Obama’s Not Slowing Down On Cuba: New Steps Forward Open Doors (and Humidors!) for Collaboration

With fewer than 100 days left in office, President Obama is not slowing down on his efforts to normalize relations between the United States and Cuba. Today, several changes to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR) go into effect. Those changes build on the plan President Obama laid out in December 2014 to increase the means for Americans and Cubans to collaborate in business, education, travel, and humanitarian work. The amendments will strengthen the ties between the two countries, stimulate Cuba’s private sector, create commercial opportunities for both the American and Cuban people, and potentially improve the lives of many Cubans. U.S. companies looking to expand into Cuba should review these changes carefully to identify and develop strategies for growth.

We have included some highlights from the updated regulations below that could significantly  impact your business (or may prompt you to create a new one!). For the full CACR amendments, click here. For the full EAR amendments, click here.

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Those Three Little Words: OFAC’s Subtle Language Shift Could Create Sweeping Change on Iran Investment

Article Highlights:

  • Non-U.S. banks can do business with Iran and continue their relationships with U.S. banks.
  • Non-U.S. companies may use proceeds from Iran transactions more freely, including in the United States.
  • OFAC draws a clearer line with respect to the use of Iran-related funds.

After the Iran nuclear agreement, as non-U.S. companies entered into newly-permitted business in Iran, they faced the difficult question of where they could put the money from their Iran business. U.S. law still prohibits U.S. persons (including U.S. banks) from conducting most business with Iran. Among other rules, OFAC regulations and guidance provided that “Iran-related” funds could not transit the U.S. financial system. But the guidance did not state clearly what constituted “Iran-related” funds. For that reason, foreign financial institutions (FFIs) hesitated, even feared, to process Iran-related transactions because of the risks of sending Iran-related funds into the U.S. financial system in violation of U.S. sanctions. However, a new clarification in the OFAC guidance could change all of that (and change it in the way we proposed right here in this blog[1]).

The Change

On October 7, 2016, OFAC amended one phrase in FAQ C-15 of its Frequently Asked Questions on the implementation of the Iran nuclear agreement. Previously, the FAQ read as follows:

It remains prohibited, however, for non-U.S. financial institutions to route Iran-related transactions through U.S. financial institutions or involve U.S. persons in such transactions, unless the transactions are exempt from regulation or authorized by OFAC.

As of October 7, 2016, that sentence has been revised to read as follows:

It remains prohibited, however, for non-U.S. financial institutions to route transactions involving Iran to or through the U.S. financial system, or involve U.S. persons in such transactions, unless the transactions are exempt from regulation or authorized by OFAC.

[Emphasis definitely added by us.]

Did you see what they did there?[2] By changing the phrase “Iran-related transactions” to “transactions involving Iran,” OFAC has established  a much brighter line by which FFIs and non-U.S. companies can determine whether Iran-related funds are permitted enter the U.S. system. The elegant simplicity with which OFAC has drawn that line (only three little words!) merits the admiration of legal drafters everywhere.

The Implications

Prior to the OFAC guidance change, an FFI holding an account containing proceeds from a transaction in Iran could not be certain whether it could process those funds through the U.S. system. Additionally, it was unclear whether the Iran-related proceeds would taint the rest of the funds in the account so that no funds in that account could transit the U.S. banking system.

Under the new guidance, it is clear that where a transaction does not involve Iran or persons in Iran, OFAC’s policy is that the funds involved in that transaction may transit the U.S. system. Thus, in our view, if a transaction is complete and the only connection to Iran is that funds in an account were derived from an Iranian transaction, it is permissible for those funds to transit the U.S. financial system. The funds can be exchanged for U.S. dollars, spent on U.S. goods, or paid to U.S. persons for goods and services, so long as those goods or services are not intended for Iran.

We caution that the transaction must legitimately not involve Iran, so the Bank must have systems in place to prevent transactions actually involving Iran from transiting the U.S. system. Of course, the United States can be expected to investigate and strongly penalize activity in which a transaction is set up to appear as if it does not involve Iran, but effectively permits Iran or persons in Iran to make use of the U.S. system.

The Next Steps

If your business involves Iran, this is your first agenda item at the next meeting with your bank. If you have lawful business in Iran and you hold the proceeds of that business in an account with an FFI, you may now provide comfort to your bank that those funds are yours to spend as you please. The transactions you undertake with those funds that do not involve Iran may involve U.S. persons and may use the U.S. banking system. Iran is still effectively barred from using the U.S. banking system, but you are not.

If you are an FFI, you have the opportunity to support and finance all the non-U.S. companies that are champing at the bit to lawfully enter an untapped market of more than 77 million people. You will, of course, need to undertake due diligence measures to ensure that fraudulent transactions do not put you at risk of routing “transactions involving Iran” through the United States. However, we believe FFIs can take these three little words from OFAC as an invitation to join the effort to open business in Iran and open Iran for business.


[1] With the readers’ permission, we will go on and, as the poet suggests, brush our shoulders off.

[2] Well, yeah, probably so. That’s why we added the emphasis. In fact, in every instance in the FAQ of the phrase “Iran-related transaction,” it has been changed to “transaction involving Iran.”

