On June 5, 2020, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) published four Frequently Asked Questions (the “FAQs”) regarding Iran-related sanctions under Executive Order 13902 (“EO 13902”). EO 13902 authorizes the imposition of secondary sanctions targeting the Iranian construction, mining, manufacturing, and textile sectors and persons engaged in “significant transactions” or providing “material support” to parties designated pursuant to the order. Our blog post regarding EO 13902 is available here.
The FAQs reconfirm that Iranian manufacturers of medicines, medical devices, or products used solely in Iran for sanitation, hygiene, medical care, medical safety, and manufacturing safety (including soap, hand sanitizer, ventilators, respirators, personal hygiene products, diapers, infant and childcare items, personal protective equipment, and manufacturing safety systems) will not be targeted under EO 13902 as operating in the manufacturing sector of the Iranian economy. Further, persons facilitating transactions for the provision of agricultural commodities, medicine, or medical devices to Iran will not be subject to sanctions under EO 13902.
In addition, the FAQs provide definitions of the targeted sectors and the specific goods or services “used in connection with” the targeted sectors and provide OFAC’s interpretation of the key terms “knowingly” and “significant” for EO 13902 purposes, as follows:
Sectors, Goods, and Services Targeted in EO 13902
The FAQs provide definitions for each of the Iranian sectors targeted by EO 13902 and list certain goods and services that are targeted for their connection with the sectors. These lists are not exhaustive, and OFAC expects to issue regulations that will formally define each of the terms. Goods and services that protect persons operating in the targeted sectors are explicitly excluded from being goods or services used in connection with the targeted sectors.
- Construction sector of the Iranian economy: means the production, procurement, devising, framing, or arranging in Iran of parts or materials to fabricate, shape, or form buildings or structures, including the on-site development, assembly, or construction of residential, commercial, or institutional buildings in Iran. Engaging in new work, additions, alterations, maintenance, and repairs of residential, commercial, or institutional buildings is considered operating in the construction sector. For-sale builders, design-build firms, and project construction management firms in Iran may be considered as operating in this sector.
- Goods used in connection with the construction sector: means equipment or materials that enable construction activities or services. Building supplies, concrete, scaffolding, lifts, hoists, cranes, conveyors, and mechanized equipment for material handling are included.
- Services used in connection with the construction sector: includes blasting, demolition, dredging, electrical work, excavating, masonry, plumbing, rigging, welding, for-sale building, design-build consultations, and construction management.
- Mining sector of the Iranian economy: means any act, process, or industry of extracting, at the surface or underground, ores, coal, precious stones, or any other minerals or geological materials from the earth in Iran.
- Goods used in connection with the mining sector: means equipment or materials that enable mining activities or services. Boring equipment, conveyor belts, directional digging technology, haul trucks, hydraulic excavators, explosives, and power shovels are included.
- Services used in connection with the mining sector: includes auguring, boring, back-filing, combusting, crushing, exploration, grinding, grading, irrigating, impounding, magnetic separation, mineral processing, geophysical surveying, mapping services, operating mines or quarries, site preparation, and related construction activities.
- Manufacturing sector of the Iranian economy: means the creation in Iran of goods by manual labor or machinery that are for export from Iran or for sale within Iran. The FAQs reaffirm that persons manufacturing medicine, medical devices, or products used for sanitation, hygiene, medical care, medical safety, and manufacturing safety for use in Iran will not be subject to secondary sanctions under EO 13902 for operating in Iran’s “manufacturing sector”. FAQ 830 appears to be a restatement of guidance first issued in OFAC’s Fact Sheet on the Provision of Humanitarian Assistance and Trade to Combat COVID-19 (the “Fact Sheet”), published on April 16, 2020. Our prior blog post regarding the Fact Sheet is available here.
- Goods used in connection with the manufacturing sector: means equipment or materials, tooling machinery, and components of finished products that enable manufacturing activities or services.
- Services used in connection with the manufacturing sector: includes new installment, additions, alteration, maintenance, and repair of manufacturing equipment; procurement or supply of raw materials for the manufacturing sector; and distribution services to persons in the manufacturing sector.
- Textiles sector of the Iranian economy: means the fiber synthesis, dyeing, weaving, knitting, or felting in Iran of textiles, including apparel, carpets, cloths, fabric, or related goods that are for export from Iran.
- Goods used in connection with the textiles sector: means equipment, machines, materials, and items used in the textile sector or that enable activities or services in the textile sector. Looms, industrial sewing machines, industrial washers and dryers, and industrial embroidery machinery are included.
- Services used in connection with the textiles sector: includes procurement or supply of raw materials for textiles production, and design of textiles products.
OFAC Interpretation of “Knowingly” and “Significant” for Purposes of EO 13902
Where applicable, OFAC generally relies on definitions of terms previously included in its regulations. In keeping therewith, FAQ 833 provides that OFAC will rely on the definition of “knowingly” as used in the Iranian Financial Sanctions Regulations at 31 C.F.R. § 561.314, which means that a person has actual knowledge, or should have known, of the conduct, the circumstance, or the result in question.
Regarding the definition of “significantly,” OFAC has adopted its usual interpretation of the term as it applies elsewhere (sometimes with minor variations) in the Iran sanctions program and in the Russia/Ukraine sanctions program. In particular, FAQ 833 confirms that in determining whether goods or services used in connection with the targeted sectors are “significant,” OFAC may consider the totality of the facts and circumstances and, in general, may consider some or all of the following seven broad factors:
- The value and number of goods or value and frequency of services;
- The nature of the goods or services, including their type, complexity, and commercial purpose;
- The level of awareness of management and whether the provision of goods or services is part of a pattern of conduct;
- The involvement of designated persons in transactions involving goods and services used in connection with the identified sectors;
- The impact of the provision of goods or services on the objectives of EO 13902;
- Whether the provision of the goods or services involved deceptive practices; and
- Other relevant factors that the Secretary of the Treasury deems relevant.