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Sanctions Considerations for Companies and NGOs Exporting Supplies to Iran

In an earlier post, we scrutinized the form and content of the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC)’s March 6, 2020 guidance pertaining to the provision of humanitarian goods and assistance to the people of Iran consistent with U.S. sanctions.

In this concluding post, we discuss the factors the international community should consider before exporting medicine and medical devices to Iran.

 “Maximum Pressure” U.S. Sanctions

 Iran is the Middle Eastern nation worst hit by coronavirus and its health ministry has estimated that one person dies from it every 10 minutes and 50 people become infected with it every hour.

 Meanwhile, the U.S. has maintained a “maximum pressure” sanctions campaign against Iran, including the May 2019 revocation of exemptions from secondary sanctions, meaning all major importers of Iranian oil were again excludable from U.S. markets.  That decision was “intended to bring Iran’s oil exports to zero, denying the regime its principal source of revenue.”  The Iranian economy since has fallen into deep recession.  Reportedly, the rial has lost more than 50% of its value against the dollar.

 On March 20, 2020, President Trump and Secretary of State Pompeo announced that they had did not intend to ease sanctions on Iran in light of the coronavirus.  Rather, Secretary Pompeo stated “the whole world should know that humanitarian assistance to Iran is wide open, it’s not sanctioned.”  This statement demonstrates the Trump Administration expects companies and non-governmental organizations (NGOs) wanting to send medicine and medical devices to Iran to rely on the previously authorized exemptions.

The critical inquiry is how practical it is for international parties to rely on those exemptions.

What Should Exporters be Thinking About?

OFAC maintains general licenses authorizing U.S. companies and foreign companies dealing in U.S.-origin items to export medicine and medical devices to Iran, providing certain conditions are satisfied.  In summary, those conditions are:

  1. the relevant items be properly classified as EAR99 under the Export Administration Regulations (EAR), which would include low-technology consumer goods such as coronavirus test kits, cotton swabs, face masks, and medical gloves, but would not include sophisticated diagnostic-imaging, decontamination, and oxygen-generation hospital equipment;
  1. the items must not contain certain chemicals;
  1. the items must not be on the OFAC List of Medical Devices Requiring Specific Authorization; and
  1. the payment and delivery terms must meet certain criteria, including that the exports must be shipped within 12 months of the date of the sale-purchase agreement, the purchasers and importers cannot be military, intelligence, or law enforcement, and all parties involved—including any Iranian financial institution that may issue a related Letter of Credit—cannot be a Specially-Designated National.

Even if an intended export does qualify under a medical general license, one of the largest practical hurdles for non-U.S. organizations shipping products to Iran will remain the identification of a bank willing to process any associated funds transfers.

Maximum civil liability for a violation of U.S. sanctions against Iran is just over USD 300,000 or twice the value of the prohibited transaction, per transaction, whichever is greater.  Threatened with these steep fines and/or potentially being denied access to the world’s largest economy and U.S. currency pursuant to an OFAC designation, financial institutions have been—and will continue to be—extremely careful not to deal with Iran.

Additional Considerations

In the meantime, OFAC has not published a new FAQ related to the provision of humanitarian goods and assistance to North Korea, another comprehensively sanctioned country, since North Korea continues to report zero cases.  This despite sharing borders with its largest trading partner China, the epicenter of the virus with more than 80,000 cases and 4,500 deaths, and South Korea, which was for a time the fourth worst affected country with more than 10,500 cases and almost 250 deaths.

However, Médecins Sans Frontières confirmed that, despite North Korea having imposed widespread domestic and international travel restrictions, forbidding foreigners and tourists from entering the country, authorities in Pyongyang had allowed a large inward transfer of medical supplies.  That particular shipment was possible due to an exemption to international sanctions issued by a Committee of the United Nations.  This followed a February 13, 2020 statement in support of international aid for North Korea by Secretary Pompeo, who tweeted:

The U.S. is deeply concerned about the vulnerability of the North Korean people to a #coronavirus outbreak. We strongly support and encourage the work of U.S. and international aid and health organizations to counter and contain the spread of coronavirus in the #DPRK.

Finally, according to a press release by the U.S. Department of the Treasury, all G7 Finance Ministers and Central Bank Governors, including U.S. Treasury Secretary Steven T. Mnuchin and U.S. Federal Reserve Chair Jerome H. Powell, respectively, are collaborating on actions to “help member countries address the human tragedy and economic challenge posed by COVID-19.”

© Copyright 2020 Squire Patton Boggs (US) LLP

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About this Author

Richard Gibbon Criminal Defense Lawyer Squire Patton Boggs Dubai
Attorney

Rich Gibbon is a member of our Government Investigations & White Collar Practice and focuses on white collar criminal defense, regulatory enforcement and internal investigations. He has been based in the Middle East for eight years and has garnered extensive experience counselling boards of directors and senior management across the Middle East and Africa, Levant, Europe, and South Asia through multi-agency, multi-jurisdictional financial crime investigations and enforcement actions. This includes multinational corporates in connection with anticorruption regimes and...

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