A Surge In Populism: Dangers To Transnational Trade In The Americas And Reasons For Hope

The ongoing presidential election in the United States has underscored a move against free trade by both of the main political parties.  This article briefly summarizes some of the proven benefits of free trade and juxtaposes these with the stated positions of the Democratic and Republican parties in the pending presidential election.  The article also examines, and disposes of, several of the key criticisms of the legal framework underpinning further trade integration.  The article ends hopefully—historically, U.S. Presidents have abandoned anti-trade campaign rhetoric once in the Oval Office.

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Espionage and Export Controls: The iPhone Hack Highlights The New World of Warfare

Last week, researchers at Citizen Lab uncovered sophisticated new spyware that allowed hackers to take complete control of anyone’s iPhone, turning the phone into a pocket-spy to intercept communications, track movements and harvest personal data. The malicious software, codenamed “Pegasus,” is believed to have been developed by the NSO Group, an Israeli company (whose majority shareholder is a San Francisco based private equity firm) that describes itself as a “leader in cyber warfare” and sells its software — with a price tag of $1 million – primarily to foreign governments. The software apparently took advantage of three previously unknown security flaws in Apple’s iOS software, and was described by experts as “the most sophisticated” ever seen on the market. Apple quickly released a patch of its software, iOS 9.3.5, and urged users to download it immediately.

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Layover in Tehran: United States Authorizes Carriers to Land Civil Aircraft in Iran

On July 29, 2016, the U.S. Treasury Office of Foreign Assets Control (OFAC) cleared the runway for non-U.S. operators of civil aircraft to send flights into Iran. New  “General License J” authorizes many Boeing, Airbus, and other civil aircraft containing U.S.-origin materials to fly to Iran on “temporary sojourn.” The General License provides a great opportunity for non-U.S. aircraft owners and operators. However, a series of complex conditions may complicate ground handling agreements, damp or dry lease arrangements, code sharing, or other transactions related to providing service to Iran.

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The Revival of the Age of Antidumping and Countervailing Duty Cases

For the first time since the era of pagers, dial-up, and Y2K hysteria, U.S. trade remedy cases are experiencing a resurgence. Under U.S. law, U.S. producers of goods may petition the U.S. government to impose extra tariffs on the import of competing goods deemed to be traded unfairly.

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The Morning After: Waking up to Brexit and Its Impact on Your Business

On the morning of June 24, 2016, we woke up to a headline that had been much discussed, but still added a jolt to many people’s morning coffee: Britain to Leave the European Union.

The first response, almost inevitably, was fear and confusion. Global markets dropped precipitously (as did the Pound Sterling and the Euro) until the Bank of England spoke up to reassure investors, and even then the exchanges appeared jittery. Nevertheless, after bolting from bed in the first shocking instant, we propose a calmer moment to reflect on the new reality. Over breakfast (English breakfast tea with that, perhaps?), we may carefully examine how Brexit will impact global business.

To begin, we have taken that moment to analyze the implications of the UK’s separation from the European Union in the realm of sanctions, export controls, and foreign investment in the United States. We address those implications in the four questions below. Continue Reading

Are You Within Reach of Anti-Money Laundering Enforcement? The Tentacles of Money Laundering Schemes Affect Real Estate Investors Worldwide

The U.S. Treasury Department has signaled the latest focus of its enforcement: real estate ventures with ties to money laundering schemes. Individual real estate investors and companies involved in luxury real estate, real estate development or investment, property management, and escrow or mortgage services around the globe should heed Treasury’s warnings.

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Buying Russian Bonds: Risky Business or Safe Bet?

In late May, The Russian Federation issued its first sovereign bond since the Ukraine crisis in 2014. The sole organizer of the bond is VTB Capital, an arm of VTB Bank, Russia’s second largest financial institution. Both VTB Capital and VTB Bank are subject to sectoral sanctions.

According to published reports, the 10-year bond is being offered at yields of 4.65-4.9 percent. Russia’s goal was to raise $3 billion to help with its budget deficit caused by weak oil prices. Reportedly, the bond generated $7 billion of demand, though the Russian finance ministry announced only $1.75 billion in sales. Foreign investors constituted more than 70% of the bond purchasers. According to media reports, large global banks declined to participate, partly due to sanctions compliance risks. But as we will see, the compliance risks aren’t very clear. We will examine the exact risks and evaluate the question of why banks might be over-complying.

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Flying the Too-Friendly Skies? Europe Opens Routes for Sanctioned Iran Airline

On June 20, 2016, you will be able to take a non-stop flight from Tehran to Paris . . . but you probably shouldn’t.

According to its website, the Iranian airline Mahan Air will add the City of Lights to the list of European destinations it is already serving, including Athens, Copenhagen, and Dusseldorf. What makes the current and proposed Mahan routes interesting to regulatory experts (read: nerds) is that Mahan Air is on the U.S. Treasury’s Specially Designated Nationals (SDN) list. According to the Treasury’s Office of Foreign Assets Control (OFAC), Mahan Air has moved troops and equipment for the Iranian Revolutionary Guard Corps and has provided support and transport to the Assad regime in Syria.

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