AN OVERVIEW OF OFAC AND THE ITR Defining OFAC and the ITR What is prohibited? What is permitted? YAZDANYAR LAW OFFICES Beverly Hills,

AN OVERVIEW OF OFAC AND THE ITR

• Defining OFAC and the ITR• What is prohibited?• What is permitted?

YAZDANYAR LAW OFFICES www.yazdanyarlaw.com Beverly Hills, Irvine, San Francisco Tel: 310-780-6360

WHAT IS OFAC?

• What is OFAC: The Office of Foreign Assets Control (OFAC) is an agency within

the Department of Treasury.

• What are they responsible for: Administering and enforcing U.S. economic sanctions programs.

• Why should you care: OFAC implemented the sanctions against Iran by promulgating

the Iranian Transactions Regulations (ITR)

2 YAZDANYAR LAW OFFICES www.yazdanyarlaw.com Beverly Hills, Irvine, San Francisco Tel: 310-780-6360

IRANIAN TRANSACTIONS REGULATIONS

• What is ITR: A country-based sanctions program aimed to prohibit “U.S. persons”

from engaging in transactions with the government of Iran, with persons in Iran, or in transactions where the benefit is realized in Iran.

• Who is considered a “U.S. Person”: U.S. citizens (regardless of where you are located) U.S. legal permanent residents (regardless of where you are located) Individuals and entities within the U.S. Entities incorporated in the U.S. (including foreign branches)


ITR: WHAT IS PROHIBITED?

The direct or indirect importation, exportation or re-exportation of goods, services, and technology from Iran or to Iran

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Facilitating or financing these transactions is

prohibited.

Goods: No distinction between commercial and non-commercial purpose.

Buying jewelry from Iran and bringing it to the U.S.

Services: When services are performed on behalf of a person in Iran, the government of Iran, OR if the benefit is received in Iran

Working in Iran Hiring a real estate agent Using the services of a currency exchange

broker

YAZDANYAR LAW OFFICES www.yazdanyarlaw.com Beverly Hills, Irvine, San Francisco Tel: 310-780-6360

ITR & NEW INVESTMENTS ITR prohibits new investments in Iran.

ITR prohibits U.S. persons from purchasing, selling, swapping, brokering, financing, guaranteeing goods or services of Iranian origin.

Continuing charging fees and getting interest on existing Iranian loans.

Examples: Buying a house in IranKeeping money in bank accounts in IranEarning interest on money kept in Iranian banks


WHAT IS PERMITTED? Importation/Exportation of Goods and Services:

Gifts: Total value must be less than $100 Items must be of a type and in quantities normally given as gifts; not otherwise prohibited

Accompanying Baggage: For personal use Not intended for sale or for anyone else; not otherwise prohibited

Household and Personal Effects: Must have been actually used by you in your household Intended for your personal use not sale or any other person; not otherwise prohibited

Information: Films, newspapers, mail, email


WHAT IS PERMITTED?Financial Transactions:

Travel-related payments Payment for the importation or exportation of information or information materials Non-commercial family remittances• Cannot involve a commercial transaction• Cannot involve a family-owned enterprise• Cannot involve Specially Designated National (SDN) • Cannot use “hawala” as defined by the U.S. government

Authorized transactions By a specific or general license


U.S. Sanctions on Iran:OFAC Licensing

Farhad R. Alavi

Washington, DC

Presentation at U.C. IrvineFebruary 22, 2012

Overview

2 types of OFAC licenses – General and Specific

Specific License is a written authorization for certain activities by applicants (and appointees, etc.) based on request made in the application

Can apply for a license for anything not expressly permitted/subject to general license. Probability of approval based on many factors

General and specific licenses generally subject to certain terms & conditions

9Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]

What is an OFAC license?

