Client Alert
Treasury Expands Sanctions on Iranian Financial Institutions; Census Confirms BIS Rules for EEI Filing Requirements Under New MEU Rule

October 9, 2020

By: Edward D. Greenberg and Oliver M. Krischik

Secondary Sanctions on Iranian Financial Institutions
On October 8, 2020, the U.S. Department of the Treasury designated 18 Iranian banks under Executive Order (E.O.) 13902 (2020), which effectively extends secondary sanctions to Iran’s entire financial sector. As a result, foreign financial institutions and companies may be subject to secondary sanctions, Specially Designated National (SDN) designations, or enforcement actions for engaging in significant transactions with Iranian banks designated under E.O. 13902. As part of this action, the Office of Foreign Assets Control (OFAC) issued General License L and FAQs 842 through 847 on their website. The major takeaways from this action are:

  • General License L authorizes U.S. and foreign companies to continue engaging in activity involving Iranian banks if that activity is authorized or exempt under the Iranian Transactions and Sanctions Regulations (ITSR). Remember, many Iranian banks are SDNs under multiple sanctions programs (e.g., Bank Markazi, Bank Saderat, Iran Overseas Investment Bank, Iran Export Bank, Ansar Bank, Mehr Bank, Bank Hekmat, Bank Mellat, Parsian Bank, Sina Bank, Bank Melli, Bank Sepah, Post Bank of Iran, Day Bank, Bank Tejarat, and others) and cannot be used for activity under ITSR licenses and exemptions. Those banks are still restricted even if an ITSR license or exemption applies.
  • OFAC is providing foreign banks and companies with a 45-day wind down period to end all activity prohibited under the E.O. 13902 designation action (i.e., by November 22, 2020).
  • OFAC’s policy regarding non-U.S. humanitarian activities remains in effect. Under this policy, foreign companies and banks would not generally risk exposure to U.S. sanctions for engaging in transactions for the purpose of supplying goods to Iran to ensure the protection of life, health, and safety, provided that the goods are intended solely for use in Iran. These types of goods include products for sanitation, hygiene, medical care, medical safety, manufacturing safety, soap, hand sanitizers, ventilators, respirators, personal hygiene products, diapers, infant and childcare items, personal protective equipment, manufacturing safety systems, safety devices, alarm systems, and ventilation systems.
  • While the E.O. 13902 secondary sanctions and designation criteria target significant transactions with Iranian banks, OFAC has yet to issue guidance on what types of activity would be considered significant or non-significant here. OFAC expects to issue additional guidance on what types of activity may be non-significant and, therefore, non-sanctionable even after the end of the wind down period. Based on OFAC’s prior guidance on defining “significant” transactions in other contexts, we expect that high value transactions, patterns of a high volume of transactions, and investments may be deemed significant.

As E.O. 13902 provides specific secondary sanctions for foreign financial institutions, we expect that foreign banks will take an increasingly strict stance against Iran-related transactions. Foreign banks may send out inquiries to forwarder customers that handle Iran-related activity as the banks conduct internal risk assessments.

In light of these new secondary sanctions, it would be prudent for foreign forwarders to review any Iran-related business to determine:

  1. The extent of Iran-related business and the involvement of Iranian financial institutions in those transactions;

  2. The lines of Iran-related business that are authorized under ITSR licenses or exemptions;

  3. The lines of Iran-related business that involve the supply of goods to Iran to ensure the protection of life, health, and safety; and

  4. Any steps needed to wind down Iran-related business that involves Iranian financial institutions and does not fall into categories (b) or (c) above.

Once OFAC releases its guidance on how to distinguish between significant (i.e., sanctionable) and non-significant (i.e., non-sanctionable) activity, forwarders could then take steps to fully wind down business that would be prohibited after November 22, 2020. We will send out another alert once OFAC issues additional guidance on these issues.

Census Guidance on EEI Filings Requirements Under New BIS MEU Rule
On October 8, 2020, the U.S. Census Bureau (Census) issued guidance related to questions it had received concerning the new EEI filing requirements for exports to the People’s Republic of China (PRC), Russia, and Venezuela that came into effect on June 29, 2020, and September 27, 2020. Census’s guidance below is consistent with guidance previously provided by BIS on these issues:

  • EEI filings are required for the export of all non-EAR99 items from the U.S. to the PRC, Russia, and Venezuela, unless the shipment is eligible for License Exception GOV. This requirement is set forth in 15 CFR § 758.1(b)(10).

  • This rule does not apply to EAR99 items. EAR99 items may still require EEI filings under other Export Administration Regulations (EAR) or Foreign Trade Regulations (FTR) rules.

  • If EEI filing for exports to the PRC, Russia, or Venezuela is required, then the ECCN must be reported in AES.

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