On January 10, 2020 the US president issued the Executive Order 13902 authorizing the imposition of new sanctions against “any individual owning, operating, trading with, or assisting sectors of the Iranian economy including construction, mining, manufacturing, or textiles sectors” and targeted eight top Iranian officials. Steven Mnuchin, the US Treasury Secretary announced that these sanctions are both primary and secondary. These new sanctions were imposed in parallel with the “maximum pressure” campaign since US withdrawal from the JCPOA in May 2018.
According to section 2 (a) of this order, “(i)… the sale, supply, or transfer to or from Iran of significant goods or services used in connection with a sector of the Iranian economy…or (ii) for or on behalf of any person whose property and interests in property are blocked…” could be sanctioned by the US Secretary of Treasury. As set out in No. 154 of OFAC FAQs, the word “significant” implies considering several parameters, including “(1) the size, number, frequency, and nature of the transaction(s); (2) the level of awareness of management of the transaction(s) and whether or not the transaction(s) are a part of a pattern of conduct; (3) the nexus between the foreign financial institution involved in the transaction(s) and a blocked Islamic Revolutionary Guard Corps individual or entity or blocked Iran-linked financial institution; (4) the impact of the transaction(s) on the goals of the Comprehensive Iran Sanctions, Accountability, and Divestment Act (5) whether the transaction(s) involved any deceptive practices; and (6) other factors the Treasury Department deems relevant on a case-by-case basis.”
Furthermore, any foreign financial institution may be targeted if “knowingly conducted or facilitated any significant financial transaction” in above-mentioned activities. The term “knowingly” regarding to conduct, a circumstance, or a result, as defined by No. 153 of OFAC FAQs and sec. 7 (e) of this order, means that a person has actual knowledge, or should have reasonably known, of the conduct, the circumstance, or the result. Moreover, sec. 5 (a) states that “[T]he prohibitions in section 1 of this order include: (a) the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any person whose property and interests in property are blocked pursuant to this order; and (b) the receipt of any contribution or provision of funds, goods, or services from any such person.”
The question raised by this order for lawyers and legal consultants, especially compliance and regulatory lawyers, is whether providing legal services to Iranian companies and entities engaging with aforesaid activities can be sanctionable under this order.
This question has been specifically addressed in OFAC Guidance January 12, 2017. In this document, OFAC has laid out the circumstances under which US compliance officers, consultants, and attorneys can advise their clients, employees, or others on whether a transaction is prohibited under U.S. sanctions laws. According to these guidelines, providing services is only permitted to “covered persons” under certain conditions.
Covered persons comprise “U.S. persons and foreign persons other than any person (i) whose property and interests in property are blocked pursuant to any part of 31 C.F.R. (Electronic Code of Federal Regulations) chapter V, including persons listed on OFAC’s List of Specially Designated Nationals and Blocked Persons, or (ii) to whom a U.S. person is prohibited from exporting services or from whom a U.S. person is prohibited from importing services pursuant to any part of 31 C.F.R. chapter V.” Consequently, Iranian companies and entities whose names have been listed in OFAC’s SDN list or have been generally carrying out business in the sanctioned sectors including construction, mining, manufacturing, or textiles, are deemed non-covered persons and therefore, prohibited from receiving any legal services under any circumstances. But under what circumstances the so-called “covered persons” can receive legal services especially on sanctions compliance matters?
The guidance states that “covered person” can just receive the following services:
“۱) Providing information or guidance regarding the requirements of U.S. sanctions laws; and
۲) Opining on the legality of specific transactions under U.S. sanctions laws regardless of whether it would be prohibited for a U.S. person to engage in those transactions.
It should be noted that this guideline only addresses legal services provided by US persons to Iranian entities. But the question arises whether that applies to non-US legal experts providing legal services to Iranian entities.
The Iranian Transactions and Sanctions Regulations (“ITSR”) under § ۵۶۰.۵۲۵ (۲۰۱۲), authorized legal services include:
(۱) Provision of legal advice and counseling on the requirements of and compliance with the laws of the United States or any jurisdiction within the United States, provided that such ad-vice and counseling is not provided to facilitate transactions in violation of this part;
(۲) Representation of persons named as defendants in or otherwise made a party to domestic United States legal, arbitration, or administrative proceedings;
(۳) Initiation and conduct of domestic United States legal, arbitration, or administrative proceedings;
(۴) Representation of persons before any federal or state agency with respect to the imposition, administration, or enforcement of United States sanctions against Iran;
(۵) Initiation and conduct of legal proceedings, in the United States or abroad, including administrative, judicial, and arbitral proceedings and proceedings before international tribunals (including the Iran-United States Claims Tribunal in The Hague and the International Court of Justice): (i) To resolve disputes between the Government of Iran or an Iranian national and the United States or a United States national; (ii) Where the proceeding is contemplated under an international agreement; or (iii) Where the proceeding involves the enforcement of awards, decisions, or orders resulting from legal proceedings within the scope of paragraph (a)(5)(i) or (a)(5)(ii) of this section, provided that any transaction, unrelated to the provision of legal services or the payment therefor, that is necessary or related to the execution of an award, decision, or order resulting from such legal proceeding, or otherwise necessary for the conduct of such proceeding, and which would otherwise be prohibited by this part requires a specific license in accordance with §§ ۵۶۰.۵۱۰ and 560.801;
(۶) Provision of legal advice and counseling in connection with settlement or other resolution of matters described in paragraph (a)(5) of this section; and
(۷) Provision of legal services in any other context in which prevailing United States law requires access to legal counsel at public expense.
(b) The provision of any other legal services to the Government of Iran, an Iranian financial institution, or any other person whose property and interests in property are blocked pursuant to § ۵۶۰.۲۱۱, or to or on behalf of a person in Iran, or in circumstances in which the benefit is otherwise received in Iran, not otherwise authorized in this part, requires the issuance of a specific license.”
It seems that according to the 2012 regulations, legal experts can generally provide authorized legal services to Iranian entities; however receiving payment or reimbursement for any incurred expenses thereof, would require specific or general licenses, respectively mentioned in § ۵۶۰.۵۲۵ and §۵۶۰.۵۵۳ C.F.R.
As it also appears from sec. (d) of § ۵۶۰.۵۲۵ C.F.R., there seems to be a distinction made between the receipts of payment for the provision of legal services to or on behalf of Iranian blocked (para. 1) and unblocked (para. 2) entities. The first group “must be specifically licensed or otherwise authorized pursuant to § ۵۶۰.۵۵۳” but the second one is authorized under certain conditions.
Two critical questions have arisen which have proven somewhat puzzling to lawyers and their clients providing legal services regarding US sanctions compliance:
۱) What is the relationship between the 2017 OFAC guideline and the 2012 regulations? Does the former partially override the latter? How do they relate to Executive Order January 2020?
۲) Whether lawyers can “approve” certain transactions with Iranian entities from a legal standpoint? How can one draw a line between “providing information” on the one hand and giving a legal opinion on the legality of potentially prohibited transactions without crossing the red line of “facilitating” those transactions on the other hand?
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