Pistachios in a Pinch

Aug 17, 2010   

Tougher Sanctions Close Pipeline for Trade in Food, Carpets and Financial Transactions from Iran

On August 16, 2010, the Department of Treasurys Office of Foreign Assets Control (OFAC) promulgated new regulations to implement the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA).  President Obama signed CISADA into law on July 1st with the goal to enforce U.N. Security Council sanctions and “to protect the international financial system from abuse by Iran,” according to OFAC Director Adam Szubin.

American financial institutions operating correspondent accounts or payable-through accounts for foreign financial institutions as well as companies currently importing food and carpets from Iran must take note of these provisions, which go into effect on September 29, 2010.

Before these implementing regulations, there was a “general license” issued by OFAC authorizing the importation of certain foodstuffs (like caviar and pistachios) and carpets from Iran into the United States.  However, the new regulations eliminate the general license and prohibit all such imports beginning on September 29, 2010.  OFAC has also indicated that it will no longer issue specific licenses for such products after that date.  Therefore, according to the OFAC guidance, “any such goods for commercial importation into the United States must be entered for consumption before that date.”

For financial institutions, the new regulations either outright prohibit, or impose strict conditions on, the opening or maintaining of a U.S. correspondent account or payable-through account for a foreign financial institution that the government finds have knowingly aided or facilitated certain activities benefitting the Government of Iran, Iran’s Islamic Revolutionary Guard Corps (IRGC), or Iranian financial institutions.  CISADA also makes it easier for state and local governments to prohibit investments of public funds in companies which are investing in Iran.

The penalties for institutions or companies found violating these new regulatory provisions are severe.  Civil penalties may be imposed up to $250,000 or twice the value of the transaction involved.  In addition, criminal penalties for willful violations of the law include fines of up to $1 million and prison sentences of up to 20 years.

One key provision of CISADA is the civil and criminal liability for parent companies for acts by subsidiaries that the parent had “reason to know” could lead to a violation of the law.  This is an attempt by the government to close one of the many loopholes which have allowed U.S. companies to benefit for years from trade with Iranian which arguably violated previous sanctions.