Simultaneously with the executive order, the Office of Foreign Assets Control issued two new general licenses — cleverly named General License A and General License B — that would nevertheless permit certain transactions involving the newly blocked parties. It also updated the FAQs on the OFAC website to provide further explanations of the effect of the executive order and the two new general licenses.

The first fear that you might have is that the blocking of the Government of Iran and all Iranian financial institutions might effectively end certain transactions authorized under the ITR, say, for example, the payment of fees in connection with the registration of trademarks in Iran permitted under section 560.509 of the ITR. General License A was issued to take care of that. It permits activities already authorized under specific licenses or general licenses issued under the ITR. “General license” in this context doesn’t just refer to documents titled “General License” like this General License A but also refers to activities specifically authorized by the regulations itself, like the previously mentioned authorization of certain activities relating to trademarks in Iran. General License A specifically excludes from its scope transactions relating to closing or liquidating Iranian accounts otherwise authorized by section 560.517.

General B permits non-commercial personal remittances as long as they are not made through Iranian banks or other entities that were previously blocked, such as Bank Saderat or Bank Melli, not including the Iranian financial institutions that were blocked by this latest executive order.

Seyed Mojtaba Atarodi, a professor at Tehran’s prestigious Sharif University of Technology was arrested on December 7, 2011, when he stepped off a plane in Los Angeles where he had arrived for a medical visit to his brother’s cardiologist. The criminal complaint against him is sealed and the arrest was only made known because his name shows up in the Federal Bureau of Prisons inmate locator.

A bail hearing was held last week and Atarodi has been released on bail, partly due to his health problems. He has recently had two heart attacks, two heart surgeries and a stroke. Articles published by Atarodi that can be found on the web appear to deal mainly with semiconductor and microchip technology without any specific defense applications.

The U.S. government has still not released any information on the charges against Atarodi, although it is widely, and legitimately, assumed that they are export related. A spokesman for Sharif University said that Professor Atarodi was charged with buying scientific equipment from the United States, stating:

He was trying to buy some equipment for his lab, and the equipment was very, very simple, ridiculously simple stuff that anybody can buy. …

An official statement released by Sharif University, which appears to be aware somehow of the items mentioned in the indictment, said this about the items in question:

The items mentioned in the indictment, if truly purchased by him are all simple, basic, and elementary components and equipment that are easily sourced and can be found in every electrical engineering department. It is so disappointing to note that most of the items in question are not even the so called “dual use” equipment.

Of course, the Iran sanctions cover all items of any sort exported from the U.S., although an arrest and criminal prosecution is rare for items without some further strategic significance.

Even though the U.S. government’s lips are sealed, Atarodi’s defense counsel is not quite so taciturn and said to the Associated Press reporter that his client was more or less guilty:

Kohn said prosecutors “meticulously” built their case against Atarodi, who had come to Los Angeles seeking treatment from his brother’s cardiologist.

Meticulously? A statement like that, if he has been accurately quoted, makes you wonder which side of the case the defense attorney is being paid to argue. I suppose that if the government case is so “meticulous,” the alleged defense attorney can just teach Mr. Atarodi how to say “guilty” in English, collect his CJA reimbursement, and wait for another appointment.

The real impact of this is that this may well signal the end of legal exports of agricultural products, medicine and medical devices to Iran under the authority of the Trade Sanctions Reform and Export Enhancement Act of 2000, or TSRA (tis’-ruh) in Exporteranto, the lingua franca of export professionals. Exports to Iran licensed by OFAC require that the exporter must deal directly with a non-Iranian bank and that the non-Iranian banking intermediary may not use an Iranian bank on the SDN List to complete the financial aspects of the transaction.

Here is a link to a comprehensive list of Iranian financial institutions on the SDN List. As you can see, the U.S. has now designated what I believe to be all Iranian banks that are involved in international financial transactions. Here is a list on Wikipedia purporting to be all the private banks in Iran, but I am unaware of whether any of these other banks are able to engage in international transactions, although the website of EN Bank suggests that it may be able to handle international financial transactions.

That may mean, I’m afraid, that as a practical matter, TSRA exports to Iran will be cut off because there is no way for the U.S. exporter to be paid. If anyone is aware of any other banks that can be used for TSRA exports to Iran and that are not on the SDN List, please share that in the comments section.

Couple this with OFAC’s recent action putting most (and perhaps all) shipping ports in Iran on the SDN List when it designated Tidewater Marine, the executive branch has now effectively nullified the intent of Congress when it passed TSRA. This nullification could easily have been avoided if OFAC issued (or issues) general licenses that permit licensed TSRA transactions to use Iranian banks even if they are on the SDN List and to use ports on the SDN List for licensed TSRA transactions. But there is no indication that this is going to happen.

Of course, in the present environment, it is unlikely that Congress will protest this de facto executive repeal of the act.

The new sanctions expand on the sanctions on foreign persons dealing with the Iranian energy sector that started with the Iran Sanctions Act of 1996 and continued with last year’s Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (“CISADA”).

