It was long rumored that the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) would issue a new round of Frequently Asked Questions (“FAQs”) relating to the lifting of sanctions under the Joint Comprehensive Plan of Action (“JCPOA”) – the recent nuclear agreement between the United States, other major world powers, and Iran. That new round of FAQs came to us last week as OFAC updated its Iran FAQs to include close to a dozen more FAQs – most of which related to the operations of U.S.-owned or –controlled foreign entities seeking to benefit from the issuance of General License H.

Much of what was included was consistent with expectations; nothing was a particular surprise (a good thing for those in the habit of giving out legal advice!). As such, it is unclear whether the new FAQs will provide much aid to parties interested in entering Iran but reluctant to do so out of concern over the potential application of U.S. sanctions to their Iran-related activities, as the FAQs are likely consistent with the legal guidance that sanctions lawyers are already providing to clients.

Some, however, expressed interest to me about certain new language in the FAQs that looks – at least on the surface (as will become clear) – as if it expands the scope of current license authorizations (caveated with the fact that the FAQs – as OFAC is keen to remind us – are “explanatory only and [do] not have the force of law” and thus cannot effect the scope of current law).  Specifically, that new language is found in FAQ K.14.

But before we explore that language, let’s first get some background information: Pursuant to Annex II of the JCPOA, OFAC issued General License H, which authorized U.S.-owned or –controlled foreign entities:

To engage in transactions, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran that would otherwise be prohibited by 31 C.F.R. § 560.215.

Effectively, General License H nullified the prohibition located at 31 C.F.R. § 560.215 and imposed pursuant to § 218 of the Iran Threat Reduction Act (“TRA”). This provision subjected U.S.-owned or –controlled foreign entities, defined broadly at 31 C.F.R. § 560.215, to all of the prohibitions of the Iranian Transactions and Sanctions Regulations (“ITSR”), 31 C.F.R. Part 560. In other words, a “U.S.-owned or –controlled foreign entity” – including entities at which U.S. persons “controlled the actions, policies, or personnel decisions” of an otherwise non-U.S. entity – were treated as if they were U.S. persons (though not technically regarded as “U.S. persons,” as OFAC points out) and thus made subject to the comprehensive U.S. trade and investment embargo with Iran.

However, General License H did contain certain exceptions that limited the scope of the license authorization. For instance, Note 1 to paragraph (a) of General License H stated:

This general license does not authorize the re-exportation from a third country of any goods, technology, or services prohibited by 31 C.F.R. § 560.205 [the prohibition on the re-exportation of goods, technology, or services to Iran or the Government of Iran by persons other than U.S. persons].

Moreover, paragraph (c) of General License H stated that the license does not permit transactions involving:

The exportation, re-exportation, sale, or supply, directly or indirectly, from the United States of any goods, technology, or services prohibited by 31 C.F.R. § 560.204 [the prohibition on the export, re-export, sale, or supply of goods, technology, or services to Iran], without separate authorization from the Office of Foreign Assets Control (OFAC)…

These background facts are important when considering the language that OFAC employs at FAQ K.14. Pursuant to FAQ K.14, OFAC asks whether General License H authorizes a U.S. person [effectively meaning a U.S. entity] to alter its policies or procedures, or the policies or procedures of its owned or controlled foreign entity, to allow the U.S.-owned or –controlled foreign entity to establish a physical presence inside Iran.

OFAC responds in the following manner:

Yes. GL H authorizes a U.S. parent to alter its policies and procedures, and/or the policies and procedures of its owned or controlled foreign entity, to allow the U.S.-owned or –controlled foreign entity to establish a physical presence inside Iran. U.S.-owned or –controlled foreign entities, however, continue to be prohibited from the exportation, re-exportation, sale, or supply, directly or indirectly, from the United States of any goods, technology, or services if the items are destined for Iran or the Government of Iran at the time they leave the United States.

The bolded language is the language of interest here, as I have not seen OFAC use similar language before – including in the Note and subparagraph to General License H cited above. What is it doing here, and what effect does it have on the scope of the general license?

OFAC urges readers to turn to FAQ K.13 for a fuller explanation. FAQ K.13 states, in relevant part:

Non-U.S. persons – including U.S.-owned or –controlled foreign entities – also continue to be prohibited from re-exporting from a third country items containing 10 percent or more U.S.-controlled content, if undertaken with knowledge or reason to know that the re-exportation is intended specifically for Iran or the Government of Iran. However, the exportation or re-exportation of U.S.-origin goods that are designated as EAR99 from a third country to Iran without knowledge or reason to know at the time of export from the United States that the goods are intended specifically for Iran is not prohibited.

In other words, what OFAC is saying is that – for example – if certain goods are exported from the United States to Germany, where they are held in stock, those goods can be re-exported from Germany to Iran at some later date if – at the time of export from the United States – the goods were not intended specifically for Iran. Effectively, that is a restatement of the prohibitions located at 31 C.F.R. §§ 560.204 and 560.205, but dressed in alternative language.

FAQ K. 13 and 14 are thus consistent with the prohibitions of the ITSR, and neither expand the scope of existing license authorizations nor run contrary to current U.S. sanctions prohibitions. It is important for those parties reading through the Iran FAQs to have an understanding of the prohibitions of the ITSR – to which the FAQs refer – prior to winning confidence that their intended transactions are permissible.