The Covid-19 international crisis may be regarded as an alarm bell as to questions around the legitimacy of international economic sanctions, at least when said sanctions may materialize as an impediment to a proper crisis management including procurement of necessary equipment or provision of international humanitarian assistance.
In the case of Iran, the arsenal of U.S. economic sanctions, gradually strengthened since the US’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA), has been significantly affecting international trade and financial transactions with Iran.
Indeed, to date, not only U.S. persons are subject to limitations when it comes to trading with Iran, non-US nationals and entities are also potentially subject to U.S. sanctions should they perform any prohibited activities in relation to Iran. In this respect, the Trump Administration increased the number of sectors targeted by the sanctions’ regulations in comparison to the sanctions enforced prior to the JCPOA. At that time, the U.N. and the E.U. had also imposed economic sanctions on the country, although they were lifted pursuant to the JCPOA.
The extra-territorial effect of sanctions, acting as a strong deterrent from trading with Iran, has been paralyzing international business relations with Iran for the past two years, despite political efforts from the Iranian government and other parties to the JCPOA.
The Iranian government, its partners as well as humanitarian non-governmental organizations have been insisting on the detrimental effects of the U.S. economic sanctions on humanitarian trade and assistance to/with Iran, threatening a healthcare crisis, increasing poverty in the country and entailing a lack of access to basic and essential services and equipment.
It is worth underlying that these limitations are violating an International Court of Justice (“ICJ”) ruling under which provisional measures were required to be enforced while the litigation case filed by Iran against the U.S. is being studied by the ICJ. The ruling states that the U.S. shall remove any impediments to the free exportation to Iran of: medicines and medical devices; foodstuffs and agricultural commodities; and spare parts, equipment and associated services for the safety of civil aviation; and adds that the U.S. shall ensure that licenses and necessary authorizations are granted and that payments and other transfers of funds are not subject to any restrictions in so far as they relate to the referred goods and services.
In order to limit detrimental consequences of sanctions, the U.S. issued the “General Licenses” that allow performance of some activities in connection to Iran without the need for a specific permission to be obtained, some of these licenses aiming to address the humanitarian concerns.
However, these licenses are not necessarily sufficient to address these issues, considering their scopes, limits and wording, which makes it difficult for a person to get confirmation that it may benefit from sanctions’ exemption provided by the relevant license.
Finally, a main impediment to the implementation of exempted transactions arises from financial institutions’ behavior, motivated by fear of sanctions. Indeed, non-U.S. Financial Institutions generally refrain from processing transactions with Iran under the threat of losing their access to the U.S. financial market. This even more so since the listing of the Central Bank of Iran (CBI) by the U.S. Office of Foreign Assets Control (OFAC) on the Specially Designated Nationals and Blocked Persons List (SDN List) on the grounds of alleged links with the Islamic Revolutionary Guard Corps (IRGC) in September last year. The IRGC is itself considered by the U.S. administration as a Foreign Terrorist Organization (FTO) since April 2019.
In February 2020, the Iranian Government confirmed the first cases of COVID 19 in the country, creating one of the first unexpected sanitary emergencies that subsequently extended globally.
Soon after, the OFAC issued on February 27th 2020 a General License 8 (GL 8) “Authorizing Certain Humanitarian Trade Transactions Involving the CBI”. The GL 8 authorizes certain activities or transactions on agriculture, medicine and medical device sectors that involve the CBI that would be otherwise prohibited ever since the above-mentioned designation of the CBI. Therefore, the GL8 is directly linked with the so-called Humanitarian General License, i.e. in relation with the trade of agri-food items, medicine and medical devices.
In a nutshell, the authorized activities and transactions involving the CBI generally permitted under the ITSR (Iran Transactions and Sanctions Regulations) are as follows:
- 1. Transactions and activities linked to sales of agricultural commodities, medicine, medical devices and certain related software and services are permitted when the CBI is involved (excludes export and re-export) – 31 CFR §560.530 (subject to some exceptions and non-covered items).
- 2. Financing and payment of the above-mentioned activities – 31 CFR §560.532.
- 3. Brokerage services for sales of agricultural commodities, medicines and medical devices – 31 CFR §560.533.
- 4. Transactions and activities ordinarily incident and necessary to transactions authorized in this General License on agricultural commodities, medicine, medical devices and certain related software and services (31 CFR §560.516 and §560.405).
Therefore, the GL8 should provide comfort to banks that are requested to process transactions authorized under the Humanitarian General License. It shall be highlighted that this General License 8 applies to the Central Bank of Iran only; Iranian private banks, depending on the sanction tag under which they are listed under the SDN List, may not be able to process payments for humanitarian trade.
Although the actual efficiency of the GL8 in the context of global crisis is yet to be ascertained, the clarifications provided by GL8 would be expected to help humanitarian trade with Iran, notably in the context of the foreseen or existing channels in this respect.
It shall also be noted that the OFAC issued on March 6, 2020 the FAQ (frequently asked questions) n°828 about ways to help the Iranian people to fight against COVID19 (licenses over medicines and medical devices and General License E on humanitarian assistance).
Although the U.S. has been taking into account the difficulties that sanctions may create for a targeted state in domestic matters that affect their people and provides licenses to mitigate the effect of sanctions on the most vulnerable, particular attention is to be consecrated to the actual effect of these tools in light of the established needs.
In this regard, expert legal advisors may be involved in order to analyze whether the envisioned humanitarian activities with Iran may actually be implemented as exempted activities under one of the General Licenses.
Article written by Rebecca Guyot, Lawyer, and Agustina Paladino, Legal Advisor.