Controversy has erupted once more over the U.S.’s implementation of the sanctions relief afforded Iran as part of the Joint Comprehensive Plan of Action (“JCPOA”). Multiple reports indicate that the United States is considering taking additional steps to relieve the sanctions so that Iran receives practical benefit from the relief outlined in Annex II of the JCPOA. As I have discussed in a prior posting, § 24 of the JCPOA’s Main Text specifically contemplates such a situation in which surviving U.S. nuclear-related sanctions are impeding for Iran the full realization of the benefits of sanctions relief and the United States takes additional steps to lift certain of these surviving sanctions so as to ensure Iran realizes such benefits.

What this license may look like, however, is far from clear. I have seen three independent reports on the topic and all present different variations on a theme: the U.S. will effectuate a much more limited form of the U-turn license that existed up until November 2008. Depending on which variation is correct, the proposed license could either be a significant game-changer for Iran’s attempts to re-engage foreign banks or can instead address a problem that either does not exist or is of lower-order priority for Iran’s efforts to effectively re-integrate with the global financial system.

Up until November 2008, OFAC had licensed U-turn transactions under 31 C.F.R. § 560.516. Pursuant to the U-turn license, as it was known, U.S. banks were authorized to process transfers of funds to or from Iran, or for the direct or indirect benefit of persons in Iran or the Gov’t of Iran, if the transfer met certain conditions and did not involve debiting or crediting an Iranian account. Those conditions included: (1) the transfer is by order of a non-Iranian foreign bank from its own account in a U.S. bank to an account held by a U.S. bank for a second non-Iranian foreign bank; (2) the transfer arises from an underlying transaction that has been authorized by specific or general license issued pursuant to the ITR; (3) the transfer arises from an underlying transaction that is not prohibited by the ITR; or (4) the transfer arises from an underlying transaction that is exempted from the ITR’s prohibitions. In other words, U.S. banks were authorized to process transfers of funds to or from Iran if the transfer did not involve debiting or crediting an Iranian account and the transfer was by order of a non-Iranian, non-U.S. bank from its own account at a U.S. bank to an account held by a U.S. bank for a second non-Iranian, non-U.S. bank. In this manner, Iran had indirect access to the U.S. financial system for dollar-clearing purposes, while U.S. banks remained always insulated from direct contact with Iranian banks.

None of the reported variations of the proposed license would be a straight-up reauthorization of this previous U-turn license as existed until November 2008. Instead, what is being proposed – at least according to initial reports – is far more limited in nature.  Specifically, as discussed below, U.S. financial institutions would likely not be involved in the transfer of funds to or from Iran, as the proposed license would outsource this task to select foreign financial institutions.

First to the story, the Associated Press reported that the Obama administration was considering the issuance of a new general license to the Iranian Transactions and Sanctions Regulations (“ITSR”). This new license authorization – according to the AP – would “permit offshore financial institutions to access dollars for foreign currency trades in support of legitimate business with Iran…” Elaborating, the AP reported that U.S. dollars could be “used in currency exchange as long as no Iranian banks are involved…No Iranian rials [could] enter the transaction, and the payment wouldn’t be able to start or end with American dollars.” More obviously, U.S.-designated Iranian persons – at least those designated under authorities additional to E.O. 13599 – would be barred from involvement in the transactions.

Reuters followed-up with a report of a similar kind of authorization, though with significant modifications. Without citing a U.S. government official confirming the scope of the license, Reuters reported that the Obama administration could soon “issue a license allowing U.S. banks to send dollars to an offshore facility, from which foreign, non-Iranian banks could withdraw dollars to facilitate legal trade with Iran.” Whether or not Iran could itself send or receive payment in U.S. dollars – so long as there was no direct interaction with a U.S. financial institution – remained unclear from Reuters’ report. (Recall that the AP’s report clearly said no.) However, U.S. officials did tell Reuters that the proposed license “would not involve widespread access for Iran to the U.S. financial system.”

Later, the Wall Street Journal produced its own report on the proposed license, citing Congressional staff and a former Obama administration official briefed on the plans. According to the Journal, the Obama administration is exploring the possibility of issuing a license to facilitate offshore dollar-clearing houses for specific Iranian financial institutions. The offshore dollar-clearing facilities would “likely involv[e] select foreign banks,” which “would conduct the dollar transactions instead [of U.S. financial institutions].” This would “shield[] the U.S. financial system from any direct contact with Iran.”

My understanding of the Journal’s report is that the Obama administration would effectively authorize a much more limited form of the U-turn license that existed up until November 2008. First, U.S. dollar-clearing for or on behalf of Iranian banks would not take place within the United States or by U.S. banks. Instead, an offshore dollar-clearing facility would be established drafting certain foreign banks to clear dollars for permissible Iran-related transactions. Second, only certain Iranian financial institutions would be able to participate in this offshore dollar-clearing house – not all Iranian banks or even all non-designated Iranian banks. These would constitute significant changes to the previous U-turn license.  However, the effect of such license could perhaps be the same as that of a U-turn reauthorization.  (Right or wrong, I am putting the most stock in the Journal’s report, as it was last-in-time and the U.S. administration had the time and consideration to make sure that the story was done correctly, after it had first been reported days earlier.)

We may soon find out the scope of the proposed license. Each of the news agencies established different timelines for consideration and implementation of the license. The AP reported that the proposed license was “under consideration” and “no decision was final,” while Reuters cited a U.S. official stating that “the matter was being studied, no decisions had been taken and…none were imminent.” The Wall Street Journal, however, reported on Friday that a license could be issued “within days,” citing a senior U.S. official. This U.S. official stated that final agreement is still being sought within the Obama administration over the mechanics of allowing Iran indirect access to certain dollar-clearing services.

Nonetheless, the inauguration of a new license that would provide certain access to U.S. dollar-clearing services would be an important step in resolving some of the major problems that Iran is currently facing taking advantage of the sanctions relief afforded it under the nuclear accord. Provided that the license is implemented in such a manner so as to allow its effective utilization, it will also be an important moment for the Obama administration is ensuring that it meets the U.S.’s commitments under the JCPOA — particularly, the provision allowing for additional relief to Iran should certain surviving U.S. sanctions be standing in the way of Iran realizing the full benefit of the sanctions relief.