If you’ve ever heard me speak at a conference or seminar on U.S. sanctions, then you’ll know one of my favorite sayings is: “when analyzing regulations administered by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) construe the prohibitions broadly, and the exemptions and authorizations narrowly.” This is almost always true. However, there’s exceptions to the rule, and in the Iranian Transactions and Sanctions Regulations, there is one glaring exception to that rule that may cause confusion: 31 C.F.R. § 560.509–Certain Transactions Related to Patents, Trademarks, and Copyrights Authorized.
The relevant (exceptional) language of this regulation–specifically, 31 C.F.R. § 560.509(a)(1)–is as follows:
“All of the following transactions in connection with patent, trademark, copyright or other intellectual property protection in the United States or Iran are authorized, including importation of or dealing in Iranian-origin services, payment for such services, and payment to persons in Iran directly connected to such intellectual property protection: (1) The filing and prosecution of any application to obtain a patent, trademark, copyright or other form of intellectual property protection; (2) The receipt of a patent, trademark, copyright or other form of intellectual property protection; (3) The renewal or maintenance of a patent, trademark, copyright or other form of intellectual property protection; and (4) The filing and prosecution of opposition or infringement proceedings with respect to a patent, trademark, copyright or other form of intellectual property protection, or the entrance of a defense to any such proceedings.”
Given this language, the question has been raised as to whether this section would allow U.S. banks to process payments related to IP protection services in Iran–falling within the enumerated subsections–if those services are provided by a non-U.S. person to another non-U.S. person, both of whom are outside of Iran.
One possible answer is yes. Although the prohibitions of the ITSR may be triggered by the U.S. banks’ processing of such a payment, 31 C.F.R. § 560.509 authorizes certain transactions in connection with patent, trademark, copyright or other IP protection in the in the United States or Iran “including importation of or dealing in Iranian-origin services, payment for such services, and payment to persons in Iran directly connected to such [IP] protection…” Because § 560.509 expressly authorizes certain categories of transactions in connection with patent, trademark, copyright, or other IP protection, including “…payment for such services…” it appears that the authorization contained in § 560.509 would permit such a transaction.
Of course, a counter argument to this is that the language–“payment for such services”–is only in relation to payments related to Iranian-origin services falling under the regulation, and that a non-U.S. person outside of Iran would not necessarily be providing “Iranian-origin services” despite the fact that the activities are related to protecting intellectual property in Iran. Also, an additional counter argument could be made that the authorization only extends to those transactions that are prohibited by the ITSR in the first place, and since the provision of such services–absent the U.S. banks’ clearing of the USD payment–would not involve any U.S. persons, the regulation would not apply.
I believe the first argument may fail for the following reason. The “payment for such services” language is one of several illustrative examples of the types of transactions authorized by § 560.509. Thus, the language could be read as all of the following transactions related to IP protection with the U.S. or Iran, including importation or dealings in Iranian-origin services, OR payment for authorized IP protection services, or payments to Iran in connection with such IP protection. The obvious argument in reply is that the language “payment for such services” corresponds with the illustrative example of importation and dealings in Iranian-origin services by using the word “services,” whereas the first part of the regulation only says “transactions” for IP protection. That begs the question, however, as to whether OFAC would need to spell out authorization for payment related to Iranian origin services authorized by § 560.509, as 31 C.F.R. § 560.516 already authorizes U.S. depository institutions to process funds transfers related to transactions authorized under 31 C.F.R. Part 560. Further, it should be noted that if such an argument were correct, there would be no need for the third illustrative example of “payments to persons in Iran directly connected to such intellectual property protection.” Further, the transactions that § 560.509 authorizes are not those identified in the illustrative examples; but rather, those described in the enumerated categories, the illustrative examples are merely ancillary transactions that may be within the scope of the authorization as they relate to those in the enumerated categories–and are therefore permissible–but not necessarily the transactions which the regulation seeks to authorize.
Further, some may argue that the authorization could not extend to U.S. banks’ processing transactions related to these IP services by non-U.S. persons for non-U.S. persons, because the IP services would need to be either received or provided by a U.S. person in order for the authorization to apply. In other words, § 560.509 could not authorize that which is not prohibited by the ITSR. This would normally be true, however, the express language of § 560.509 does not limit the authorization to the provision or receipt of IP protection services by or to U.S. persons. Nor does the regulation state that it only authorizes transactions to the extent that they are prohibited by the ITSR. Indeed, § 560.509 does not authorize the provision of services to Iran or dealings in Iranian-origin services related to IP protection. It authorizes transactions made in connection with broad categories of IP protection services. Although, the enumerated categories could read as specific transactions, the illustrative examples go to show that it is not only those specific transactions that are authorized, but any transactions in connection with those categories of IP protection related transactions.
Was the above confusing? If you answered yes, you’re not alone. Reasonable minds can differ on these issues, and until OFAC issues public guidance on the extent of this authorization’s scope there may be many lingering questions. That said, the language of 31 C.F.R. § 560.509 appears to offer a broad authorization so as to not interfere with IP protection services despite the embargo targeting Iran. This would thus make the exception to the rule that OFAC’s general license authorizations should be narrowly construed, and would suggest that U.S. banks could process transactions in connection with to the enumerated categories of Iran-related IP protection services occurring between non-U.S. persons. Given that the regulation can be read several different ways, I would love to hear others thoughts in the comment section below.
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 firstname.lastname@example.org