Question: In your last post, you referred to “OFAC export authorizations” and the possibility that a U.S. company might apply for and obtain an “OFAC Specific License” for an export transaction involving a sanctioned country. Isn’t that a contradiction in terms? I thought the whole point of U.S. economic sanctions was that no financial transactions or business dealings whatsoever are permitted with a customer in, or from, an OFAC-sanctioned country.
While it’s true that economic sanctions administered and enforced by OFAC can impose sweeping prohibitions against trade with targeted countries—Cuba, Iran, and Sudan, for example—and that U.S. Government policy is normally to deny export licenses in such cases, exceptions do exist which permit exports to OFAC-sanctioned countries in certain cases.
For one thing, because each sanctions program is based on a unique set of foreign policy imperatives, no two are exactly alike. Each of the twenty-eight OFAC Sanctions Programs is distinct and different; the range and coverage varies greatly from country to country. Some programs are nearly total in scope, while others are much more narrowly focused. So the application of sanctions to a country does not necessarily mean that all commercial opportunities in that country or that country’s nationals are off limits. There is a huge difference, for example, between the fairly limited and selectively tailored sanctions currently imposed on certain individuals and entities under the Ukraine/Russia Sanctions Program, and the strict and comprehensive sanctions that that are currently imposed on most transactions with the Iranian government, Iranians, and Iranian entities. For that reason, a deal involving a sanctioned country will sometimes be able to go forward because it falls outside the scope of the applicable OFAC export prohibitions. Determining whether this is true in any particular case, of course, requires a detailed review of the regulations currently in force.
Even for comprehensively sanctioned countries such as Cuba, Iran, and Sudan, the prohibitions on trade, although stringent and far-reaching, are not absolute. Many companies are surprised to learn that the U.S. permits the imports and exports of certain items to and from these nations despite the tense political relationships.
What’s more, due to the political nature of sanctions and their use by the U.S. Government as diplomatic tools to influence the behaviors of other nations, OFAC regulations are constantly changing. On the positive side, this means that new opportunities for U.S. exporters can open up at any time. For example, on July 11, 2012, OFAC moved to lift a near-total ban on business with Myanmar (Burma), and began allowing certain U.S. investments in that country in response to the government’s promises of reform and transition to democracy. Other regulatory changes followed, and in April of this year OFAC took several Myanmar companies and individuals off the blacklist.
Some types of permitted transactions reflect long-standing and fundamental principles of U.S. foreign policy.
- It has generally been U.S. foreign policy to promote and encourage the free flow of information and freedom of speech between the U.S. and other nations. The Berman Amendment, passed by Congress in 1988, as amended and expanded by the Free Trade in Ideas Act in 1994, makes it clear that OFAC does not have the statutory authority to regulate “directly or indirectly” transactions concerning the import or export of “information and informational materials” to or from sanctioned countries, “regardless of format or medium of transmission.” “Informational materials” in this context has been deemed to include most books, magazines, eBooks, and other publications; pre-recorded video and audio tapes and CDs; and paintings, sculptures, and other works of art; and it may include payments for such items, depending on the sanctions program involved. It is essential to keep in mind, however, that this does not cover CCL items: controlled software and controlled technical data do not fall within this exemption. Exporters should also be aware that the application of this “informational materials” exemption to such related activities as the development, marketing, and distribution of the materials is a matter of ongoing legal controversy; those related activities may require an OFAC Specific License.
- It has not generally been the policy of the U.S. to withhold the supply of food and medicine to other nations as a means of furthering U.S. foreign policy goals. Thus, U.S. sanctions programs have usually included provisions explicitly allowing humanitarian exports of food, clothing, medicine, and other forms of humanitarian support. Even nations whose governments are notoriously hostile to the U.S. or who have been spotlighted as supporters of terrorism can receive exports of U.S.-origin humanitarian goods. To that end, the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), also known as the Nethercutt Amendment, authorizes the export of certain agricultural commodities, medical supplies, and medical devices to otherwise comprehensively embargoed countries under licenses issued by OFAC (for Iran and Sudan) or Commerce/BIS (for Cuba). This complicated measure authorizes exports of certain agricultural commodities, medicines, and medical devices to Cuba, Iran, Sudan, and Libya. The criteria for items that meet the TSRA definition of agricultural commodity or medicine/medical device are varied and complex, however, and close consultation with OFAC, BIS, and the FDA is highly advisable for U.S. exporters.
While compliance with TSRA licenses and adherence to the scope of the Berman Amendment exemptions can be complicated, these efforts can yield opportunities for U.S. companies that export eligible items.
Some other examples of transactions that may be permitted even with countries under strict U.S. economic sanctions include the provision of telecommunications services, research activities by U.S. persons (although this is sometimes conditioned on obtaining specific approval from either BIS or OFAC or both), and professional meetings. The applicability of these exemptions to specific occasions and circumstances must always be carefully analyzed and considered, however.
What kinds of OFAC authorization are available? There are three categories: Exemptions, OFAC General Licenses, and OFAC Specific Licenses. When someone tells you that you need to obtain an “OFAC license,” they are generally referring to the third category, Specific Licenses. But before pursuing such a license, you should look closely at the first two categories, and see if there is either an Exemption or an OFAC General License that covers the transactions you wish to engage in.
