Yesterday, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) added Iran’s Bank Tejerat to the list of Specially Designated Nationals and Blocked Persons List (the “SDN List”). This means that no U.S. person may engage in financial transactions with Bank Tejerat and all assets of Bank Tejerat that come into the possession or control of U.S. persons must be blocked.

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 White House signed, on November 19, Executive Order 13590, which increased the sanctions on foreign firms doing business in Iran. An official copy of the executive order has not been released but it is described in this “Fact Sheet” released by the Treasury Department. A State Department briefing held yesterday provides further background on the new sanctions.

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.)

ABOVE: Bandar Abbas Port, Iran

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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.

A Federal Register notice is scheduled to be published tomorrow in which the Office of Foreign Assets Control (“OFAC”) announces the issuance of a general license for the export of food to Iran and Sudan. Previously, although the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”) authorized the export of agricultural products, medicine and medical devices to Iran and Sudan, those exports required specific one-year licenses from OFAC. The general license does not cover sales to military or law enforcement purchasers.

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.