OFAC elaborates on implementation of the Iran nuclear deal

June 25, 2016

John E. Smith, acting director of the Office of Foreign Assets Control (OFAC) of the U.S. Treasury Department, has enumerated on the pros and cons of the nuclear deal between Iran and great powers which went into effect in January.

Following is the text of the statement by Smith provided to the Tehran Times:

The Atlantic Council and the Iran Project held a symposium on June 16 on the implications on regional affairs and relations with Iran of the Joint Comprehensive Plan of Action (JCPOA) a year after the agreement was reached. John E. Smith - Acting Director, Office of Foreign Assets Control - delivered a lecture at this event.

The text below was provided by the West Asia Council and approved by Mr. John E. Smith.

John E. Smith

Acting Director, Office of Foreign Assets Control

Atlantic Council Iran Event

Thank you Bill for the kind introduction, and to the Atlantic Council and the Iran Project for hosting today’s event. 

I’m here to speak with you about the Joint Comprehensive Plan of Action – the JCPOA – as we near the one-year anniversary of the deal.  It’s hard to believe that it’s been that long.

It’s a pleasure to be here to take some stock of the events of the past year, particularly since Implementation Day, and to reflect on the incredibly hard work that we at Treasury, our colleagues at the State Department and across the US Government, and our EU and other partners, have done – and continue to do – to implement our commitments under the deal.

Of course, hard work is only one part of the equation, and many implementation challenges remain.  But I can stand here today and say with confidence and without hesitation that we at OFAC, and the US Government more broadly, have lived up to every commitment we made nearly one year ago.

Over the course of the last several months, OFAC officials, in conjunction with colleagues from the State Department, have traveled the globe, visiting more than two dozen countries. 

For my part alone, I’ve been to Europe three times in recent months, and have another trip coming up.  I have met with EU finance ministers, various EU Member State government officials, senior and line members of financial institutions, and a host of other private sector businesses. 

Iran has kept its end of the deal, and we have upheld ours and are committed to continuing to do so.  After all, by following through on our commitment to provide sanctions relief, we sustain the powerful incentive for Iran to adhere to this deal and provide the same for other malign actors to respond to sanctions by changing their behavior.

Iran has kept its end of the deal, and we have upheld ours and are committed to continuing to do so. 

In every meeting, in every jurisdiction, I reiterate the same vow: OFAC – and indeed the entire US Government – will not stand in the way of permissible business that is within the scope of the sanctions lifting we provided under the JCPOA. 

Our message is clear and unwavering: On Implementation Day, the USG broadly lifted our nuclear-related secondary sanctions – those sanctions that apply to non-US persons for transactions conducted outside the United States – by:

  1. removing more than 400 individuals and entities from OFAC’s Specially Designated Nationals and Blocked Persons List (known as the SDN List),
  2. revoking certain Executive orders, and
  3. issuing waivers of relevant sanctions authorities. 

We have explained in great detail that this sanctions lifting means that non-US persons no longer risk being cut off from the US or the US financial system for (1) dealing in the previously restricted sectors of Iran’s economy or (2) knowingly conducting transactions with, or providing goods or services in support of, any of the individuals and entities we took off the SDN List. 

Of course, certain US sanctions that were outside of the scope of the JCPOA remain in place.  These include our sanctions authorities related to Iran’s (alleged) support for terrorism, its ballistic missile program, its human rights abuses, and its … activities in the region. 

And more than 200 Iranian or Iran-related individuals and entities remain on the SDN List for such activities, among others, and secondary sanctions continue to apply to transactions with such designated parties. 

The other significant area of sanctions that remains is the US primary embargo, which affects US persons or transactions within US jurisdiction. 

Even after Implementation Day, US persons continue to be broadly prohibited from engaging in transactions with Iran, beyond three limited areas of relief agreed to in the JCPOA, in addition to longstanding authorizations in place prior to the JCPOA to allow exports of certain goods such as food, medicine, medical products, and agricultural commodities. 

We have explained this sanctions lifting – as well as the sanctions that remain in place – as we’ve traveled the globe.  Of course, all of the details also are contained in the extensive guidance and FAQs we published on our website on Implementation Day. 

At this point, we’ve issued nearly 100 pages of guidance, including more than 100 FAQs, which we continue to update.  In fact, as many of you know, we issued additional FAQs just last week in response to questions we’ve received from the business community and other governments. 

So what does this all add up to? 

Our very clear message is that for foreign persons, there are two primary things to consider as they explore business with Iran.  First, what is my secondary sanctions exposure?  Second, what are my potential touch-points to US jurisdiction? 

We also reiterate that in addition to the extensive information we have on our website related to the JCPOA, we also have resources available through our hotlines and our email inbox.  If anyone is confused about the rules and need some guidance, reach out to us, we’re here to answer.  

I’d also like to offer our perspective on a few critiques that I hear on a relatively frequent basis.

The first critique we’ve heard is that our remaining sanctions on Iran are just too complex to understand.  While I will concede that our sanctions rules warrant careful study, particularly as they relate to our primary sanctions affecting US persons, I disagree that our rules with respect to non-US persons are too complex.