Under CISADA, foreign persons can be sanctioned if they make investments that contribute to the development of petroleum resources in Iran. Investment is defined to exclude the simple sale of goods to Iranian petroleum companies. Under the new sanctions, the transactional amounts are reduced to $1,000,000 per transaction or $5,000,000 in a twelve-month period. Additionally, the new sanctions will cover the simple sale of goods in excess of these amounts.

The new sanctions now go beyond the petroleum industry in Iran and will include the petrochemical industry. Foreign companies will face sanctions if they provide goods, services, or technology to Iran that could “directly and significantly facilitate the maintenance or expansion of its domestic production of petrochemical products.” The triggers for these petrochemical sales are even lower than the triggers for petroleum investments and cover a single transaction that has a fair market value of $250,000 or more or a series of transactions valued at $1 million or more over a 12-month period.

This blog has pointed out before that secondary boycotts of this sort violate U.S. obligations under GATT. The European Union filed a complaint with the WTO against the secondary boycotts contained in the Iran Sanctions Act, a complaint that was withdrawn when the Clinton administration agreed to use the national security exception in the Act to permit certain European investments in Iran. However, given all the accumulating evidence that Iran is in fact attempting to develop a nuclear bomb, it seems unlikely that the E.U. will seek a WTO remedy with respect to these new sanctions.

(For an excellent summary of Iran sanctions legislation, take a look at this excellent CRS study from October.)

I had an inquiry recently to list all of the Iranian ports managed by Tidewater Middle East which was recently placed on the list of Specially Designated Nationals and Blocked Persons List (the “SDN List”) by the Office of Foreign Assets Control (“OFAC”). U.S. exporters legally shipping items such as food to Iran under the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”) need to know this because, as a result of the recent sanctions, such licensed shipments cannot go through ports managed by Tidewater. Only TSRA exports licensed prior to June 23, 2011, could transit those ports pursuant to a general license that expired on August 23, 2011.

OFAC, when announcing the sanctions, provided the a list of Tidewater ports affected by the sanctions not in the SDN list itself but in a separate press release:

• Bandar Abbas (Shahid Rajaee Container Terminal)
• Bandar Imam Khomeini Grain Terminal
• Bandar Anzali
• Khorramshahr Port (one terminal)
• Assaluyeh Port
• Aprin Port
• Amir Abad Port Complex

The southern ports of Bushehr and Chabahar do not appear to be operated by Tidewater currently and, in theory, could be used for TSRA exports. I did, however, find other evidence, such as this, that suggested that Tidewater also operated at those two ports.

Interestingly, however, the Tidewater website appears to have disabled the pages that specify which ports it operates. The menu link for “Ports and Terminals Mng” is, oddly, dead and does not supply a list of ports operated by Tidewater. Presumably the only reason Tidewater would kill that link is to make compliance with the OFAC sanctions more difficult.

Frankly, there is no reason why the SDN list should name Tidewater only and not the specific ports that are sanctioned. Leaving such uncertainty with respect to available ports for TSRA exports improperly interferes with Congress’s direction in TSRA that OFAC was to permit exports of agricultural products, medicine and medical devices to Iran.

UPDATE (11-4-11):An alert reader (Bradley Allen at ATTUS Technologies) found an earlier version of the Tidewater site on the Wayback Machine before Tidewater scrubbed the names of the ports it operated. Click on the tabbed link for “Port and Terminals Mng” and you’ll get, in this older version, a list of Tidewater’s ports. This confirms that one of Tidewater’s responses to the U.S. sanctions was to try to obscure and conceal which ports it operated.

The general license specifically covers “food” which is a subset of agricultural products. The new rules will define food as

items that are intended to be consumed by and provide nutrition to humans or animals … ,
including vitamins and minerals, food additives and supplements, and bottled drinking water, and seeds that germinate into items that are intended to be consumed by and provide nutrition to humans or animals.

Items that are agricultural products but not food will still require licenses.

The rules make some specific exceptions to the definition of food, including, not surprisingly, castor beans. Thriller enthusiasts and news junkies will understand this exception: castor beans are used to manufacture the highly powerful poison ricin (although Iran can easily grow castor beans or import them from other countries other than the United States.) Also excluded are Rosary/Jequirity peas, the source of ricin’s more potent cousin abrin, which although more powerful than ricin is not known, according to the CDC, to have been weaponized or used in terrorist attacks.

My favorite part of the new rule is the exclusion of alcoholic beverages from the general license for Iran. I have not figured out whether this exclusion is made from ignorance, Puritanism or a desire by OFAC to enforce Islamic law. It should probably come as no surprise to anyone with even a passing acquaintance with Iran or Islam that alcoholic beverages are illegal in Iran and that people trying to import them into Iran are subject to being shot or sentenced to prison.

UPDATE: This post has been updated to correct a mistake I made in reading the new rule which does in fact permit export under general license of food to the Government of Iran and to purchasers outside Iran for export to Iran. My apologies for any confusion.

