Yesterday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a significant revision of 31 CFR Part 560, the Iranian Transactions Regulations (ITR) in order to implement Executive Order 13599 and subsections 1245 (c) and (d)(1)(b) of the National Defense Authorization Act of 2012(NDAA). To reflect these changes, the ITR have been renamed the “Iranian Transactions and Sanctions Regulations” (ITSR).

The central provision of E.O. 13599 and subsections 1345 (c) and (d)(1)(b) of the NDAA is the blocking (a.k.a. “freezing”) of all property and assets of the Government of Iran, the Central Bank of Iran, and all Iranian financial institutions that come into the possession of a U.S. person or entity. The revision of 31 CFR Part 560 is designed to define the scale and scope of these changes. OFAC has also added or revised a number of general licenses which authorize transactions that would otherwise be prohibited under the ITSR. Here is a list of some of the biggest changes:

560.211 – Prohibited transactions involving blocked property

This section implements the provisions of the NDAA and E.O. 13599. The new regulations block the Government Iran, the Central Bank of Iran, and all Iranian financial institutions, regardless of whether or not their name appears in the federal register or are listed by OFAC as a Specially Designated National (SDN). As noted by definition of financial institution in 560.324, this includes money service businesses such as saraafis or Informal Value Transfer Systems such as hawalas.

560.405 – Authorizing transactions ordinarily incident to a licensed transaction

This section authorizes transactions ordinarily incident to a licensed transaction except those not explicitly authorized, involving a debit to a blocked account or transfer of blocked property. One important change being implemented is that under the new regulations, only U.S. depository institutions or registered securities dealers can process funds transfers to effectuate licensed transactions. This is likely a response to the controversial United States v. Banki ruling. The effect is that U.S. persons, other than depository institutions or securities dealers, are prohibited from dealing with an Iranian saraafi unless specifically licensed to do so.

560.505 – Activities and services related to certain nonimmigrant and immigrant categories authorized

Section 560. 505 now authorizes U.S. persons to engage in all transactions necessary to export financial services to Iran in connection with an individual’s application for a non-immigrant E-2 visa or an immigrant visa under EB-5, provided the transfer of funds is routed through a third country financial institution. If an E-2 or EB-5 visa application is denied, the U.S. person is also authorized to return the funds held in escrow, in accordance with 560.516. Previously, a specific license was formerly required to export financial services; this new provision authorizes a general license.

The section also now authorizes the release of technology or software to students ordinarily resident in Iran who are attending school in the U.S., provided it is ordinarily incident and necessary to the educational program, it is EAR99, and does not otherwise require a license. The student cannot be enrolled as an employee or agent of the Government in Iran, a business entity or other organization in Iran.

560.508 – Telecommunications and mail transactions authorized

The text of the section has been expanded to clarify the authorizations. All transactions with respect to the receipt and transmission of telecommunications involving Iran are authorized. This does not include the provision, sale, or lease of equipment or technology, or capacity on telecommunications transmission facilities to Iran or any blocked entity.

560.519 – Authorizing certain journalistic activities

Journalistic activities and the establishment of Iranian bureaus by news organizations, defined as an entity whose primary purpose is the gathering and dissemination of news to the general public, are now authorized. However, the new regulation explicity it is forbidden to export or reexport, including for personal use, any items that appear on the Commerce Control List (CCL) of the Export Administration Regulations (EAR) or are controlled by the State Department under the International Traffic in Arms Regulations (ITAR), without prior authorization from OFAC. Examples of prohibited items include laptop computers, cell phones, and other hand-held wireless devices. In short, you must apply for a specific license authorization to take your laptop or cell phone to Iran.

560. 530 – General Licenses authorizing the export or reexport of agricultural commodities, medicine, and basic medical supplies

A new general license has been issued which authorizes the export and reexport of agricultural commodities, certain medicines, and certain medical devices. Previously only the sale of agricultural commodities was covered under a general license.

The definition of food includes vitamins and minerals, food additives and supplements, bottled drinking water, and seeds that germinate into items that are intended to be consumed by and provide nutrition to humans or animals in Iran. Not included in the definition of food are alcoholic beverages, cigarettes, gum, or fertilizer. Additionally certain items that normally would be considered food, including castor beans, castor beans seeds, certified pathogen-free eggs (unfertilized or fertilized), dried egg albumin, live animals, Rosary/Jequirity peas, nonfood grade gelatin powder, and peptones and their derivatives, are prohibited for the most part due to their use in the production of biological weapons.

For the purposes of the general license, medicine is given the same meaning as “drug” in section 201 of the Federal Food, Drug, and Cosmetic Act, with some exceptions. Excluded medicines, which are not eligible under the general license, include non-NSAID analgesics, cholinergics, anticholinergics, opioids, narcotics, benzodiazepenes, and bioactive peptides. The section also specifically states that the term “medicine” does not include cosmetics.

The license also covers basic medical supplies such as bandages, scalpels, syringes, and thermometers. A complete list of approved items can be found on OFAC’s website and will be published in the Federal Register. Exports falling under this general licensed must be shipped within 12 months of the execution of the contract. Medical devices which do not appear on the list require a specific license to export.

A separate general license is included to authorize necessary arrangements for the exportation or reexportation of products which require a specific license. Payment is also covered under a separate general license found at 31 C.F.R. 506.532.

560.543 – Authorizing the sale of real property in Iran

Under the new regulations, U.S. persons are authorized to conduct “transactions necessary and ordinarily incident to the sale of physical property in Iran” and to transfer the proceeds to the United States. Covered transactions include, but are not limited to, hiring persons in Iran to perform services necessary for the sale of real property, such as an attorney, funds agent, and real estate broker. However, the general license is only applicable to property located in Iran that was either: 1) acquired before the individual became a U.S. person; or 2) inherited from persons in Iran.

