Earlier this week, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) amended Part 561 of Title 31 of the Code of Federal Regulations, which is the part that houses the Iranian Financial Sanctions Regulations (IFSR). Readers of this blog may know that the IFSR, in part codifies the sanctioning authority provided to the Executive Branch pursuant to various secondary sanctioning legal authorities, such as the Comprehensive Iran Sanctions Accountability and Divestment Act of 2012, Section 1245 of the National Defense Authorization Act of 2012, and the Iran Threat Reduction and Syria Human Rights Act of 2012 (TRA). This action was an updating of the regulations to codify the changes to the IFSR required by the TRA’s Section 503 and Section 504.

In amending the regulations OFAC carried out a number of changes to bring the IFSR into conformity with existing law. Here is a run down of the major changes:

1. OFAC eliminated the distinction between foreign government-owned or controlled financial institutions, other than central banks, and privately owned financial institutions with respect to the types of transactions that would subject them to sanctions liability. Both types of financial institutions are now subject to sanctions under section 561.203(a) of the IFSR.

2. OFAC added a new section, 561.328, to define the terms “reduce significantly”, “significantly reduced”, and “significant reduction”, used with respect to purchases from Iran of petroleum and petroleum products. That definition includes reductions of such purchases in terms of price or volume toward a complete cessation of such purchases.

3. OFAC added new paragraphs to implement the narrowing of the scope of the significant reduction exception to cover only certain financial transactions for bilateral trade between Iran and the significantly reducing country. OFAC clarified that such a narrowing scope still did not impact the ability of foreign financial institutions in countries that had received waivers from using Iranian funds to pay to third countries for exports of agricultural commodities, food, medicine, and medical devices.

4. OFAC included an interpretation to define what is meant by the requirement that goods and services originate in a country. That definition includes goods that have been grown, produced, manufactured, extracted, or processed, and goods that have been substantially transformed, in the country. The definition of services includes those performed in that country or services performed in the country to which the services are being exported by a citizen, national, or permanent resident of the country from which the services originate who is ordinary resident in that country. Brokering is not included within this definition.

It’s always nice when OFAC provides definitions and guidance on what terms or phrases mean. As I wrote about a few weeks ago there has been quite a bit of confusion surrounding the meaning of the TRA provisions. I believe these amendments to the IFSR provide clarity in that regard, although I will say that in this line of work facts always present themselves which lead to more confusion.

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@ferrariassociatespc.com.