Iran General License N - Authorizing Certain Activities to Respond to the Coronavirus Disease 2019 (COVID-19) Pandemic

Date issued: Jun. 17 2021

TURBOFAC Commentary (2101 words)

Notes:

1) Background -Notes Common to the Three “COVID GLs” Issued 6-17-2021

On 6-17-2021, OFAC issued Added Venezuela GL 39, Syria GL 21 and Iran GL N. All three GLs (collectively “the COVID GLs”) are designed to address the same problem—i.e. OFAC-administered sanctions’ prevention of certain COVID-related trade—but the GLs are scoped differently in light of the nature of the three sanctions regimes to which they pertain.

2) Interpretive Issues Common to the Three COVID GLs


Interpretive issues connected to the GLs can be divided between those that are common to all three GLs, and those that are unique to each individual GL. OFAC’s FAQs issued concurrent with the issuance of the GLs, in particular FAQs, e.g. FAQ # 906, and FAQ # 910, leave little doubt that language that appears in each GL will be interpreted harmoniously across programs.

a) U.S. Person Involvement in Underlying Transactions Unrelated to the U.S.


All three COVID GLs authorize “all transactions” related to specified COVID-related activities; they do not state on their faces that the GLs authorize transactions by “U.S. persons.” In FAQ 906, OFAC confirms “[b]oth U.S. persons and non-U.S. persons whose activities are within U.S. jurisdiction — including exporters, nongovernmental organizations, international organizations, and financial institutions — may rely upon the authorizations in these COVID-19-related GLs provided they meet the applicable conditions.” This statement confirms that U.S. persons may “facilitate” or otherwise play an ancillary part in any transaction described by the GLs, even if the transaction does not otherwise involve a U.S. person. Compare FAQ # 883 (making a similar statement with respect to payment processing). The question is whether a person’s activities are “are within U.S. jurisdiction,” not whether they are facilitating a transaction for which the underlying transaction is subject to OFAC’s jurisdiction. For more on this issue generally, see General Note Pertaining to U.S. Person Engagement in Transactions Incident to Transactions by Foreign Persons.

b) The Relationship Between the Goods and Services as Issue and Intended End Use

All three COVID GLs authorize otherwise prohibited transactions:

“that are related to the prevention, diagnosis, or treatment of COVID-19 (including research or clinical studies relating to COVID-19).”

As with all such statements, the scope of the term “related to” is never easy to pin down. How close a relation must there be between COVID-19 and the otherwise prohibited activity? More specifically, is the requisite relation between COVID-19 and the good or service at issue one that is established at the level of the nature of the good or service, or is it one that requires an inquiry into the actual end use of the good or service in the context of a particular transaction? The FAQs associated with the COVID GLs suggest that the requisite relation between the otherwise prohibited activity is established without the need to inquire as to the actual intended end use of the good or service at issue.

In FAQ # 909, OFAC interprets the Venezuela GL, which on its face authorizes “all transactions and activities…that are related to the prevention, diagnosis, or treatment of COVID-19”, as authorizing transactions related to the import and export of “medical gowns” and “surgical gloves.” While some of the goods and activities listed are inherently specific to COVID, some, such as “medical gowns” and “surgical gloves,” are of general medical use, but there is nothing to suggest that such items are only within the scope of the GL if it can be shown that they will be used specifically for COVID-related activities.

The question takes on greater importance in the context of OFAC’s clarification that “ingredients or components required for the production of vaccines” are goods within the scope of the Iran and Venezuela GLs. It would appear that an “ingredient…required” for the production of COVID-19 vaccines is, on a per se basis, within the scope of the authorization. An example of one such ingredient that is not within the scope of the pre-existing authorizations for “medical devices” or “medicine” would be ribonucleic acid (“RNA”).

On this general question, compare e.g. FAQ 440 (a GL authorizing software “necessary to enable services incident to the exchange of personal communications” is interpreted by analyzing the nature of the software itself; one need not determine whether it can, or will as a practical matter in the context of any given exportation, be used for commercial purposes).

As a practical matter, the question addressed above is important inasmuch as due diligence on the actual intended end use of a product is difficult to do, particularly when the intended recipient is located in a country that is subject to a comprehensive embargo.

c) The Due Diligence “Safe Harbor”


In FAQ 909, OFAC says that “financial institutions may rely on the originator of the funds transfer with regard to compliance with Iran GL N, Syria GL 21, and Venezuela GL 39, provided that the financial institution does not know or have reason to know that the funds transfer is not in compliance with such GLs.”

As a technical matter, the FAQ does not make much of a concession, since “know[ing] or have reason to know” that a given transaction is prohibited is the standard that, in practice, OFAC always applies when determining whether to pursue an enforcement action. see generally General Note on the Terms "Knowingly," "Should Have Known" And "Reason to Know" In the Primary Sanctions, Secondary Sanctions and Derivative Designation Contexts (System Ed. Note).

Put differently, OFAC considers a person to have a “reason to know” that a transaction was prohibited it the person did not perform adequate due diligence into the nature of the facts and circumstances underlying the transaction, so here OFAC says that a financial institution “may rely” on (i.e. trust) an originator provided that there is no “reason to know” the originator is incorrect or otherwise not being truthful, but “reason to know” generally entails a degree of verification.