This is one of the biggest changes for the Iranian American community and should severely cut down on the number of license applications submitted to OFAC. Also, it will allow Iranian Americans to divest from Iran in a more expeditious manner.

560. 544 and 560. 551 – Authorization for certain educational activities and student loan payments

OFAC amended the ITSR by providing a general license authorizing U.S. persons in third countries to engage in certain educational activities with persons ordinarily resident in Iran. Section 560.544 is only applicable to accredited undergraduate degree-granting academic institutions organized under the laws of the United States or any jurisdiction within the United States with undergraduate educational programs or undergraduate exchange programs in countries other than the U.S. or Iran. U.S. academic institutions may engage in certain activities only with respect to such programs in the humanities, social sciences, law, and business. Authorized activities pursuant to such programs include: 1) recruiting, hiring and employing faculty and staff who are ordinarily resident in Iran; 2) recruiting, enrolling and educating students who are ordinarily resident in Iran; 3) entering into and performing exchange agreements with Iranian universities; 4) providing scholarships to students ordinarily resident in Iran; and 5) recruiting individuals ordinarily resident in Iran such as scholars, artists, performers, speakers, alumni, and students to participate in events such as conferences, lectures, film series, research workshops, exhibitions, theatrical and musical performances, and continuing education courses.

Furthermore, U.S. undergraduate institutions are authorized to release technology or software to students ordinarily resident in Iran only if each condition is met: 1) the release is ordinarily incident and necessary to the undergraduate educational program or undergraduate exchange program at the U.S. undergraduate institution in which the student is enrolled; 2) the technology or software being released is designated as EAR99 under the Export Administration Regulations, or constitutes Educational Information not subject to the EAR; 3) the release does no otherwise require a license from the Department of Commerce; 4) the student to whom the release is made is not enrolled in the undergraduate educational program, or participating in the undergraduate exchange program as an agent, employee, or contractor of the Government of Iran or a business entity or other organization in Iran.

OFAC may issue a specific license authorizing accredited graduate degree-granting academic institutions organized under the laws of the United States or any jurisdiction within the United States with graduate educational programs or graduate exchange programs in third countries to recruit hire and employ faculty and staff ordinarily resident in Iran for such third-country exchange programs in the humanities, social sciences, law, and business.

In addition, OFAC has provided a general license authorizing student loan payments from persons in Iran. Section 560.551 authorizes United States depository institutions and private loan companies to engage in all transactions necessary to collect, accept, and process student loan payments from persons in Iran or ordinarily resident in Iran.

560.545 – Authorizing certain activities of U.S. nongovernmental organizations supporting human rights and democratic freedoms in Iran

The ITSR now provides specific license authorization for certain U.S. nongovernmental organizations to engage in projects and activities related to Iran that are designed to support human rights and democratic freedoms. On a case-by-case basis, OFAC may issue a specific license to authorize nongovernmental organizations and other entities organized under the laws of the United States, or any jurisdiction within the United States, or located in the United States to engage in the projects and activities designed to directly benefit Iranian people.

For example, a specific license may be issued for: 1) conferences and training to support human rights, democratic freedoms, and democratic institutions, and to meet basic human needs; and 2) the establishment and support of civic organizations.

Furthermore, OFAC may issue specific license authorization for U.S. persons to engage in projects in or related to Iran that are designed to directly benefit the Iranian people including: 1) the provision of donated professional medical services; 2) projects including exchanges and technical trainings to improve the flow of public information through independent media available to the Iranian public; and 3) certain targeted educational programs and environmental projects provided such programs are not in furtherance or potentially in furtherance of the Iranian military, industrial or technological infrastructure.

560.550 – Procedures for funds transfers involving noncommercial, personal remittances to or from Iran

Section 560.550 clarifies the general license procedures for funds transfers involving noncommercial, personal remittances to or from Iran. A “noncommercial personal remittance” does not include charitable donations to or for the benefit of an entity or funds transfers for use in supporting or operating a business, including a family-owned enterprise. Persons wishing to make a charitable donation to benefit an Iranian entity must receive specific license authorization from OFAC.

The transfer of a noncommercial personal remittance to or from Iran or for or on behalf of an individual ordinarily resident in Iran, other than whose property is blocked pursuant to 560.211, is authorized by general license only if: 1) the transfer is processed by a United States depository institution or United States registered broker or dealer in securities; 2) the transfer does not involve debiting or crediting an Iranian account; and 3) the transfer is not by, to, or through the Government of Iran. Accordingly, U.S. persons are prohibited from dealing directly with a saraafi, money service business (MSB) or hawalas, wherever located. However, United States depository institutions or United States registered brokers are permitted to engage or deal with third-country MSBs or hawalas in processing authorized transfers.

Due to compliance concerns, many depository institutions are hesitant to deal with money service businesses wherever located. For U.S. persons who wish to transfer funds to Iran using a saraafi, it is suggested that they apply for a specific license from OFAC.

Additionally, OFAC explicitly authorizes that a U.S. person may physically carry to an individual in Iran or ordinarily resident in Iran if such funds are a noncommercial personal remittance. Prior to the inclusion of 560.550(d), it was unclear whether a U.S. person could physically transfer a noncommercial personal remittance to an individual in Iran. However, 560.550(d) requires that the funds carried by the U.S. person are being carried on his or her own behalf, and not on behalf of another person, and the funds may not be given to an individual whose property and interests are blocked pursuant to section 560.211.

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.