AN OVERVIEW OF OFAC AND THE ITR • Defining OFAC and the ITR • What is prohibited? • What is permitted? www.yazdanyarlaw.com Beverly Hills, Irvine, San Francisco Tel: 310-780- 6360
AN OVERVIEW OF OFAC AND THE ITR
• Defining OFAC and the ITR• What is prohibited?• What is permitted?
YAZDANYAR LAW OFFICES www.yazdanyarlaw.com Beverly Hills, Irvine, San Francisco Tel: 310-780-6360
WHAT IS OFAC?
• What is OFAC: The Office of Foreign Assets Control (OFAC) is an agency within
the Department of Treasury.
• What are they responsible for: Administering and enforcing U.S. economic sanctions programs.
• Why should you care: OFAC implemented the sanctions against Iran by promulgating
the Iranian Transactions Regulations (ITR)
2 YAZDANYAR LAW OFFICES www.yazdanyarlaw.com Beverly Hills, Irvine, San Francisco Tel: 310-780-6360
IRANIAN TRANSACTIONS REGULATIONS
• What is ITR: A country-based sanctions program aimed to prohibit “U.S. persons”
from engaging in transactions with the government of Iran, with persons in Iran, or in transactions where the benefit is realized in Iran.
• Who is considered a “U.S. Person”: U.S. citizens (regardless of where you are located) U.S. legal permanent residents (regardless of where you are located) Individuals and entities within the U.S. Entities incorporated in the U.S. (including foreign branches)
3 YAZDANYAR LAW OFFICES www.yazdanyarlaw.com Beverly Hills, Irvine, San Francisco Tel: 310-780-6360
ITR: WHAT IS PROHIBITED?
The direct or indirect importation, exportation or re-exportation of goods, services, and technology from Iran or to Iran
4
Facilitating or financing these transactions is
prohibited.
Goods: No distinction between commercial and non-commercial purpose.
Buying jewelry from Iran and bringing it to the U.S.
Services: When services are performed on behalf of a person in Iran, the government of Iran, OR if the benefit is received in Iran
Working in Iran Hiring a real estate agent Using the services of a currency exchange
broker
YAZDANYAR LAW OFFICES www.yazdanyarlaw.com Beverly Hills, Irvine, San Francisco Tel: 310-780-6360
ITR & NEW INVESTMENTS ITR prohibits new investments in Iran.
ITR prohibits U.S. persons from purchasing, selling, swapping, brokering, financing, guaranteeing goods or services of Iranian origin.
Continuing charging fees and getting interest on existing Iranian loans.
Examples: Buying a house in IranKeeping money in bank accounts in IranEarning interest on money kept in Iranian banks
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WHAT IS PERMITTED? Importation/Exportation of Goods and Services:
Gifts: Total value must be less than $100 Items must be of a type and in quantities normally given as gifts; not otherwise prohibited
Accompanying Baggage: For personal use Not intended for sale or for anyone else; not otherwise prohibited
Household and Personal Effects: Must have been actually used by you in your household Intended for your personal use not sale or any other person; not otherwise prohibited
Information: Films, newspapers, mail, email
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WHAT IS PERMITTED?Financial Transactions:
Travel-related payments Payment for the importation or exportation of information or information materials Non-commercial family remittances• Cannot involve a commercial transaction• Cannot involve a family-owned enterprise• Cannot involve Specially Designated National (SDN) • Cannot use “hawala” as defined by the U.S. government
Authorized transactions By a specific or general license
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U.S. Sanctions on Iran:OFAC Licensing
Farhad R. Alavi
Washington, DC
Presentation at U.C. IrvineFebruary 22, 2012
Overview
2 types of OFAC licenses – General and Specific
Specific License is a written authorization for certain activities by applicants (and appointees, etc.) based on request made in the application
Can apply for a license for anything not expressly permitted/subject to general license. Probability of approval based on many factors
General and specific licenses generally subject to certain terms & conditions
9Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
What is an OFAC license?
