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August 18, 2016

OFAC Provides More Guidance Regarding General License H

This summer, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) updated its Frequently Asked Questions (“FAQs”) to provide further explanations and clarifications of General License H. General License H was originally implemented in January 2016 to remove, subject to certain restrictions and limitations, the secondary sanctions that had previously applied to foreign subsidiaries of U.S. companies. General License H had been implemented pursuant to the Joint Comprehensive Plan of Action (“JCPOA”).[1] OFAC added nine FAQs (K.14 – K.22) related to General License H. Below we provide a brief synopsis of three of them.

FAQ K.20 confirms that generally U.S. persons employed by or serving on the board of directors of a U.S.-owned or –controlled foreign entity (or any other foreign entity) must be recused or “walled off” from all Iran-related business of that entity, subject to certain limited exceptions. OFAC suggests, in this FAQ, that U.S.-owned or –controlled foreign entities consider instituting a blanket recusal policy (as opposed to case-by-case abstentions) for U.S. person directors, managers, and employees with respect to Iran-related matters. This helps ensure that no prohibited facilitation takes place.[2]

FAQ K.21 confirms, that while a U.S. parent company must remove itself from all day-to-day operations of its owned or controlled foreign entity that relate to Iran, the U.S. parent company may continue to be involved in its owned or controlled foreign entity’s day-to-day operations regarding non-Iran related operations.

Lastly, FAQ K.22 confirms that U.S. parent companies may receive reports from their owned or controlled foreign entities that include details on transactions the foreign entity conducted with Iran pursuant to General License H, including reports on transactions that the U.S. parent company is required to disclose to the Securities and Exchange Commission. OFAC noted here that U.S. persons remain prohibited from engaging in the Iran-related activities of U.S.-owned or –controlled foreign entities and cannot attempt to influence Iran-related business decisions based on the reports.

OFAC also added two FAQs related to Iran-related financial and banking measures (C.15 and C.16).

If you have specific questions regarding any of the updated FAQs, including those not summarized in this article, please contact us.

[1] The JCPOA, a historic agreement between the P5+1 (the United States, Russia, China, United Kingdom, and France, plus Germany) and Iran, is intended as a long-term, comprehensive solution to prevent Iran from obtaining a nuclear weapon. On January 16, 2016, as a result of Iran verifiably meeting its nuclear commitments under the JCPOA, the U.S. lifted the bulk of its secondary sanctions on Iran, which are those that applied to non-U.S. persons including foreign subsidiaries of U.S. companies. The U.S.’s primary sanctions on Iran—those prohibiting U.S. persons and companies from trading with or otherwise doing business with Iran, remain in full effect.
[2] Section 560.208 of the Iranian Transactions and Sanctions Regulations prohibits U.S. persons, wherever located, from approving, financing, facilitating, or guaranteeing any transaction by a foreign person where the transaction would be prohibited if performed by a U.S. person or within the United States.