174. What are definitions for the following NDAA terms: "significant financial transaction," "knowingly," "owned or controlled by the government of a foreign country," "food, medicine, and medical devices," "foreign financial institution," "Iranian financial institution," "significantly reduced," and "whether the price and supply of petroleum and petroleum products produced in countries other than Iran is sufficient"?
"significant financial transaction"
The Iranian Financial Sanctions Regulations (IFSR), which implement section 104(c) of the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA), identify factors to be used in determining what is significant (as it relates to transactions) in 31 C.F.R § 561.404, which allows the Secretary of the Treasury to consider the "totality of the facts and circumstances" while providing a list of seven broad factors that can play a role in the determination, including: (1) the size, number, and frequency of transactions; (2) the nature of the transaction(s); (3) the level of awareness of management and whether the transaction(s) are part of a pattern of conduct; (4) the nexus between the transaction(s) and a blocked person; (5) the impact of the transaction(s) on statutory objectives; (6) whether the transaction(s) involve deceptive practices; and (7) such other factors that the Secretary deems relevant on a case-by-case basis. Treasury anticipates closely modeling the definition of "significant" for National Defense Authorization Act (NDAA) purposes on the IFSR.
We anticipate utilizing a broad definition of "financial transaction" that encompasses "any transfer of value involving a financial institution." The term "transaction" includes, but is not limited to, the following:
• The holding of nostro, vostro, or loro accounts for or with the Central Bank of Iran or designated banks, such as Bank Melli Iran and/or Bank Saderat Iran, including any of their branches or subsidiaries worldwide (collectively the "Listed Parties");
• The provision of trade finance and/or letter of credit services for or with Listed Parties;
• The provision of guarantees or similar instruments for or with Listed Parties;
• The provision of investment products or instruments for Listed Parties and/or the participation with Listed Parties in investments;
• The receipt or origination of wire transfers on behalf of or involving Listed Parties;
• The acceptance of commercial paper (both retail and wholesale) drawn on Listed Parties, and the clearance of such paper (including, but not limited to, checks and similar drafts);
• The receipt or origination of ACH or ATM transactions with Listed Parties; and/or
• Any other transactions for or on behalf of, directly or indirectly, Listed Parties and/or with Listed Parties serving as correspondents, respondents, or beneficiaries. That would include transactions where the Listed Parties do not appear on the face of the transaction but where the transaction is undertaken with knowledge of the involvement of a Listed Party based on a relationship that exists through a third party such as a money exchange or trading house.
"knowingly"
The IFSR defines "knowingly" with respect to conduct, a circumstance, or a result, to mean that an entity or individual had actual knowledge, or should have known, about the conduct, the circumstance, or the result. 31 C.F.R. § 561.314. Treasury anticipates closely modeling the definition of this term on the IFSR.
"owned or controlled by the government of a foreign country"
The Iranian Transactions Regulations ("ITR") define "an entity owned or controlled by the Government of Iran" in section 560.313. Borrowing from that definition, a financial institution "owned or controlled by the government of a foreign country" would be deemed to include a financial institution in which a foreign government owns a 50% or greater interest or which is otherwise controlled by a foreign government. Treasury anticipates closely modeling the definition of this term under the NDAA on the ITR definition.
"food, medicine, and medical devices"
"Food": The October 2011 general license for the ITR and the Sudanese Sanctions Regulations ("SSR") authorizing certain food exports to Iran and Sudan defines "food" as "items that are intended to be consumed by and provide nutrition to humans or animals in Iran – 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 in Iran." The regulations also specify that food does not include alcoholic beverages, cigarettes, gum, or fertilizer. Treasury anticipates closely modeling the definition of this term under the NDAA on this license definition.
"Medicine": ITR section 560.530(e)(2) states that: "For the purposes of this part, the term medicine has the same meaning given the term ‘drug’ in section 201 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321) but does not include any item listed on the Commerce Control List in the Export Administration Regulations, 15 CFR part 774, supplement no. 1 (excluding items classified as EAR99)." Similarly, under the Trade Sanctions Reform and Export Act ("TSRA"), 22 U.S.C. 7201(5), "[t]he term ‘medicine’ has the meaning given the term "drug" in section 321 of title 21." Treasury anticipates closely modeling the definition of this term under the NDAA on the ITR and TSRA.