Specific Licenses issued by OFAC based on applications submitted
Based on request applicant makes – if you do not request to engage in a certain activity in/related to Iran, you will most likely not receive authorization for it in the license
Typically a few pages, outlining permitted activities along with terms and conditions
Generally valid for 1-2 years, renewable
License number can be used in wire transfers10Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
What can be licensed?
Personal Transactions
Commercial Transactions
Philanthropic Transactions
11Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
Personal Transactions
Transactions related to personal property in Iran
Sale, purchase or rental of real estate and personal property (including services)
Liquidating inheritances in Iran
Retrieving pensions, etc.
Note: Subject to certain conditions, sending cash gifts/family remittances between the US and Iran generally does not require a specific license
12Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
Commercial Transactions Ag/Med Program permitting export to Iran of:
Medical Equipment and Supplies Pharmaceuticals
Hiring services in Iran
(e.g., translators, consultants, etc.)
Remitting commercial earnings in Iran (e.g., earnings from rental property, passive interests in businesses, etc.)
13Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
Charitable Transactions Building a school or hospital in Iran Donating computers to universities in Iran
Sending cash to Iranian charities in Iran Lecturing in an Iranian university (even if unpaid)
Note: Export of items like food and clothing to Iran for charitable use is generally permitted under general license
14Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
OFAC would likely not license:
Investment in Iran (e.g., buying stocks, depositing money in banks)
Outsourcing labor to Iran (e.g., software design)
Partnering with entities in Iran or Iranian entities overseas
Exporting most consumer goods to Iran
Working in Iran for financial gain
Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected] 15
Exceptions What is generally permitted under the ITR?
Subject to certain limitations: Trade in informational materials Non-monetary humanitarian transactions Transactions incident to travel Communications-related transactions Provision of certain legal services to individuals in Iran Non-commercial family remittances
Note: Previous general license for importation of Iranian carpets, dried goods, and caviar repealed effective September 29, 2010
16Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
Critical Considerations Note: Specific licenses from OFAC must be used
strictly by their terms and are not blank checks to do business or engage in transactions in Iran.
Each specific license has a number. You can reference the number on your wire transfer to help effectuate the payment more smoothly.
License applications generally take several months to process, so think ahead.
17Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
Critical Considerations U.S. persons cannot:
Structure transactions with an intention to circumvent restrictions and provisions of the ITR
Divert transactions to 3rd country nationals if that transaction would be a violation if the U.S. person him/herself executed it Example: U.S. person cannot give money to a relative in
France to go invest in Iran on U.S. person’s behalf
18Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
Money Transfer New regulations generally continue to allow for
authorized / licensed funds transfers to/from Iran
Always ensure that the money transfer (commercial or personal) is authorized
Is the intended route for transmitting funds out of Iran compliant with U.S. laws? (e.g., make sure no personal hawalah or use of sanctioned banks, etc.)
19Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
Money Transfer (continued)
20
Private, Non-Sanctioned
Bank in Iran
3rd country non-Iranian, non-U.S., non-sanctioned bank
(e.g. in UAE, Turkey)
Bank (U.S.)
U.S. Person’s Account
Iran Funds
Affidavit and/ orLetter
U.S. Person
Iran Funds
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Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
Money Transfer (continued)
Have you given your bank adequate documentation?
Should follow “best practices”
Funds rejection can be legally troublesome and costly
Account closure at US banks increasingly common
21Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
Penalties
Violations can be subject to civil and potentially criminal liability
Civil penalties can be up to $250,000 or twice the value of the transaction, whichever is higher. Cases can be referred for criminal enforcement as well
22Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
Penalties (continued)
Administrative Subpoenas (as part of investigations into rejected wires or “havalehdars” can lead to an effective audit of your Iran activities and considerable exposure
Very time consuming and potentially costly
Frequency of Administrative Subpoenas (even for activities several years past) appears to be increasing
23Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]
Any Questions?