As we’ve said frequently, there are just two simple rules for non-US persons and companies to understand:

One – don’t do business with Iran-related persons that remain on the SDN List, which should not be too difficult, given that many of those that remain on our SDN List – such as the IRGC – remain sanctioned by the EU.

Two – don’t involve a US person, the US financial system, or the US in any way when you, as a non-US company, engage with Iran.

That’s it.  Those are the rules for non-US individuals and entities to follow.

The second critique floating around out there suggests that OFAC has not offered sufficient guidance or clarity to allow non-US firms to go back into business with Iran.  Not surprisingly, I disagree. 

The extensive guidance and FAQs I mentioned already are far more than we have ever done at any point in our history, at least as far back as we can determine.  And we haven’t stopped since – we’ve been traveling the world, speaking at hundreds of meetings, and continuing to issue updated guidance and FAQs, where we can.

When we’ve probed companies further about our supposed lack of clarity, their responses usually boil down to one of three concerns:

One – a non-US company wants to use the US financial system or US persons as part of its Iran business, and wants OFAC to make an exception for it.  The answer is generally going to be no, apart from activity that is covered by our existing general licenses or specific licensing policies.  So this is not a case of OFAC being unclear; it’s a case of companies not liking OFAC’s guidance.

Two – a non-US company has US person employees and wants to know whether it can use them as part of its Iran business or whether it needs to wall them off or ring fence them. 

The answer – as it has been for decades involving non-US companies dealing in countries under US sanctions, such as Iran, Cuba, or Sudan – is that the non-US company must wall off its US person employees, even senior executives and compliance officials.  This is not a new concept, and many companies have been doing this successfully for years.  

Three – non-US companies have raised the concern that OFAC hasn’t provided sufficient clarity on our due diligence expectations for dealing in Iran – particularly because of the (alleged) lack of transparency of the IRGC in its business holdings in Iran.  My response here is two-fold:

First, don’t hold OFAC responsible for the IRGC’s lack of transparency; that’s where corporate actors can and should demand accountability and documentation from their potential Iranian clients, including the Government of Iran. 

Second, in terms of the levels of due diligence expected, that’s a question I believe is best posed to the third country’s domestic regulator.  The IRGC remains on the EU List, as well as OFAC’s SDN List, so those questions ought to be posed to the respective regulators.

As much as many out there would want, OFAC will not be reviewing every company’s business plans to ensure that it has established an appropriate compliance program.

Nor will we be playing “gotcha” for companies that conducted the appropriate due diligence, collected the documentation, but – despite their best efforts – unwittingly found themselves dealing with an IRGC front company.

Nor do we play “gotcha” with our primary sanctions enforcement.  In fact, of all of our investigations of potential violations of our sanctions, over 95 percent result in No Action Letters or Cautionary Letters, neither of which are not public. 

And of the 5 percent that do result in a public enforcement action, such as a Finding of Violation or civil monetary penalty, more than 80 percent were for conduct that was reckless or willful.

The third critique I’ve heard is that Iran is not reaping the benefits of the JCPOA because third-country companies fear making deals because of concerns over US sanctions. 

This is clearly not true.  Iran already has received significant benefits from the deal.

According to the Government of Iran and Iranian media reporting, since Implementation Day:

  1. Iran has received more than $3.4 billion in foreign investment;
  2. It has increased its oil production to 3.5 million barrels per day and is exporting more than 2.3 million bpd;
  3. It has agreed with two foreign aircraft companies to purchase more than 230 civilian passenger aircraft;
  4. Its banks have generally reconnected to SWIFT and opened roughly 350 new foreign correspondent accounts;
  5. And foreign businesses have signed dozens of deals for future investment and business.

Having said that, it is clear that the Government of Iran anticipated near instantaneous reintegration into the global economy following JCPOA sanctions relief,, underestimating the changes that Iran would itself need to make,  including updating its financial and business systems to meet Western standards. 

I will acknowledge that some non-US companies have indicated they do not want to take on any Iran business, despite the sanctions lifting, for a variety of reasons, including perceived sanctions risks.

These companies recognize that there are compliance costs in dealing with jurisdictions that may be assessed as higher risk – whether because of sanctions, instability, or lack of controls – and these businesses may have determined that the benefits of such trade do not outweigh the costs.

But many non-US companies have clarified to us that their so-called “sanctions concerns” center more on Iran’s AML/CFT deficiencies, its lack of corporate transparency, and its status on the FATF blacklist.

These are real concerns and will be best addressed by Iran taking strides to make its investment climate more in line with Western standards. 

And we believe that it’s critical that business not simply use “US sanctions” as shorthand for these types of concerns.  Not only does that inaccurately point a finger of blame on the USG and on OFAC but it also diminishes the pressure on the Government of Iran to undertake the long overdue and necessary changes it must make to its financial system to truly reenter the world economy. 

Iran needs to continue to receive the message that it must modernize its economy, update its technology and business standards, increase transparency, and avoid provocative actions that diminish the confidence of Western business and investors.

In the meantime, OFAC will continue to be available to answer questions relating to US sanctions.  And the USG will continue to live up to our commitments under the JCPOA. 

We’re just about one year down and less than five months from Implementation Day, and we are well prepared to keep this deal going for many more to come.

Thank you.

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