Specific Licenses issued by OFAC based on applications submitted

Based on request applicant makes – if you do not request to engage in a certain activity in/related to Iran, you will most likely not receive authorization for it in the license

Typically a few pages, outlining permitted activities along with terms and conditions

Generally valid for 1-2 years, renewable

License number can be used in wire transfers10Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]

What can be licensed?

Personal Transactions

Commercial Transactions

Philanthropic Transactions


Personal Transactions

Transactions related to personal property in Iran

Sale, purchase or rental of real estate and personal property (including services)

Liquidating inheritances in Iran

Retrieving pensions, etc.

Note: Subject to certain conditions, sending cash gifts/family remittances between the US and Iran generally does not require a specific license


Commercial Transactions Ag/Med Program permitting export to Iran of:

Medical Equipment and Supplies Pharmaceuticals

Hiring services in Iran

(e.g., translators, consultants, etc.)

Remitting commercial earnings in Iran (e.g., earnings from rental property, passive interests in businesses, etc.)


Charitable Transactions Building a school or hospital in Iran Donating computers to universities in Iran

Sending cash to Iranian charities in Iran Lecturing in an Iranian university (even if unpaid)

Note: Export of items like food and clothing to Iran for charitable use is generally permitted under general license


OFAC would likely not license:

Investment in Iran (e.g., buying stocks, depositing money in banks)

Outsourcing labor to Iran (e.g., software design)

Partnering with entities in Iran or Iranian entities overseas

Exporting most consumer goods to Iran

Working in Iran for financial gain

Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected] 15

Exceptions What is generally permitted under the ITR?

Subject to certain limitations: Trade in informational materials Non-monetary humanitarian transactions Transactions incident to travel Communications-related transactions Provision of certain legal services to individuals in Iran Non-commercial family remittances

Note: Previous general license for importation of Iranian carpets, dried goods, and caviar repealed effective September 29, 2010


Critical Considerations Note: Specific licenses from OFAC must be used

strictly by their terms and are not blank checks to do business or engage in transactions in Iran.

Each specific license has a number. You can reference the number on your wire transfer to help effectuate the payment more smoothly.

License applications generally take several months to process, so think ahead.


Critical Considerations U.S. persons cannot:

Structure transactions with an intention to circumvent restrictions and provisions of the ITR

Divert transactions to 3rd country nationals if that transaction would be a violation if the U.S. person him/herself executed it Example: U.S. person cannot give money to a relative in

France to go invest in Iran on U.S. person’s behalf


Money Transfer New regulations generally continue to allow for

authorized / licensed funds transfers to/from Iran

Always ensure that the money transfer (commercial or personal) is authorized

Is the intended route for transmitting funds out of Iran compliant with U.S. laws? (e.g., make sure no personal hawalah or use of sanctioned banks, etc.)


Money Transfer (continued)

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Private, Non-Sanctioned

Bank in Iran

3rd country non-Iranian, non-U.S., non-sanctioned bank

(e.g. in UAE, Turkey)

Bank (U.S.)

U.S. Person’s Account

Iran Funds

Affidavit and/ orLetter

U.S. Person

Iran Funds

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Farhad R. Alavi / BHFA Law Group, PLLC - Washington, DC / [email protected]

Money Transfer (continued)

Have you given your bank adequate documentation?

Should follow “best practices”

Funds rejection can be legally troublesome and costly

Account closure at US banks increasingly common


Penalties

Violations can be subject to civil and potentially criminal liability

Civil penalties can be up to $250,000 or twice the value of the transaction, whichever is higher. Cases can be referred for criminal enforcement as well


Penalties (continued)

Administrative Subpoenas (as part of investigations into rejected wires or “havalehdars” can lead to an effective audit of your Iran activities and considerable exposure

Very time consuming and potentially costly

Frequency of Administrative Subpoenas (even for activities several years past) appears to be increasing


Any Questions?

Farhad R. Alavi

5335 Wisconsin Avenue, NWSuite 440

Washington, DC 20015

(direct) (202)686- 4859

[email protected]

So What?Iran Sanctions: Investigations and Penalties

Presented by:Erich C. Ferrari, Ferrari Legal, P.C.

