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Office of Foreign Assets Control (OFAC) Gets Hot, Bothered on Iran and Cuba: How Economic Sanctions Work Today

People who practice U.S. economic sanctions law like to talk about how sanctions are policy-oriented, or an engine of U.S. foreign policy.  Whereas some laws may be more opaquely political, economic sanctions and embargoes seem to express most bluntly how international leverage works through regulation.  And yet, a few recent regulatory developments show that the direction that sanctions take is not always predictable.

The U.S. Department of Treasury, Office of Foreign Assets Control (“OFAC”) has had a raucously busy year.  A torrent of development in laws and regulations on Iran served as the unsurprising focus of this year’s OFAC symposium, held on March 19, 2013, in Washington D.C.  Among the developments were sanctions imposed on non-U.S. banks, a new executive order related to the purchase of petroleum and petrochemical products from Iran, an expanded scope of the Iran Transactions and Sanctions Regulations to companies “owned or controlled” by U.S. companies, and a new statute that targets sectors of the economy related to goods and services to Iran, including secondary financial transactions in energy, shipping, shipbuilding, precious metal, and graphite.  See our recent posts on Iran here and here.

Perhaps the most striking aspect of the Iran sanctions program is its proliferation into not only additional laws and regulations, but also additional regulatory regimes.  The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”), the National Defense Authorization Act for 2012 (“NDAA”), and Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITR”), have created a polyglot system focused on individual sectors of the economy.  OFAC presenters at the March symposium gave the sense of a proliferation of laws that is undoubtedly aimed at accomplishing U.S. foreign policy goals.  But the laws are paradoxically both targeted (at industries, vessels, banks) and incredibly expansive in jurisdiction.  The system is the embodiment of the powerful yet somewhat disorganized U.S. government piling on everything it can to economically overwhelm Iran.  The Iran program also serves as a good case study of how far and wide economic sanctions can be made to reach.  If legislation of past years has proved anything, it is that the U.S. Congress appears ready to use any and all means within its legislative authority to sanction Iran.  Insofar as Congress is able to map out the reach of the U.S. financial system and economy further, it seems likely that additional sanctions will be applied.

Developments since the symposium have highlighted other political aspects of U.S. economic sanctions.  One event covered extensively in the mainstream press was Jay-Z and Beyonce’s trip to Cuba.  As has been reported in the press, Members of Congress sent a letter to OFAC following the trip to inquire about travel authorization for the pair.  While most travel to Cuba is banned under the embargo, travel is allowed for certain purposes, including through educational exchanges.  The Cuba sanctions program remains more robust than most, in large part because of the travel ban and the breadth accorded to the sanctions under the Trading With the Enemy Act.

But those aspects, in particular the travel ban, seem to be a remnant of past policy that is hard to remove, rather than reflections of current policy.  The expansion of certain travel allowances under the Obama administration are reflections of that policy change.

The Jay-Z and Beyonce trip highlights that, in light of all of the sanctions that have been imposed under the Iran program, as yet there is no comprehensive travel ban.  Given the welcoming proximity and climate of Cuba, the travel ban there makes some sense in the context of a goal to economically isolate the country.  Put another way, the U.S. may not need to ban travel to Iran in the way it needs to isolate transactions related to petroleum products or other natural resources.  But the U.S. approach to Cuba logically includes depressing economic development.  For that reason, in spite of the highly anachronistic personal freedom limitations involved in banning travel to Cuba, it seems highly unlikely that full-fledged U.S. tourism to Cuba will be permitted while the sanctions still last.  Jay-Z and Beyonce’s trip serves as a reminder of the way that OFAC is approaching sanctions programs now: even comprehensive sanctions are targeted at economic sectors, and every target will likely be approached according to leverage to be gained in a particular economy.

Copyright © 2014, Sheppard Mullin Richter & Hampton LLP.

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