Jul
23
Riddle of the Day
Posted by Clif Burns at 8:44 pm on July 23, 2009
Category: Iran Sanctions
The Office of Foreign Assets Control issued today a Final Rule, without notice or public participation, which, effective immediately, amends the Iranian Transactions Regulations to amend the definition of “Iranian Account” found in § 560.320 of those Regulations. Prior to the amendment, “Iranian accounts” were defined as:
accounts of persons located in Iran or of the Government of Iran maintained on the books of either a United States depository institution or a United States registered broker or dealer in securities.
Under the amended rules the phrase “persons located in Iran” has been replaced by “persons who are ordinarily resident in Iran, except when such persons are not located in Iran.”
The definition is important to exporters because an “Iranian account” can’t be debited in connection with sales to Iran of agricultural products, medicines or medical devices under the Trade Sanctions Reform and Export Enhancement Act of 2000. The definition is also important to banks which are forbidden to service “Iranian accounts.”
OFAC claims that, without explaining why, the new defintion will “facilitate compliance by U.S. financial institutions” and, presumably compliance by TSRA exporters by extension. And that’s the riddle of the day: how exactly does the amendment accomplish that?
The old rule was certainly somewhat ambiguous. How does one determine exactly whether a person is “located in Iran.” Probably simply by looking at the address of the account holder. That’s at least a bright line rule. But the new rule seems even harder to apply. How do you define ordinarily resident? A person could have a U.S. or non-Iranian address where they are sometimes resident even though they ordinarily reside in Iran. When the account is opened under that non-Iranian address, what due diligence can establish that the person is not “ordinarily resident” in Iran. How does my bank know where I ordinarily reside?
Worse, if someone who’s ordinarily resident in Iran, the account is not Iranian while they are not in Iran, but immediately becomes an Iranian account the moment that person sets foot on Iranian soil. How on earth can a financial institution or a TSRA exporter assure that the account holder is outside Iran at the time of the transaction involving the account?
OFAC clearly has something in mind in thinking that this is an improvement, but for the life of me, I can’t tell what. If an Export Law Blog readers have an idea, please share it with the rest of us in the comments section.
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9 Comments:
ofac has yogi berra writing definitions now?
I think they’re trying to address the problem of U.S. persons who temporarily are in Iran. Under the old definition, such persons’ accounts are “Iranian accounts” while they’re in Iran. Not so under the new rule.
I agree with Eric. With a huge Iranian-American community making visits to relatives, the amendment rids the U.S. relatives’ of the potential for rejecting transactions in their accounts when they happen to be temporarily located in Iran. The most famous was the case of Professor Haleh Esfandiari, who was arrested on a visit to her mother in Iran. The media reports on her arrest led her U.S. bankers to heap insult on injury, by making her account (indeed her joint account with her husband) unavailable to either of them. The amendment fixes that. Even if OFAC hasn’t provided a definitive “ordinarily resident” definition, the term has been used in other regulations, and so both has precedents and leaves some flexibility for hard cases. We can assume that being jailed on a visit to Mom is not being “ordinarily resident” in Iran.
I think Eric and Ex-OFAC are right about what the new definition intended to do, but don’t you think it could have been done more simply? OFAC could have defined an Iranian account as one held by someone located in Iraq, except for somebody temporarily in Iraq. Or even by changing “located” to “ordinarily resident” without the except clause. This new definition opens up a problem on the other end, which is what to do with Iranians in the United States? How do you tell where they are when the account transaction takes place?
While the change in the definition may somehow ease Iranian-Americans’ access to the banking system while in Iran, I think it would have the opposite effect on Iranians in the U.S. temporarily for education or work purposes. An Iranian in the US to attend college, for example, would be ‘ordinarily resident in Iran’, except when they are in the US.
I could be reading this all wrong, however…
Scott — This was a big issue under the old definition, too, since financial institutions (“FIs”) couldn’t know (without travel information from the accountholder) when that person was “located in Iran.” But an Iranian with a work or student visa can likely get a presumption out of his or her FI that the account fits the “except when such persons are not located in Iran” piece of the definition of “Iranian accounts” — based on visa status (under the FI’s know-your-customer rules). It’s possible that, for the period of the visa, the FI would consider the individual NOT to be “ordinarily resident in Iran.” And when, for example, an Iranian temporarily located in the U.S. uses an ATM, the financial institution receives adequate location information for justifiable reliance in permitting access to the account.
In any case, this doesn’t seem worse than the prior definition for U.S.-located Iranians. I think the greatest benefit, however, will be the much-reduced population of “Iranian accounts” for those who occasionally visit Iran.
To link back to the earlier article, OFAC issued RFIs to Iranian-Americans in connection with their travel to Iran, their remittances to family, and even in-kind gifts for humanitarian purposes. These intrusive RFIs certainly gave many Iranian-Americans the impression that OFAC was on a jihad against Iranian-Americans. As someone who did more than a few pro bono cases in this regard, given the clear exceptions in IEEPA for travel, information and gifts, I think is no dearth of evidence that Iranian-Americans attracted an amount of attention from OFAC that has been disproportionate and therefore suspect. Hopefully, those who suggest that this rulemaking will ease the situation of Iranian-Americans are correct, but then why not proceed by notice and comment in order to refine the language and get the input from the affected public? Once again, OFAC has falsely claimed the “foreign affairs function” exclusion from APA rulemaking which the 1946 legislative history compiled by the Senate and relied upon by the Court makes clear was only intended for diplomatic functions, not for regulatory functions that affect the public.
This change is not an actual change, which is likely why OFAC did not ask for public comment. It merely dedicates to writing an actionable event that has been actionable in the very same way since the commencement of 31 CFR Part 560, OFAC’s Iranian Tranactions Regulations. If you’re physically in IRAN, you may not directy debit or credit your U.S. account; to do so would be deemed an illegal export of financial services. Same as always. Get with the program…OFAC’s a complex and difficult set of regulations but once you clue into the “why” behind it all, it’s rather consistent with what the U.S. Treasury has been doing for eons.
Sorry, Patriot, but under the new rule, someone not “ordinarily resident” in Iran, like a U.S. citizen, could debit a U.S. account while in Iran under the new definition but couldn’t under the old. But thanks for playing.