Notwithstanding the foregoing, in practice OFAC uses the “may rely on the originator” construction in situations where the authorization at issue is one for which “de-risking” is presumably discouraged. Compare the “personal remittance” GLs found in all embargo programs (510.511, 542.512, 560.550 and Ukraine GL 6), Iran GL E (Services in Support of Nongovernmental Organizations’ Activities in Iran); 542.523 (services to the National Coalition of Syrian Revolutionary and Opposition Forces) and FAQ # 650/ FAQ # 901 (divestments of Venezuela and China-related securities).

d) Relationship to Secondary Sanctions and “Derivative Designations”


In FAQ # 911 OFAC says “Non-U.S. persons do not risk exposure under U.S. sanctions for engaging in certain activities to respond to the COVID-19 pandemic that would be authorized under Iran GL N, Syria GL 21, or Venezuela GL 39, as appropriate, if engaged in by a U.S. person.”

This is generally consistent with OFAC’s across-the-board policy of not exercising its discretion to sanction a person for activities that would otherwise not be prohibited for a U.S. person. In the Venezuela context there are no formal “secondary sanctions,” but the derivative designation criterion for providing “material assistance” to a person blocked pursuant to EO 13850 has, as a practical matter, been deployed in a manner that produces the same effect as a “secondary sanction” provision applicable to significant trade transactions. (See e.g. PB Tankers S.P.A. (Italy)).

3) Notes Specific to Iran GL N

a) Relationships to Pre-existing Authorizations

i) TSRA-Related GLs and Licensing Policies

As OFAC notes in FAQ # 906 “conditions and limitations included in other humanitarian-related authorizations do not apply to transactions and activities conducted pursuant to the COVID-19-related GLs, unless explicitly incorporated therein.” Most of what is authorized overlaps, to some degree, with authorizations contained in pre-existing GLs, but expands the scope of what is authorized either through the substantive authorizations or the lack of restrictions contained in other GLs.

For the ITSR, OFAC specifically notes that “Iran GL N expands authorizations under the Iran sanctions program to cover certain items that previously would have required a specific license for exportation or reexportation to Iran, such as certain COVID-19 testing or vaccine manufacturing equipment.” Refer to Iran - List of Medical Devices Requiring Specific Authorization. In addition to those items, there are, as discussed above, goods, such as vaccine ingredients, the exportation of which is now authorized and that are outside the scope of TSRA-related general licenses and specific licensing policies altogether.

In addition, as OFAC notes, “COVID-19-related exports and reexports to Iran authorized by Iran GL N are not subject to the payment terms in 31 C.F.R. § 560.532.” This does not mean that payments be made through debits to blocked accounts or unblocked-but-restricted “Iranian accounts.” Paragraph (e)(4) of GL N states that the GL does not authorize “[t]he unblocking of any property blocked pursuant to any part of 31 CFR chapter V,” and 560.516 of the ITSR, which does govern funds transfers made pursuant to GL N, states that it does not apply to transactions that “involve debiting or crediting an Iranian account.”

It is, however, the case that accounts receivable connected to GL N exports may be transferred (i.e. sold or “factored”), since that restriction found in 560.532 does not apply.
Finally, as it relates to exports from third countries of goods or technology that is not subject to the EAR because it is not if U.S. origin, note that the GLs in the ITSR for medicine, medical devices and agricultural commodities authorize the exportation of items that are “designated as EAR99 or, in the case of an item not subject to the EAR, [] would be designated as EAR99, if it were located in the United States.: In the context of GL N, there are exclusions for items that are “listed on any multilateral export control regime” and “goods, technology, or services used to facilitate the development or production of a chemical or biological weapon or weapon of mass destruction.”

Those exclusions are, presumably, much narrower than the exclusion for all items that “would be designated as EAR99 if []located in the United States.” The Multilateral Export Control Regimes—i.e. Wassenaar Arrangement, Nuclear Suppliers Group, Australia Group and Missile Technology Control Regime—are taken into account by BIS in its classification of items on the Commerce Control List, so it would seem unlikely that items excluded from GL N would be designated EAR99 if they were located in the U.S. By contrast, there are items, e.g. software containing certain types of encryption technology, that would be controlled at a level higher than EAR99 if located in the U.S,, but not subject to any multilateral export control regime or otherwise “used to facilitate the development or production of a chemical or biological weapon or weapon of mass destruction.

ii) The Publishing GL


560.538 of the ITSR authorizes “transactions necessary and ordinarily incident to publishing,” but subject to certain exclusions not applicable to GL N. Most significantly, the publishing GL excludes “the Government of Iran,” except for “an academic or a research
institution [where] research and/or teaching is the primary function of the employing entity.” (See 2016 Publishing Guidance).

Iran GL N authorizes transactions related to “research or clinical studies related to COVID-19,” without any Government of Iran limitation. For practical purposes, a significant benefit of the GL N is that U.S. persons can collaborate with Iranian government-run hospitals that would otherwise be excluded from the publishing GL.

iii) Activities Involving the CBI or NIOC Not Otherwise Authorized


GTSR/ITSR - General License 8 authorizes certain transactions involving the CBI and NIOC that would otherwise be prohibited by the GTSR, provided that the transactions otherwise qualify for “the general licenses set forth at sections 560.530(a) and (b), 560.532, and 560.533 of the ITSR.”

GL N authorizes “certain transactions involving the Central Bank of Iran (CBI) or the National Iranian Oil Company (NIOC).” This is significant in particular with respect to activities the substance of which authorized by both GL N and Iran General License (No. E) - Authorizing Certain Services in Support of Nongovernmental Organizations’ Activities in Iran and/or 31 CFR § 560.539 - Official activities of certain international organizations. Such activities may now involve the CBI, whereas previously there was no authorization for that.