Just because you are a citizen of Iran does not mean that the Iranian Transactions and Sanctions Regulations (“ITSR”) prohibit U.S. persons from transacting with you. This statement is made in response to one of the most frequently asked questions we receive. These questions usually involve some iteration of facts in which an Iranian national outside of Iran wants to engage in a transaction with the U.S., U.S. persons, U.S. origin goods, or in U.S. dollars. Inevitably, someone will get spooked that an Iranian national has some role in the transaction, and will not want to proceed due to some unfounded belief that they will be shipped off to Guantanamo if they deal with this person.
While compliance with U.S. sanctions is critical, not all Iranian nationals are subject to the prohibitions of the ITSR. Unlike some other sanctions programs–such as the Cuban Assets Control Regulations, which as a general principle blocks all Cuban national (“CACR”)–the ITSR does not automatically block all Iranian nationals. The prohibitions of the ITSR–found in Subpart B 31 C.F.R. Part 560–restrict certain activity in relation to Iran, including for example, the supply of U.S. origin goods, services and technology to Iran, and dealings in Iranian-origin goods and services.
31 C.F.R. § 560.303 defines Iran and Iranian for purposes of these prohibitions. Specifically, that sections states:
“The term Iran means the territory of Iran and any other territory or marine area, including the exclusive economic zone and continental shelf, over which the Government of Iran claims sovereignty, sovereign rights, or jurisdiction, provided that the Government of Iran exercises partial or total de facto control over the area or derives a benefit from economic activity in the area pursuant to an international agreement. The term Iranian means pertaining to Iran as defined in this section.”
If you’re not clear on this definition’s characterization of Iranians, you’re not alone. Many people have considered this to mean any Iranian citizens or residents residing both in Iran and abroad. To be fair, that’s not a crazy impression to have. The ITSR–and most other OFAC sanctions programs–define U.S. person to include U.S. citizens and permanent legal residents wherever located. So wouldn’t the inverse also be true? Not necessarily.
Then who–under the ITSR’s definition–is “Iranian?” For example, what about my mom? She’s ethnically Iranian, an Iranian national, and was born in Iran. However, she has also resided in the U.S. for decades. Is she Iranian? Again, the answer is no. To understand the ITSR’s definition of Iranian, you can’t just look at the definition of “Iran; Iranian” in 31 C.F.R. § 560.303. Rather, you’ll need to look at 31 C.F.R. §§ 560.215, 560.306, 560.320, 560.419, 560.505, 560.544, 560.550, and 560.551 to develop the understanding that an Iranian is not just a national of Iran, but rather a party that is “ordinarily resident in Iran.” This language–ordinarily resident in Iran–is found in all of the aforementioned regulations, as well as in other areas of the ITSR.
That said, you don’t have to drive yourself crazy looking through all of those regulations to come to this conclusion. I would suggest just starting with 31 C.F.R. § 560.215–the codified extension of the ITSR’s prohibitions to U.S. owned or controlled foreign entities. That regulation contains a subsection (§ 560.215(b)(3)) which defines “subject to the jurisdiction of Iran.” That definition covers a “person…organized under the laws of Iran or any jurisdiction within Iran, ordinarily resident in Iran, or in Iran, or owned or controlled by any of the foregoing.” (emphasis added). This is important to consider given the the definition of “Iran; Iranian” contained in 31 C.F.R. § 560.303, which includes “…the territory of Iran and any other territory or marine area, including the exclusive economic zone and continental shelf, over which the Government of Iran claims sovereignty, sovereign rights, or jurisdiction” and “[t]he term Iranian means pertaining to Iran as defined in this section.”
Not clear enough for you? Ok, well let’s take a look at the definition of Iranian-origin services. That definition–contained in 31 C.F.R. § 560.306(c)–includes services that are “…performed in Iran or by an entity organized under the laws of Iran or any jurisdiction within Iran, or a person residing in Iran” and “[s]ervices performed outside Iran by a citizen, national or permanent resident of Iran who is ordinarily resident in Iran, or by an entity organized under the laws of Iran or any jurisdiction within Iran.” (emphasis added). From there you can also take a look at all the other instances in the ITSR that show that when the export of services involves an “Iranian” or when services are being received from an “Iranian” that the language relates back to those ordinarily residing in Iran.
So what does “ordinarily resident in Iran” mean? Does it mean someone who maintains a private residence in Iran? What about someone who spends 50% or more of their time in Iran? To be honest, I’m not sure, although I would say that if someone spends 50% of the year or more in Iran then its safe to assume OFAC would consider them ordinarily resident in Iran. Unfortunately, the ITSR does not provide a definition for ordinarily resident in Iran, and I have not yet seen OFAC define that language in any guidance, published or otherwise, in relation to the ITSR or any other sanctions program they administer. If any readers have seen such guidance, please forward it along, and I will do another blog post describing what the definition/test is. Of course, if I come across something on my own, I will share that as well. Until then, stay tuned.
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 firstname.lastname@example.org