A couple weeks ago, the AP’s Bradley Klapper and Matt Lee broke news that the Obama administration was considering the issuance of a general license to facilitate use of the dollar as an intermediary currency in an exchange between two other (non-dollar) currencies for transactions involving Iran. According to reports, this proposal was intended to help facilitate currency exchanges in transactions involving Iran, particularly where Iran is paid in currency that is either low- or non-convertible and the U.S. dollar is required to move between currencies.

That proposal now looks to be dead, but nonetheless there are some serious unresolved questions – particularly for those of us practicing U.S. economic sanctions. Such questions arise from recent legislative proposals introduced on Capitol Hill, as well as from a lack of clarity as to the scope of the proposed license.

Take the new bill introduced by Sens. Rubio and Kirk (S.2752) – ‘Preventing Iran’s Access to United States Dollars Act of 2016‘ – which would, amongst other things, bar the President from issuing a license under IEEPA authorizing a person to conduct an offshore U.S. dollar clearing system for transactions involving the Iranian government or Iranian persons. This prohibition raises the question as to whether Sens. Rubio and Kirk regard offshore dollar-clearing by non-U.S. persons in transactions involving Iran to be conduct currently prohibited under the ITSR and thus in need of license authorization.

I am not sure that I would necessarily agree. Nor does the U.S. administration, according to certain reports. See, for example, Matt Lee’s latest AP article on Iran, which contains this buried gem:

U.S. lawmakers, many of whom opposed the nuclear deal on principle, have moved to prevent what they say is an administration overreach: a proposal to ease the rules relating to the use of the dollar in third-party foreign currency exchanges in support of deals with Iran. Administration officials say such an easing is unnecessary because those transactions are allowed. Still, the suggestion of a change has Capitol Hill on edge.

Certain elements of OFAC’s FAQs for JCPOA Implementation Day support this conclusion as well. In FAQ C.7, for instance, OFAC asked the question as to whether foreign banks are permitted to clear U.S. dollar transactions involving Iranian persons. OFAC’s response is the following:

After Implementation Day, foreign financial institutions need to continue to ensure they do not clear U.S. dollar-denominated transactions involving Iran through U.S. financial institutions, given that U.S. persons continue to be prohibited from exporting goods, services, or technology directly or indirectly to Iran, including financial services, with the exception of transactions that are exempt or authorized by a general or specific license issued pursuant to the ITSR. U.S. persons continue to be prohibited from engaging in any transactions involving Iran, including in currencies other than the U.S. dollar, with the exception of transactions that are exempt or authorized by OFAC.

This is deliberate language – the bolded section of which suggests that foreign banks can clear U.S. dollar-denominated transactions offshore so long as such transactions do not pass through a U.S. bank.

Furthermore, FAQ C.8 asks whether the U.S. has lifted secondary sanctions on the provision of U.S. bank notes to the Government of Iran on Implementation Day. OFAC’s answer is the following:

…[B]eginning on Implementation Day, the provision of U.S. bank notes to the Government of Iran by non-U.S. persons is no longer sanctionable, provided that the transaction does not involve any person on the SDN List or conduct described in FAQ A.3.ii-iii. U.S. persons continue to be prohibited from directly or indirectly providing U.S. bank notes to the Government of Iran. In addition, transactions related to the above-mentioned activity continue to be prohibited from transiting the U.S. financial system.

Together, these FAQs intimate that foreign banks can engage in certain dollar-clearing operations involving Iran, so long as such operations are undertaken offshore, do not involve U.S. persons, and remain compliant with certain surviving secondary U.S. sanctions.

Do I have full confidence that this is the case? No. I am not entirely confident that U.S. authorities will not find a jurisdictional hook with which to target non-U.S. banks engaged in dollar-clearing involving Iran. Indeed, I have heard that U.S. Treasury officials have hedged on the issue, refusing to provide a clear and definitive answer as to whether such conduct is potentially sanctionable.

That leads to a deeper point, too: if the U.S. Treasury Department is unclear as to whether non-U.S. banks engaged in offshore dollar-clearing involving Iran would implicate certain surviving U.S. sanctions, then I am not sure how foreign banks are supposed to have the answer. This is especially problematic at a time in which the U.S. government is intent on encouraging these activities in lieu of a general license authorization permitting U.S. banks to provide dollars to a USG-engineered offshore dollar-clearing system. For something on which the fate of the JCPOA might lie, one would think that there would be more care and consideration taken to guide foreign banks (and their legal advisors) on this issue. Because right now the situation is a muddled mess that is becoming less clear by the day.