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Try typing your search term (“ordinarily resident,” “new debt,” or something else) in the “Find a Search Filter” box at the top of the page, and the corresponding “Key Legal Issues” check box will pop up instantly, if one exists. Once you check the box (e.g. “new debt,” with ~55 results), you can always use the text string filtration function to further refine your search (e.g. by typing “invoice” and narrowing the ~55 results to ~10).
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1) BACKGROUND
In addition to the plain statements that OFAC makes with respect to the scope of a given prohibition or general license, one methodology that may occasionally be resorted to in order to determine the scope of a given 200-level prohibition is the a contrario, or "inverse," reading of a given general or specific license.
Put differently, we take the premise "it is permitted because it is licensed" and draw the conclusion "it would not be permitted if it were not licensed." It is not the law of formal logic that requires or (even permits) such conclusions. Rather, it is general OFAC’s practice of only licensing that which is otherwise prohibited.
501.801 provides that:
"[g]eneral licenses have been issued authorizing under appropriate terms and conditions certain types of transactions which are subject to the prohibitions contained in [Chapter V of Title 31 of the CFR]."
In practice, this means that every general license issued by OFAC will cover at least some conduct (more on this below) that OFAC believes would be prohibited for U.S. persons to engage in but for the license. This is also the case with respect to specific licenses; they are not issued except to the degree that at least some, if not all, of what is authorized in the "Authorization" section of the license would be prohibited but for the license.
In addition, “[i]t is the policy of [OFAC] not to grant applications for specific licenses authorizing transactions to which the provisions of an outstanding general license are applicable” (501.801). Similar to the logic employed above, one may read the authorization section of a specific license to serve as implied statements on both the scope of the 200-level prohibitions that the specific license suspends, as well as the scope of/non-applicability of the general licenses that exist within a given sanctions program on the day that the specific license is issued. If one has a specific license, it means that the conduct covered is both i) subject to one or more 200-level prohibitions and ii) not otherwise generally licensed.
See also Case No. IA-2015-320200-1 (It is OFAC's policy not to issue specific licenses for transactions that have been generally licensed, are otherwise authorized, or are exempt) (emphasis added), and Case No. SY-2012-295630-1 (specific license with a year of validity left on it revoked as "unnecessary" after OFAC determined that the activities licensed were exempt from regulation).
2) ENDORSEMENT OF METHODOLOGY BY OFAC
In the administrative proceeding underlying Civil Enforcement Information - ExxonMobil Corporation (2017) and the ensuing litigation, OFAC needed to demonstrate, for the purposes of complying with the due process requirements of the APA, that the agency practice with respect to a particular interpretive point had been consistent over time.
More specifically, OFAC needed to demonstrate that it considered a U.S. person’s mere execution of a contract with an SDN acting on behalf of a non-sanctioned person to constitute a dealing in the blocked "property," specifically the "services," of an SDN.
In both Penalty Notice - ExxonMobil Corporation (see p. 4, FN 5) and the subsequent litigation, OFAC sought to demonstrate the “longstanding” nature of its interpretation of the term "services" with resort to a negative reading of a specific license issued in connection with the Zimbabwe program. OFAC argued that it issued a specific license for the execution of a contract with an SDN, which in turn demonstrated that OFAC's position was that the activity would have been prohibited but-for the license. In other words, the scope of the specific license necessarily served as a statement as to the scope of the 200-level blocking provision that would have prohibited the activity in the absence of the specific license. See License No. ZI-20 (2006); Case No. ZI-[redacted] (2009); 2016 letter from OFAC to Exxon re: same (ENF 42108), and comments thereto.
The same logic applies to general licenses, which, as stated in 501.801, are only issued in connection with activities that fall within the scope of at least one "prohibitions contained in [Chapter V of Title 31 of the CFR]."
While this methodology for inferring OFAC's views as to the scope of its prohibitions and general licenses has proven quite useful, it must be employed with caution, and only when the circumstances permit.
3) IMPORTANT CAVEATS
There are two extremely important caveats to the general proposition that what is licensed would be prohibited but for the existence of the license.
*NEGATIVE READINGS AND THE SCOPE OF EXEMPTIONS
The first is that while it may be presumed that any general or specific license will always cover at least some conduct that OFAC considers prohibited, it may be that certain licenses cover conduct that is actually exempt from regulation altogether.
In some cases, OFAC will preface a general license with an explicit provision that a GL authorizes activities "[t]o the extent not otherwise exempt from the prohibitions of [the relevant sanctions regulations]." See e.g. 542.526 and Iran GL D-1. This is most commonly done when there is an exemption or some constitutional issue that OFAC recognizes as potentially limiting the agency’s jurisdiction to regulate the conduct covered by the license, but where OFAC does not want to be seen as asserting jurisdiction over the activity by issuing the authorization without caveats, but also wants to leave vague its view on its own jurisdiction. This is also sometimes done in the specific license context. See Case No. SDGT-1432; LICENSE No. SDGT-1432.
However, it is not always the case that OFAC provides an explicit acknowledgement that what it purports to "authorize" may be exempt from regulation altogether. See e.g. § 560.516 Payment and United States dollar clearing transactions involving Iran (2006, Iran). Up through 2012, OFAC purported to "authorize" the processing of payments for transactions exempt pursuant to an applicable IEEPA exemption. Those transactions are, themselves, exempt from regulation.
