The Islamic Republic of Iran Shipping Lines (IRISL) is running out of countries to flag its ships in its increasingly futile efforts to avoid U.S. sanctions on the company. Even Tuvalu, the fourth smallest country in the world, deregistered 44 IRISL oil tankers recently. (That’s rather like being ejected from an Olive Garden restaurant in Dothan, Alabama.)

A Wall Street Journal article (subscription required) that appeared on September 28 details IRISL’s current woes in using the flags of convenience of two land-locked countries, Mongolia and Moldova, the latter a country most-renowned for its frequent utility as an obscure crossword puzzle entry. Moldova had begun to cancel IRISL registrations but those ships quickly obtained registrations from Mongolia. Now Mongolia is announcing that it will deregister the ships.

Of course, an IRISL vessel is subject to sanctions no matter what flag it is flying, but IRISL is hoping to confuse people by using flags of convenience rather than an Iranian flag for the ships. An IRISL spokesman is quoted by the Journal on the company’s rather quaint theory of reflagging its ships:

“When you push someone from a room, he should find a door,” said Ali Ezzati, Irisl’s manager for strategic planning and international affairs, on the sidelines of a shipping conference in Xiamen, China. “If he can’t find a door then he should try to find a small hole.”

I suppose that his choice of metaphors here was uninformed by the fact that small holes are the way that rats and cockroaches get into a room. I think I would have gone for window.

And, as is often the case when journalists not normally on the sanctions beat try to tackle sanctions issues, the Journal story has an amusing whopper about the Iran sanctions. The article explained that the Iran sanctions “are tied to money transactions with bank and trade services.” Er, no. All transactions with Iran are prohibited (with the exception of certain otherwise authorized transactions such as those involving food, medicine and informational materials) whether or not any money is paid and whether or not they involve “bank or trade services.” I wonder how many people will read the article and figure that the regulations don’t prohibit dealings with Iran if no payments are made. Sigh.

ABOVE: Pharmacy in Iran

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The Washington Post reprinted on Tuesday a Financial Times report that indicated that U.S. sanctions on Iran were making it difficult for Iranian doctors and hospitals to provide health care to sick patients.

The tightening of U.S. banking sanctions against Iran over its nuclear program has had an impact on all sectors of the economy but is increasingly hitting vulnerable medical patients as deliveries of medicine and raw materials for Iranian pharmaceutical companies are either stopped or delayed, according to medical experts.

But, but, you ask, how can that be? Doesn’t U.S. law permit exports of medicine to Iran even under the new sanctions? Well, yes, in theory, but in practice, maybe not. The article points out difficulty in delivering raw materials to pharmaceutical factories in Iran as one factor, but U.S. law has only permitted exports of medicines, not raw products for medicines, so there’s nothing new here.

Perhaps it’s this:

“We hold a license from the OFAC, but our imports have dropped by more than half while we pay much more than before,” one importer said.

“The exemption of medicine from sanctions is only in theory,” said another. “International banks do not accept Iran’s money for fear of facing U.S. punishment.”

It seems reasonable to conclude that U.S. sanctions have a chilling effect which extends beyond their actual scope. Even if banks might be permitted under General License A to deal with certain Iranian financial institutions in connection with exports of medicine, banks may well decide that parsing the General License, and the risk of punishment if mistakes are made, makes the enterprise more trouble than it’s worth. Not to mention, of course, that this General License would only cover licensed exports of medicine from the U.S. to Iran and not exports of medicine to Iran from other destinations.

And even if the sanctions that can be imposed on foreign banks under the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (“CISADA”) seem limited to specific situations that don’t involve financing medical exports, the recent action by OFAC in blocking two foreign banks for their dealings with Iran may make banks worry about the risk. In that instance, OFAC appeared to be saying that transactions in the petroleum sector could be seen as aiding Iran’s nuclear program, which is one of the bases for imposing CISADA sanctions. By that logic, all transactions with Iran might be seen as aiding the nuclear program, so what bank is going to want to run the risk of financing any exports to Iran?

The way that U.S. sanctions protect us from Iranian nuclear weapons are indeed wondrous and diverse, as Iranians themselves recently learned when they sat down recently at their computers to don the virtual identity of sword-wielding warriors wandering through imaginary realms to defeat trolls, elves, ogres and other malevolent creatures. No World of Warcraft for you, their computers told them. No refunds either. Blizzard Activision, which makes the game, said that it shut down the game for Iranians because of the U.S sanctions on Iran.

Of course, the first question in analyzing the applicability of U.S. sanctions to World of Warcraft in Iran is the general license in section 560.540 of the Iranian Transaction Regulations for ” [e]xportation of certain services and software incident to Internet-based communications.” This permits Iranians to access YouTube, Facebook, instant messaging and other “personal communications over the Internet.” World of Warcraft, at least as it was explained to me, permits players to communicate with one another with real-time text messaging via their avatars. Whether the faux medieval trappings and the virtual sword play transform this into something other than a personal communication over the Internet is an interesting question, but we don’t need to resolve it because the general license in section 560.540 requires that the service be available at no cost to the user. World of Warcraft requires users to pay a subscription fee.

