.

Coming to America: What to Know When Investing in the US

With all the news of south-south trade and the increasing shift in the Middle East business scene’s focus towards Asia, some would say the United States is becoming a less appealing investment market for MENA family businesses and individual investors. For sure, taxes, complicated laws and regulations, and even distance can discourage some from investing.  However, there is strength in stability and stability is a major part of the United States’ value proposition. So, if you have decided to take the plunge and invest your money in a business or property in the United States, here are some basics to consider:

1. Make sure you create the right legal entity.  Companies are created at the state leval, but they are generally taxed at the federal level as well.  The US’ federal tax administrator, the Internal Revenue Service (IRS), maintains strict definitions on different types of entities (even those abroad) so it is essential that you set up an entity that gives you the tax treatment you need and qualify for. Broadly, there are corporations, which have shareholders, and then “pass-through” entities that are generally taxed only at the personal member  level. Examples include limited liability companies (LLCs), an increasingly popular option since their inception decades ago. Tax treatment is critical and a tax specialist can be an invaluable asset.

2. Know the Immigration Laws. It is not uncommon for foreign workers, particularly executives to come into the GCC region as tourists to work on short assignments, meaning they do not procure work visas. This is frowned upon in the United States. There are multiple types of business-related visas, from the B-visa to the H-visa to the L-visa. Make sure you have the right type – consult with an immigration law expert. If you are a private investor, make sure you pick the right vehicle for yourself – there are business visas such as the E-2 and EB5, the latter which can result in US Permanent Residency (or Green Card). Speaking of which, you may know that having a Green Card can make you subject to US taxation even on foreign income, right?

3. Document Everything. There are many reasons (including the strict tax laws) that effectively require you to keep very organized records as well as solid contracts. Litigation here is common, and it is critical that contracts be used and that they be drafted clearly, regardless of the size. If you are franchising or licensing your brand to a US company make sure the contract is tight and inclusive. 

4. Don’t forget your Intellectual Property Rights. This is critical if you have not considered it already, but you may find that registering your logo, trademarks, and other intellectual property will be critical to maintaining your branding.  This is especially important if you are granting a license or a franchise (even if you own the brand back home!). 

5. Various Other Regulations. Depending on your business, you may need to consider other issues beyond corporate, tax, and immigration law. Whether it’s environmental regulations or US trade compliance (such as Customs laws for bringing goods into the country or sanctions laws) it is critical to be in compliance as fines can be hefty.

Investing the United States offers unique opportunities still not seen in many places in the world. However, as with other more mature economies, it is generally very heavy on laws and regulations.  Being able to navigate the waters is challenging, but some help it will not be so hard and may be rewarding.

Legal Takeaways from Gulfood 2013

Last week I attended Gulfood, an annual event in Dubai where food (and food service equipment) processors and exporters gather to show their wares to businesses from around the world.  This year’s was supposedly the largest and it was truly gargantuan by any measure.  The global nature of the exhibit was impressive, highlighting among many things the increasing trend of south-south trade. Stands in pavilions from the United States, France, South Africa, Iran, Tunisia, and China among others competed for visitors.  What was particularly striking was the truly global nature of the world food industry, especially to those of us from the United States, where imported foods largely remain a luxury. It almost seems as if every country produces soft drinks, potato chips, and biscuits.

From a legal angle, Gulfood highlighted several key concerns – elements that were more highlighted when speaking to some of the people at the trade stands.

1. Everybody wants to trade but not everyone knows what that really means.  My continual observation was affirmed – businesses are often unsophisticated.  Even business people who have traveled across the world to attend a food show often do not really know the ins and outs of international business in their industry.  Simply wanting to “sell” your products is very unclear. Do you even know all the legal structures? Here are some to think about:

  • Exporting to a direct buyer/end-user
  • Appointing an agent overseas who will find buyers
  • Exporting to a local distributor who will sell locally
  • Licensing production and marketing of the product overseas by a foreign party

2. Too much emphasis on getting a deal but little thought to negotiating a solid deal that protects and envisions contingencies. It’s amazing how many of these business people brush aside (or fail to consider) the probability that problems can arise. You can face difficulty when doing business with your next door neighbor, much moreso with a company overseas that is likely operating under a different legal regime and business culture.

Some things to keep in mind:

  • Do you have a contract in place? 
  • How are you going to get paid?
  • What happens if you don’t get paid?
  • Can the foreign counterparty use your logo in its brochures and ads? If so, when and where? What if it uses your brochure on something unrelated or abuses your trademarks and content?
  • What if your foreign distributor underperforms?
  • Can you sue your foreign counterparty? If so, where do you want to sue? A local court where the proceedings are not in English?
  • Do you have a way to secure yourself from a default? 

Doing business overseas is truly an exciting proposition. However, as the above short summary illustrates, it’s best to go in informed and to be familiar with the legal concerns. You may not necessarily want to address every contingency but you should make sure the critical issues are foreseen and papered. Better to plan a way out ahead of time than to try to navigate through a nightmare scenario after the fact. A little bit of planning can help tremendously. 




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.”