Over the course of my career, I have been blessed to have had the opportunity work with companies and individuals around the world, many of which have been located in the Persian Gulf countries. Given the impact of U.S. sanctions targeting Iran, Iran’s geographic proximity to these countries, and Iran’s traditional business ties to these countries, in particular, the United Arab Emirates, I have had a chance to work with those folks on many issues relating to compliance with sanctions regulations targeting Iran as administered by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). During that time I have heard many misconceptions concerning the applicability of U.S. sanctions targeting Iran to certain transactions from these clients.

However, recently there has been a new misconception that I have been hearing from a multitude of sources, both here in the U.S., as well as overseas in the Gulf and elsewhere. This mistaken belief is that as long as U.S. products are sold into Free Trade Zones then they can be resold to Iran, or that such products can be sold directly into Iran as long as they are sold directly into an Iranian Free Zone. The proponents of this belief have stated that this is a proper channel for which to sell U.S. automobiles, machinery, and airplanes into Iran, and that many U.S. manufacturers are aware of such an exception and are utilizing this loophole.

When I first heard about this, I thought it was ridiculous. Then I heard about it from another source, and from yet another source. Some of these sources I knew and valued their insight. Some of them I was only newly acquainted with. As such, and seeking to be as diligent a lawyer as I could be, I set about to investigate whether or not this exception was true. I have found based on my research of the law, my discussions with OFAC, and my discussions with others practicing in this field, that no such Free Trade Zone exception applies to the Iranian Transactions and Sanctions Regulations, or any other sanctions program targeting Iran.

It’s my belief that part of the explanation for the emergence of the “Free Trade Zone” myth is the fact that people are looking for ways to do business with Iran in light of the Joint Plan of Action (“JPOA”). As readers of this blog will know, the JPOA offered some limited sanctions relief as a part of interim deal reached between Iran and the P5+1 countries over Iran’s disputed nuclear program. That sanctions relief included, in part, relief from secondary sanctions authorities for foreign parties engaged in transactions with Iran’s automotive sector, and an expanded licensing program in relation to the sale of aircraft parts and services to Iran. As a result, more interest has developed around engaging in that type of trade with Iran. At the same time there have been increasing reports that U.S. automobiles are being found in Iran. When faced with the realization that the sanctions relief offered as part of the JPOA does not extend to the export of U.S. origin automobiles either directly or indirectly to Iran, parties seeking to do such business have offered a new means of explaining the phenomenon of U.S. cars being found in Iran by suggesting that it is because they are being sold to, or through, Free Trade Zones in either Iran or elsewhere.

While this would be great for those parties seeking to do such business, no such exception exists. In short, there are only two possible explanations for the U.S. cars-in-Iran phenomenon: 1) they were licensed for export to Iran, or 2) they were illegally smuggled into Iran. My money is on explanation #2. By reviewing information available to my office concerning OFAC licenses issued in the last several years, it does not appear that any license to export or reexport U.S.-origin automobiles to Iran have been granted. With no Free Trade Zone exceptions, and no OFAC licenses, there should be no legal exports of U.S. automobiles to Iran. Anyone telling you otherwise, is either mistaken, or is in possession of one of the most surprising license authorizations ever granted. As always be cautious out there, and when in doubt, file a license application.