One part of the story announcing the demise of elf battles in Iran that intrigued me was this

[Blizzard spokesperson] Hilburger didn’t immediately respond to a question asking why the company had only recently blocked Iranian players from its service.

Good question! Do you think that Blizzard filed a voluntary disclosure with OFAC?

[Hat tip to Shawn Wheatfill for bringing this story to my attention]

ABOVE: ANSI offices in DC

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The Office of Foreign Assets Control (“OFAC”) recently sent a letter of guidance to the American National Standards Institute (“ANSI”) stating that U.S. participation in international standards organizations, such as the ISO and the ITU, did not violate OFAC’s sanctions on Iran even though Iranians also participated in these standards organizations and, often, in the same standard setting processes with U.S. participants. ANSI had filed a request for guidance with OFAC after a number of American companies, particularly those in the oil and gas industry, had expressed concern as to whether they could participate in the international standards process alongside Iranian companies.

OFAC held that the participation in the standards process with Iranians through ANSI and the ISO was both (1) an exempt transfer of informational materials and (2) a permissible elaboration of written materials permitted under the general license set forth in section 560.538 of the Iranian Transaction Regulations (“ITR”). Although the result clearly furthers demonstrable U.S. economic interests in broad adoption of international standards and U.S. participation in the formulation of those standards, this guidance involves, at least with respect to its reliance on the information exception, an unusual interpretation of OFAC’s rules.

The exception for exports of informational materials is limited, under section 560.210(c)(2) of the ITR, to informational materials “fully created and in existence at the date of the transactions.” The problem here, of course, is that the information supplied by U.S. persons may be part of the deliberative process and not fully in existence prior to the U.S. person’s participation in the standards process with the Iranian companies.

The ANSI request for OFAC guidance tries to finesse this problem this way:

Although the ITR require that “informational materials” be fully created and in existence at the time of the transactions, new international standards may be derived from existing national standards . . . or are based on technical information already in existence.

There are enough weasel words in that argument, which I have taken the liberty to emphasize in bold, to see the problem with that argument. The rule doesn’t talk about information that may be based on or derived from information already in existence; it talks about information itself already in existence.

Another effort that ANSI tries to finesse the problem is more direct, although not more logical:

Technical information shared at the working group level is similarly fully created and in existence at the time it is shared within the group

Again, the rule talks about the information in existence at the time of the transaction, not at the time it is shared. By definition, information will always be fully in existence when it is shared or exported. If Iran commissioned me to engage in a market study, it would not be in existence at the time of the commission (which is the time of the transaction under the rule) but would be at the time I exported it to Iran and there is no question that such a transaction would run afoul of the Iran sanctions.

The other rationale urged by ANSI and adopted by OFAC is on much firmer footing. Section 560.538(a)(2) of the ITR permits U.S. persons to participate with non-Governmental Iranian entities in “[c]ollaborating on the creation and enhancement of written publications.” Since the ISO standards are ultimately published (indeed, they would be pointless without publication), this seems to cover U.S. participation in the process with Iranians, including the sharing with, and export to, Iranians information that was not in existence at the time the standards process began. The marketing study example I gave above wouldn’t fit under this exception because it wasn’t intended to be published.

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Lots of news lately on Iran sanctions, so here’s a summary and some links.

• Here’s a link to the OFAC letter we mentioned last week disputing some of the charges made by the New York State Department of Financial Services against Standard Chartered Bank.
• A report by Reuters says that Iran is now trying to open up banks in Armenia to skirt U.S. sanctions.
• The New York Times reports that Iran’s best buddy Iraq is also helping Iran skirt financial sanctions, including letting the newly sanctioned Iraqi bank, Elaf Islamic Bank, participate in the daily auction of U.S. dollars for Iraqi dinars conducted by the Central Bank of Iraq. The Central Bank says it is permitting Elaf’s participation because it believes Elaf’s assertion that the U.S. is lying when it accuses Elaf of dealing with Iran.
• You can add the Royal Bank of Scotland and Commerzbank to the list of European banks being investigated by U.S. authorities for their dealings with Iran.
• The United Nations today accused Iran of violating UN sanctions by supplying arms to Syria.
• The Office of Foreign Assets Control (“OFAC”) issued yesterday a general license to allow tax-exempt NGOs to transfer up to $300,000 in the next 45 days for Iranian earthquake relief, provided that the funds do not transit blocked persons such as Bank Sepah et al. Banks that had not been previously blocked by name but which were blocked solely the recent E.O. 13599, which blocked all the remaining banks in Iran, can be used for transfers. Drop meet bucket; bucket meet drop.