Exemptions. The legislation underlying the regulations administered by OFAC may expressly exempt a particular good, service, benefit, or activity from the kinds of transactions the agency is authorized to block or prohibit. The category of OFAC Exemptions includes those activities, goods, and services which are beyond the legal authority of the Executive Branch to sanction—and therefore outside the realm of OFAC’s regulatory powers. Some examples of activities that are usually exempt have already been mentioned. Another example of a common exemption is travel: freedom of movement is considered by many to be a fundamental liberty, and under most U.S. sanctions programs— which, like the ITAR and EAR, are authorized by the International Emergency Economic Powers Act (IEEPA)—transactions related to travel to and from the country by individuals who are U.S. persons are not prohibited.
A notable—and highly controversial—exception has been Cuba Sanctions, which are largely authorized by the Trading With the Enemy Act of 1917 (TWEA). The U.S. has imposed a comprehensive economic embargo against Cuba since the 1960s. The embargo regulations do not actually ban travel itself, and the Cuban Assets Control Regulations (CACR) do expressly authorize transactions incident to 12 categories of travel, among which are “journalistic activities” and “educational activities, including people-to-people contact.” In addition, OFAC Specific Licenses are issued a case-by-case basis. Nevertheless, the restrictions placed on financial transactions related to travel to Cuba have effectively banned all tourist travel from the U.S.—formerly a major source of revenue for that nation. Some Cuban travel restrictions have been significantly eased by amendments to the CACR during the past few years, most recently in January 2015; and nineteen U.S. airports are now officially authorized by Customs and Border Protection to serve flights to and from Cuba. But given that transactions for tourist activities are still expressly forbidden by a provision in the TSRA, the practical economic significance of these recent regulatory changes for the U.S. travel industry and other sectors is uncertain.
OFAC General Licenses. If no exemption covers the goods or services you want to export, and they are therefore subject to OFAC regulation, then you should determine whether OFAC has published a General License indicating that the agency consents to the export of goods or services of that kind to the sanctioned country. Some general licenses are contained within the OFAC regulations themselves. When an embargo is new, or has just been amended, there may be general licenses issued that have not yet been codified in the CFR, but can be found on the OFAC web site. Various regulatory interpretations are also issued from time to time by OFAC; the legal effect of these interpretations may be equivalent to that of a general license.
General licenses are open-ended authorizations: they grant blanket authority to engage in a certain kind of transaction and you don’t have to apply to use them—although sometimes there are notification or reporting requirements. One important way in which an OFAC General License differs from an Exemption is that OFAC can rescind a general license at any time, whereas it is beyond OFAC’s legal authority to apply sanctions to exempt goods, activities, or transactions.
OFAC Specific Licenses. If the goods or services you want to export are neither exempt from OFAC regulation nor covered by an OFAC General License, you have the option of applying for an OFAC Specific License.
OFAC has fairly broad legal authority to allow—on a case-by-case basis—transactions that would otherwise be prohibited under specific sanctions provisions. OFAC’s Licensing Division reviews all applications from exporters strictly in the order in which they were submitted, and issues or denies licenses based on U.S. foreign policy and national security goals.
Before you proceed to apply for a license, however, we suggest that you review the the details of your proposed export transaction thoroughly, asking the following questions:
(1) Are there are any U.S. Persons involved in the transaction? (The definition of “U.S. Person” includes a U.S. citizen, a permanent legal resident, an entity formed under the laws of the United States, or anyone physically present in the U.S.)
(2) Are any of the parties to your proposed export transaction targeted by U.S. economic sanctions (e.g., individuals, businesses, institutions, organizations, or other entities, or official government agents or agencies, who ordinarily reside or operate in sanctioned countries)? (Be sure to identify all parties—including brokers, intermediate banks, freight forwarders, shipping companies, and any other middlemen—their nationalities and their relationship to the transaction.)
(3) Is the nature of the proposed transaction such that it comes under and is prohibited by the applicable laws and regulations?
If the answer to these three questions is Yes, then you should assume that an OFAC license will be needed before the transaction can be conducted.
How can I apply for a license? For official guidance related to applying for an OFAC Specific License, in addition to the information and instructions found on the OFAC web site, you should refer to 31 CFR 501.801.
You may submit your application electronically, using the online form on the OFAC website at http://licensing.ofac.treas.gov. Alternatively, you may send a letter of request providing a detailed description of the proposed transaction, including the names and addresses of all individuals or companies involved. You can mail your license request letter to the following address:
Office of Foreign Assets Control
U.S. Department of the Treasury
Treasury Annex
Attn: Licensing Division
1500 Pennsylvania Avenue, NW
Washington, DC 20220-0002
All U.S. exporters ought to take full advantage of the extensive compliance resources provided by OFAC on their web site. The agency devotes considerable effort to compliance outreach, and has compiled and published a veritable library of reference materials, including publications geared toward the specific concerns of exporters and importers, including summaries of each sanctions program. They also make an up-to-date SDN list available in a variety of searchable formats.
Finally, you should understand that an OFAC Specific License application, like any request for an exception to a rule, needs to be an advocacy document. That is to say, in order for your application to be granted in a situation of presumed denial, you will have to do more than merely provide the detailed facts concerning the transaction you are proposing; you will also need to make a convincing case for the issuance of the license by appealing to the provisions of the relevant laws and regulations—ideally, to a section or clause indicating the potential availability of special permits or export authorizations for certain reasons or in certain circumstances. You may want to appeal to the stated U.S. Government policy and rationale behind the specific export control regime as well.
In Part 3 of this post, we’ll offer you some practical advice and suggestions for ensuring that OFAC compliance is fully and effectively integrated with ITAR and EAR compliance processes and internal controls in your company’s overall export compliance program.