Today the Second Circuit Court of Appeals finally issued their decision in the United States of America v. Banki appeal. Some may remember the Banki case as the one in which a U.S. citizen was convicted for, among other charges, sending and receiving funds to and from Iran. There were a few notable things that came out of the decision that could have a major impact on both the administration and enforcement of the sanctions, as well as how U.S. persons approach funds transfers that may be prohibited by the Iranian Transactions Regulations. It will be interesting to see how the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) adjusts in light of the Second Circuit’s decision. Here are some of the more interesting things to come out of the decision:

1. No Fee required for funds transfer service. The Second Circuit clearly stated that the transfer of funds on behalf of another constitutes a service, regardless of whether a fee was paid in relation to that funds transfer. This takes the bite out of any argument that unless fees are exchanged that no transaction actually took place. In essence, the Second Circuit found that regardless of whether a fee was paid to Banki for the transfer of funds, that a benefit was derived in Iran and therefore a service had been provided.

2. Non commercial family remittance regulation is unclear. The Second Circuit found that 31 C.F.R. 560.516, the general license allowing for non-commercial family remittances between Iran and the U.S., was unclear and thus had to be viewed in the light most favorable to Banki. Although the regulation authorizes U.S. depository institutions to send and receive non-commercial family remittances to and from Iran, Banki argued that the regulation is not clear as to whether or not it applies only to U.S. depository institutions or whether it applies to all U.S. persons. The Second Circuit agreed with Banki and found that the regulation was unclear and therefore must be resolved in a light most favorable to the defendant. As such, the interpretation taken by the court was one in which the general license applied to all U.S. persons, not just U.S. depository institutions.

3. When viewing a criminal charge for unlicensed money transmitting, customers are defined as the original senders and recipients. The Second Circuit clarified that when interpreting who a customer is in a charge for an unlicensed money transmission that the customer is only defined as the original sender for the funds or the recipient of the funds. The court found that in this case Banki was an intermediary and therefore not entitled to a jury instruction that he was mere customer or beneficiary.

So should this decision lead to a collective sigh of relief for those who have been carrying out transactions with Iran? Not necessarily. While the Second Circuit’s finding regarding 31 C.F.R. 560.516 is promising for those who have been receiving and sending money via the hawala system, others should be concerned about the court’s interpretation that a service can be provided for no fee. A number of individuals and companies have in the past attempted to defend their transactions with Iran by stating that since they never received payment for their service that the transaction was no consummated and thus could not be held to have occurred. Under the Second Circuit’s interpretation of service, that defense will clearly not hold any weight and will also impair such arguments requesting mitigation of penalties under such a theory. Indeed, it is my opinion that the longer lasting and more far reaching legacy of this decision will be found in the court’s interpretation of services, as opposed to their contention that 31 C.F.R. 560.516 is ambiguous.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.