"Medical Devices": ITR section 560.530(e)(3) states that: "For the purposes of this part, the term medical device has the meaning given the term ‘device’ in section 201 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 321) but does not include any item listed on the Commerce Control List in the Export Administration Regulations, 15 CFR part 774, supplement no. 1 (excluding items classified as EAR99)." Similarly, under TSRA, 22 U.S.C. 7201(4), "[t]he term "medical device" has the meaning given the term ‘device’ in section 321 of title 21." Treasury anticipates closely modeling the definition of this term under the NDAA on the ITR and TSRA.
"foreign financial institution"
"Foreign financial institution" is defined in section 1245 of the NDAA with reference to section 104(i) of CISADA (22 U.S.C. § 8513(i)). As further defined in the IFSR, a "foreign financial institution" is "any foreign entity that is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or credits, or purchasing or selling foreign exchange, securities, commodity futures or options, or procuring purchasers and sellers thereof, as principal or agent. It includes but is not limited to depository institutions, banks, savings banks, money service businesses, trust companies, securities brokers and dealers, commodity futures and options brokers and dealers, forward contract and foreign exchange merchants, securities and commodities exchanges, clearing corporations, investment companies, employee benefit plans, and holding companies, affiliates, or subsidiaries of any of the foregoing." 31 C.F.R. § 561.308. It does not include "the international financial institutions identified in 22 U.S.C. 262r(c)(2), the International Fund for Agricultural Development, or the North American Development Bank." 31 C.F.R. § 561.308. Treasury anticipates closely modeling the definition of this term under the NDAA on the IFSR.
"Iranian financial institution"
This term is defined in E.O. 13599 as: "a financial institution organized under the laws of Iran or any jurisdiction within Iran (including foreign branches), any financial institution in Iran, any financial institution, wherever located, owned or controlled by the Government of Iran, and any financial institution, wherever located, owned or controlled by any of the foregoing." Such financial institutions include, but are not limited to, any foreign entity that is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or credits, or purchasing or selling foreign exchange, securities, or commodity futures or options, or procuring purchasers and sellers thereof, as principal or agent. It includes but is not limited to depository institutions, banks, savings banks, money service businesses, trust companies, insurance companies, securities brokers and dealers, commodity futures and options brokers and dealers, forward contract and foreign exchange merchants, securities and commodities exchanges, clearing corporations, investment companies, employee benefit plans, and holding companies, affiliates, or subsidiaries of any of the foregoing.
"significantly reduced"
The Secretary of State, in consultation with the Secretary of the Treasury, the Secretary of Energy, and the Director of National Intelligence, will make determinations as to whether any country has significantly reduced the volume of Iranian crude oil purchases. Any determinations will be preceded by a process of rigorous due diligence. The Secretary of State intends to consider relevant evidence in assessing each country’s efforts to reduce the volume of crude oil imported from Iran, including the quantity and percentage of the reduction in purchases of Iranian crude oil over the relevant period, termination of contracts for future delivery of Iranian crude oil, and other actions that demonstrate a commitment to substantially decrease such purchases.
"whether the price and supply of petroleum and petroleum products produced in countries other than Iran is sufficient"
The President will make a determination, based on the reports required by subparagraph (A) of Section 1245(d)(4) of the NDAA, as to whether the price and supply of petroleum and petroleum products produced in countries other than Iran is sufficient to permit purchasers of petroleum and petroleum products from Iran to reduce significantly in volume their purchases from Iran. [02-14-2012]
1) Since the posting of this FAQ, the NDAA sanctions were implemented in the IFSR at Sec. 561.203, such that the definitional and interpretive provisions of the IFSR apply to the NDAA sanctions, and there are also certain definitional and interpretive provisions implemented specifically for the NDAA sanctions.
Iranian financial institution is defined at 561.320; "Reduce significantly, significantly reduced, and significant reduction" is defined at §561.328; "Foreign financial institution owned or controlled by the government of a foreign country" is defined at 561.323; "Listed parties" corresponds to definition of "Designated Iranian financial institution" at 561.324.
Agricultural commodities, food, medicine, and medical devices is defined at 561.327, with definitions mirroring those found in TSRA.
For commentary on the cross-programmatic interpretation of the term "knowingly," see 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).
"Financial transaction" is defined at 561.325 to mean "any transfer of value involving a financial institution." The illustrative examples listed here are not found in the regulations, however, so in that sense the FAQ is interpretive guidance. Compare FAQ # 542, providing the same list in connection with Russia-related secondary sanctions.
Other examples of "financial transactions" not appearing in the regulations are given at FAQ 178 and FAQ 176.