How will they ever find out?

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Common ways that investigations are initiated

• Blocking and Reject Reports• Most common way; thousands of these reports are sent every year

• License Applications• Revealing information about violations

• Federal Investigations• Very common when investigating havaleh brokers

• Self-Disclosures: Intentional and Unintentional• Voluntary self-disclosures vs. contacting OFAC and informing them of

violations

• Anonymous Tips

Blocking and Rejecting Reports

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Wire Request

Intermediary U.S. Treasury

Interdiction

1

2

3

SWIFT

Blocked/Rejected4

Subpoenato Sender/ Recipient

5

Sender

U.S. Bank

What kind of trouble can you get in?

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• Problems with the banks• Bank Investigations• Freezing of Accounts• Closing of Accounts

• OFAC Investigations • Administrative Subpoenas• Penalty Process• Coordination with other agencies

• Criminal Investigations• Agents• Target/Subject Letters• Exports and Money Transferring• Banki, Seifi, Amirnazmi, Mousavi, Vaghari, Hariri, Lahiji, Socara, etc.

OFAC Investigations

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Administrative Subpoenas• 30 days to provide information and documents• You can request an extension, but may have to sign a tolling agreement• Your response is under penalty of perjury• Not only false statements, but also misleading statements• OFAC will refer cases to DOJ for false statements (5 year max)

Voluntary Self-Disclosures• Self reporting a violation• 50% reduction in base penalty• If a violation occurred and you need a license to transfer funds, then VSD

Penalty Calculations• Base Penalty Calculations• Enforcement Guidelines• Settlement

Enforcement Responses

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Sanctions Enforcement Options

No Action

Cautionary Letter

Finding of Violation

Civil Penalty

Criminal Referral

Lesser Penalty Higher Penalty

Base Penalty Calculation Matrix

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One-Half of Transaction Value

Capped at $125,000 per violation

One-Half of Statutory Maximum

Applicable Schedule Amount

Capped at $250,000 per violation

Statutory Maximum

1

2

3

4

Egregious Case

Vol

unta

ry S

elf-

Dis

clos

ure

No Yes

No

Yes

* The base penalty amount will not exceed the applicable statutory maximum amount.

Violation Schedule Amounts

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Amount Transaction Value

$1,000 < $1,000

$10,000 >= $1,000 and < $10,000

$25,000 >= $10,000 and < $25,000

$50,000 >= $25,000 and < $50,000

$100,000 >= $50,000 and < $100,000

$170,000 >= $100,000 and < $170,000

$250,000 >= $170,000

Criminal Prosecutions

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US Attorney’s Offices across the U.S. have been actively prosecuting these cases.

There are a number of individuals under investigation across the United States for these types of violations.• Testimony of Special Agent Pelczar (JTTF)Hearing Transcript from the

Vaghari Case: Much of his work involves investigating Iranians.

If the FBI comes knocking….• Don’t speak to them without counsel• People get nervous and may say something that mischaracterizes• Proffer Letter

Conclusion

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Enforcement cases are on the rise:• 2009: 1,000 investigations• 2010: 1,200 investigations• 2011: 1,300 investigations

Difficulty in transferring funds is leading to more creative ways to get around sanctions which is leading to more investigations

Talk to a lawyer with experience before acting• Prior to engaging in the transactions• File a request for interpretative guidance• Map out how the transaction will occur

Iranian Transactions Regulations

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If you have questions after the event please contact me:

• Phone: 202-280-6370 or 310-270-9930• Email: [email protected]• The Iranian Transactions Regulations

Practice Guide• www.sanctionlaw.com

THANK YOU!

Documents

AN OVERVIEW OF OFAC AND THE ITR Defining OFAC and the ITR What is prohibited? What is permitted? YAZDANYAR LAW OFFICES Beverly Hills,