The Bureau of Industry and Security (“BIS”) announced on Monday that Texas-based manufacturer Flowserve agreed to pay $2.5 million to settle charges that the company and its foreign affiliates to settle BIS’s allegation of 288 violations of the Export Administration Regulations, including exports of items to Iran, Syria and other sanctioned countries. What makes this a particularly hard kick in the nether regions by BIS is that Flowserve voluntarily disclosed these violations. I suppose this is considered leniency by BIS because it could have fined Flowserve $72 million dollars.

The BIS settlement with Flowserve GB Ltd. (“Flowserve UK”), Flowserve’s British subsidiary, which is one of the dozen Flowserve settlements posted by BIS on its electronic FOIA page, is particularly instructive. Two of the counts against Flowserve GB relate to Flowserve products which Flowserve UK ordered from the U.S. and then transshipped to Iran:

Pursuant to Section 560.204 of the [Iranian Transaction Regulations], maintained by the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), an export to a third country intended for transshipment to Iran is a transaction subject to the ITR and requires OFAC authorization. Pursuant to Section 746.7 of the [Export Administration] Regulations, no person may engage in the exportation of an item subject to both the Regulations and the ITR without authorization from OFAC. No OFAC authorization was obtained for the exports described herein. In so doing, Flowserve UK committed two violations of section 764.2(b) of the Regulations.

The problem with this, at least in terms of simple fairness, is that OFAC, which administers the ITR had already extracted a fine from Flowserve for this very violation of OFAC’s own regulations. When Congress upped the possible fines for export violations to $250,000, it is quite clear that it had no idea that the export agencies would engage in such piling on and that neither of the agencies made clear to Congress that they intended to engage in such behavior.

The ECO argued that disclosure of these names could cause these companies to lose their ability to use U.S. commercial banking facilities, and the Tribunal, saying the the possibility of U.S. meddling was “disturbing,” agreed:

There is a significant public interest in protecting large and small firms, which trade lawfully and legitimately, from economic harm from a form of embargo imposed by banks, competitors, suppliers, clients and possibly foreign governments. … The tribunal felt some concern at the prospect of a U.K. company, trading quite lawfully in terms of U.K., EU and international law, suffering possibly fatal commercial damage through the extraterritorial intervention of our closest ally.

Bloomberg‘s editor Matthew Winkler objected to the tribunal’s ruling, noting that the tribunal relied on “secret evidence” asserting that “banks will withdraw funding for companies if the public knew who is doing business with whom.”

Early versions of the Bloomberg story contained an interesting statement from a source at OFAC who wished to remain anonymous.

U.S. trade-secrets laws prevent the Treasury from disclosing the names of companies seeking licenses to export goods that would otherwise be prohibited by sanctions, according to a U.S. Treasury spokeswoman, who declined to be identified and said she couldn’t comment on the U.K. case.

That, of course, is simply not even close to being true, which may be why the spokeswoman wanted her name withheld. The spokeswoman seems to have forgotten somehow the release by OFAC to the New York Times of hundreds of names of corporations that received licenses to export items to Iran and other sanctioned countries. This blog reported on that release here. When I brought this to the attention of Erik Larsen, the reporter who wrote the story, the OFAC quotation was removed and a statement from me on the New York Times disclosures was substituted in its place.

The moral of the story: don’t believe everything that OFAC tells you during a phone conversation.

[Thanks to reader Russ VanDegrift, compliance director at Christie Digital Systems USA, Inc. for alerting me to the original Bloomberg story.]

The real jaw-dropper came from panel member John-Marshall Klein, Foreign Affairs Officer, Office of Terrorism Finance and Economics Sanctions Policy, at the State Department. In discussing the recent sanctions on Iran Air, he noted that these sanctions did not preclude travel on Iran Air due to the provisions of 50 U.S.C. § 1702(b)(4) added by the Berman Amendment. But Mr. Klein didn’t stop there. He went on to say that he wouldn’t advise Americans to travel now on Iran Air because the sanctions would prevent Iran Air from getting spare parts.

Because Iran Air is now designated under the Weapons of Mass Destruction Proliferators Regulations, this means that the provision in section 560.528 of the Iranian Transaction Regulations which permits OFAC to license on a case-by-case basis spare parts necessary for the safety of civil aviation would not be strictly applicable. But that is not an exception made by OFAC out of the goodness of its own heart; that exception is required by the United States’s adherence to the Convention on International Civil Aviation, article 44 of which would prohibit the United States from taking actions that endanger civil aviation. And there is nothing that would prohibit a case-by-case licensing policy under the WMD proliferation regulations in cases of parts needed to promote the safety of civil aviation.

What Mr. Klein is saying is that it’s now the policy of the United States to use the sanctions against Iran Air in a way that will endanger the safety of its aircraft and its passengers. Even if true, and even if consistent with the United States’s treaty obligations, is this something that the U.S. government should openly admit? It can only be hoped that Mr. Klein was wrong.