Farhad R. Alavi
5335 Wisconsin Avenue, NWSuite 440
Washington, DC 20015
(direct) (202)686- 4859
So What?Iran Sanctions: Investigations and Penalties
Presented by:Erich C. Ferrari, Ferrari Legal, P.C.
How will they ever find out?
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Common ways that investigations are initiated
• Blocking and Reject Reports• Most common way; thousands of these reports are sent every year
• License Applications• Revealing information about violations
• Federal Investigations• Very common when investigating havaleh brokers
• Self-Disclosures: Intentional and Unintentional• Voluntary self-disclosures vs. contacting OFAC and informing them of
violations
• Anonymous Tips
Blocking and Rejecting Reports
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Wire Request
Intermediary U.S. Treasury
Interdiction
1
2
3
SWIFT
Blocked/Rejected4
Subpoenato Sender/ Recipient
5
Sender
U.S. Bank
What kind of trouble can you get in?
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• Problems with the banks• Bank Investigations• Freezing of Accounts• Closing of Accounts
• OFAC Investigations • Administrative Subpoenas• Penalty Process• Coordination with other agencies
• Criminal Investigations• Agents• Target/Subject Letters• Exports and Money Transferring• Banki, Seifi, Amirnazmi, Mousavi, Vaghari, Hariri, Lahiji, Socara, etc.
OFAC Investigations
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Administrative Subpoenas• 30 days to provide information and documents• You can request an extension, but may have to sign a tolling agreement• Your response is under penalty of perjury• Not only false statements, but also misleading statements• OFAC will refer cases to DOJ for false statements (5 year max)
Voluntary Self-Disclosures• Self reporting a violation• 50% reduction in base penalty• If a violation occurred and you need a license to transfer funds, then VSD
Penalty Calculations• Base Penalty Calculations• Enforcement Guidelines• Settlement
Enforcement Responses
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Sanctions Enforcement Options
No Action
Cautionary Letter
Finding of Violation
Civil Penalty
Criminal Referral
Lesser Penalty Higher Penalty
Base Penalty Calculation Matrix
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One-Half of Transaction Value
Capped at $125,000 per violation
One-Half of Statutory Maximum
Applicable Schedule Amount
Capped at $250,000 per violation
Statutory Maximum
1
2
3
4
Egregious Case
Vol
unta
ry S
elf-
Dis
clos
ure
No Yes
No
Yes
* The base penalty amount will not exceed the applicable statutory maximum amount.
Violation Schedule Amounts
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Amount Transaction Value
$1,000 < $1,000
$10,000 >= $1,000 and < $10,000
$25,000 >= $10,000 and < $25,000
$50,000 >= $25,000 and < $50,000
$100,000 >= $50,000 and < $100,000
$170,000 >= $100,000 and < $170,000
$250,000 >= $170,000
Criminal Prosecutions
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US Attorney’s Offices across the U.S. have been actively prosecuting these cases.
There are a number of individuals under investigation across the United States for these types of violations.• Testimony of Special Agent Pelczar (JTTF)Hearing Transcript from the
Vaghari Case: Much of his work involves investigating Iranians.
If the FBI comes knocking….• Don’t speak to them without counsel• People get nervous and may say something that mischaracterizes• Proffer Letter
Conclusion
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Enforcement cases are on the rise:• 2009: 1,000 investigations• 2010: 1,200 investigations• 2011: 1,300 investigations
Difficulty in transferring funds is leading to more creative ways to get around sanctions which is leading to more investigations
Talk to a lawyer with experience before acting• Prior to engaging in the transactions• File a request for interpretative guidance• Map out how the transaction will occur
Iranian Transactions Regulations
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If you have questions after the event please contact me:
• Phone: 202-280-6370 or 310-270-9930• Email: [email protected]• The Iranian Transactions Regulations
Practice Guide• www.sanctionlaw.com
THANK YOU!