OFAC corrected this error when it reissued the ITR as the ITSR in 2012. Currently, there is no mention at all in the ITSR about processing payments in connection with exempt transactions. This is because, as confirmed by Case No. IA-2012-299245-1 and other documents, OFAC recognizes that the processing of payments for such transactions is exempt from regulation altogether, so there is no authority on which an authorization can be based. 560.516 was a special case, however, because there was a subsection purporting to authorize conduct for which the entirety of the "authorization" was covered by an exemption. There are still many GLs that purport to "authorize" a range of activity of which at least some are exempt.
Take for instance FAQ # 802 (and comments thereto), in which OFAC discusses the relationship between carriage of mail "authorized" by a CACR GL and the carriage of mail that is exempt from regulation, where the carriage activity that is exempt is not explicitly mentioned in the GL or anywhere else in the CACR. The GL interpreted in that FAQ, 515.542(b), is such that one could very easily be forgiven for presuming that OFAC intended the GL to "occupy the field" as it related to the range of non-prohibited transactions related to the transportation of informational materials. No regulations explicitly state that all transactions incident to the import and export of informational materials is exempt, even though this is the case. That fact, combined with OFAC's practice of not "authorizing" exempt transactions, results in a wide range of transactions that are not prohibited but not otherwise explicitly mentioned in the regulations as being not prohibited.
Accordingly, the extent to which a GL purports to "authorize" activity can scarcely be read as a definitive statement that the entirety of what is authorized is also not exempt.
There are, however, cases in which the absence of an explicit authorization for a given activity in a set of sanctions regulations gives away OFAC's position that it considers the activity to be exempt. One example of this is, as discussed above, the processing of payments involving Iran that arise from exempt transactions. There is no mention of this in the ITSR precisely because it is exempt, and OFAC's omission of any mention of such payment processing gives this away.
*NEGATIVE READINGS WHEN AT LEAST SOME OF THE ACTIVITY COVERED IS NOT PROHIBITED FOR REASONS OTHER THAN EXEMPTIONS
As noted above, OFAC issues GLs when it considers at least some of the activity within the scope of the license to be such that, but for the license, it would be prohibited.
An exception to this general principle is when generally licensed conduct may fall within the scope of some other GLs issued pursuant to the same sanctions regulations.
Sometimes OFAC will explicitly cross-reference GLs that overlap in scope, but often it will not, so one cannot assume that generally licensed conduct is not also authorized by another GL. This can be important when conduct is covered by two GLs, and one has a caveat or carveout that another GL does not have. See for example Case No. CU-2015-318654-1, in which OFAC acknowledges that the addition to the CACR of 515.545(a) (Transactions related to information and informational materials) had the effect of authorizing much of the same sort of conduct that was covered by 515.577 (Authorized transactions necessary and ordinarily incident to publishing), except that using the 515.545(a) meant that no carveout for Cuban government entities applied.
Another important caveat to the principle that GL covers activity that would be prohibited but for the license is that, on occasion, OFAC will purport to "authorize" a range of activity of which most, but not all, is within the scope of a sanctions prohibition. See for example Iran GL D-1 (and comment 9 thereto). The GL characterizes as "authorized" certain offshore transactions (i.e. re-exports of EAR99 items to Iran) without regard to whether the transactions would be prohibited but for the existence of the GL. The characterization of a transaction as "authorized" is important for the question of whether U.S. persons may engage in transactions ordinarily incident to the underlying offshore transactions, but one cannot read the fact that they are within the scope of the license as evidence that OFAC deems them prohibited in principle. For more on this, refer to General Note and Associated Matrix Pertaining to U.S. Person Engagement in Transactions Incident to Transactions by Foreign Persons (System Ed. Note).
*POTENTIAL ENTITY OR PROPERTY-SPECIFIC "AFFIRMATIVE DETERMINATIONS"
Above we describe a methodology for discerning the scope of prohibitions, including the basic blocking prohibition that operates in a "self-executing" fashion. In other words, some licenses will imply that conduct would be prohibited but for the issuance of the license because it would entail a dealing in property in which a blocked person has an interest.
It is worth noting in this respect that, at the margins, there is a demonstrable gap between the reach of the basic blocking prohibition when an "affirmative determination" is made with respect to certain property vis-à-vis the reach of the basic blocking prohibition as it operates without any intervention from OFAC. Refer to General Note on the Scope of the Self-executing Blocking Prohibitions Depending on Whether OFAC has made an Affirmative Determination as to a Given Set of Facts (System Ed. Note).
In some edge cases, the issuance of a GL covering certain activity may amount to an implied "affirmative determination" that the activity would be prohibited but for the issuance of the license, such that it may or may not necessarily be the case that implied interpretation of the scope of the relevant blocking provision reflects OFAC's view on how it should be applied in all cases on a cross-programmatic basis. Examples of this include Libya - General License No. 4 (with Respect to Investment Funds in Which There Is a Blocked Non-Controlling, Minority Interest of the Government of Libya) and FNKSR - General License 4G (Authorizing Certain Transactions Involving the Panamanian Mall and Associated Complex, Soho Panama, S.A.) (Expired on June 15, 2017). FNKSR - General License 4G may or may not stand for the proposition that a blocked mall operator has an “interest” in all transactions involving tenants of the mall.
These issues are most likely to arise when a GL deals with a specific entity or piece of property—rather than broad categories of transactions with unidentified counterparties—as affirmative determinations of the sort described above made in that manner.