1. Preliminary Analysis
1.1. Intro
1.1.1. Received inquiry from Bridge Build involving potential exports to Iran
1.1.2. About Bridge Build
1.1.2.1. Offers a wide spectrum of services in the field of consulting, networking and project management in North America, Europe, Asia, and Africa.
1.1.2.2. Offices in Germany and the U.S.
1.1.3. Basic facts:
1.1.3.1. Two manufacturers based in Bangladesh and Russia producing Covid-19 medicines Remdeivir and Favibirin.
1.1.3.2. They [assuming this means the manufacturers] found two buyers in Germany.
1.1.3.3. The plan:
1.1.3.3.1. 1. German buyers will purchase large quantities of the item from the manufacturers.
1.1.3.3.2. 2. The German buyers will sell the item to their clients throughout the world.
1.1.3.3.3. 3. It is possible that German buyer will send the item to countries that are subject to U.S sanctions.
1.1.3.3.4. 4. BB will receive a commission for each transaction.
1.1.3.4. The question:
1.1.3.4.1. Can this plan proceed even if there is a good chance that the item will end up in Iran or another sanctioned country?
1.1.4. Short Answer
1.1.4.1. BB can indirectly (i.e., through intermediary countries and buyers) export Remdeivir and Favibirin to Iran if it obtains OFAC General License N (“Iran GL N”), which authorizes certain COVID-19-related transactions that would otherwise be prohibited under ITSR.
1.1.4.2. This exception does not apply to certain conditions enumerated in paras. (d) and (e) of the GL, so we have to make sure that those conditions are not present.
1.1.4.3. To do this, we will need more information.
1.1.5. Disclaimer:
1.1.5.1. Preliminary analysis
1.1.5.2. Need more information to provide conclusive guidance
1.1.5.3. Focus is on Iran (might need separate assessments for other end countries)
1.1.6. Next Steps
1.1.6.1. Questionnaire to gather more information
1.1.6.2. Analysis re: paras. (d) and (e)
1.1.6.3. Analysis (if needed) for other countries
1.1.6.4. Assistant with GL application process
1.2. Legal Framework
1.2.1. U.S. Control Export Control Regime
1.2.1.1. 1. The Export Administration Act (EAA) (which technically expired in 2001 but has been continued by executive authority under the International Emergency Economic Powers Act) regulates the export and re-export of commercial and “dual use” (i.e., may be used for commercial and military/proliferation applications) items. The Bureau of Industry and Security (BIS), part of the Department of Commerce (DOC), enforces the corresponding Export Administration Regulations (EAR).
1.2.1.2. 2. The Arms Export Control Act (AECA) regulates the export and re-export of “defense articles” and “defense services.” The Directorate of Defense Trade Controls (DDTC), part of the Department of State (DOS), enforces the corresponding International Traffic in Arms Regulations (ITAR).
1.2.1.3. 3. The Office of Foreign Assets Control (OFAC), part of the U.S. Department of Treasury, administers and enforces economic and trade sanctions against target countries, governments, persons, and activities. OFAC sanctions are principally authorized by Executive Orders under two broad Congressional grants of authority: the Trading with the Enemy Act (TWEA); and the International Emergency Economic Powers Act (IEEPA).
1.2.2. OFAC Sanctions Regime
1.2.2.1. General:
1.2.2.1.1. OFAC currently administers 25 U.S. economic sanctions programs
1.2.2.1.2. OFAC Jurisdiction
1.2.2.1.3. Exemptions and Licenses
1.2.2.2. Key Concepts:
1.2.2.2.1. 50% Rule
1.2.2.2.2. Strict Liability
1.2.2.2.3. "Facilitation"
1.2.2.2.4. "Secondary Sanctions"
1.3. Regime Governing Exports to Iran
1.4. Humanitarian Exceptions for COVID-19 Relief
1.4.1. Press Release:
1.4.1.1. OFAC issued three on June 17, 2021
1.4.1.2. Pursuant to National Security Memorandum-1
1.4.1.2.1. Directed Treasury, Commerce, State, HHS, and USAID to promptly review existing United States and multilateral financial and economic sanctions to evaluate whether they are unduly hindering responses to the COVID-19 pandemic worldwide
1.4.2. Overarching Goal:
1.4.2.1. Expand upon existing humanitarian exemptions, exceptions, and authorizations to cover additional COVID-19-related transactions and activities (incl. delivery of face masks, ventilators, oxygen tanks, tests, vaccines)
1.4.3. FAQs
1.4.3.1. OFAC issued six on June 17, 2021
1.4.3.2. 906
1.4.3.2.1. Iran GL N expands authorizations under the Iran sanctions program to cover certain items that previously would have required a specific license for exportation or reexportation to Iran, such as certain COVID-19 testing or vaccine manufacturing equipment.
1.4.3.2.2. Both U.S. persons and non-U.S. persons whose activities are within U.S. jurisdiction — including exporters, nongovernmental organizations, international organizations, and financial institutions — may rely upon the authorizations in these COVID-19-related GLs provided they meet the applicable conditions.
1.4.3.2.3. .All three GLs expire on June 17, 20
1.4.3.3. 907
1.4.3.3.1. For purposes of Iran GL N, covered COVID-19-related goods or technologies include "[...] medicines, or other therapies to treat COVID-19 [...]"
1.4.3.3.2. Ensure that these items are properly classified under para. (d)(1) of Iran GL N.
1.4.3.4. 908
1.4.3.4.1. Under Iran GL N, services related to the prevention, diagnosis, or treatment of COVID-19 include, for example:
1.4.3.5. 909
1.4.3.6. 910
1.4.3.7. 911
1.4.3.7.1. Non-U.S. persons do not risk exposure under U.S. sanctions for engaging in certain activities to respond to the COVID-19 pandemic that would be authorized under Iran GL N, Syria GL 21, or Venezuela GL 39, as appropriate, if engaged in by a U.S. person.
2. Legal Assessment: Qualification for General License N
2.1. Background:
2.1.1. Context:
2.1.1.1. The Client:
2.1.1.1.1. In August 2021, BridgeHouse Law LLP received an inquiry from Azim Mir, Managing Director of Bridge Build LLC ("Bridgebuild") regarding potential exports to Iran.
2.1.1.1.2. Bridge Build, which has offices in the U.S. and Germany, offers a wide spectrum of services in the fields of consulting, networking, and project management in North America, Europe, and Africa.
2.1.1.2. The Facts:
2.1.1.2.1. Two manufacturers are producing the Covd-19 medicines Favibirin and Remdesivir ("the items"):
2.1.1.2.2. In coordination with the manufacturers, Bridge Build, along with the Dutch firm "Mach-E B.V.," plans to act as a "mediator," bringing together global buyers and sellers of the items.
2.1.1.2.3. Within the scope of this arrangement, there is "no doubt" that the items will eventually be sold to an Iranian buyer ("Dalahoo Pars Gostar International").
2.1.1.2.4. For each transaction under this arrangement, Bridge Build will receive a commission from a German bank.
2.1.2. Question:
2.1.2.1. Since this project would involve the export of items to Iran, Bridge Build has asked BridgeHouse Law to assess whether, given the facts presented, the transaction would comply with U.S. export laws.
2.1.3. Results of Preliminary Assessment:
2.1.3.1. A preliminary assessment determined that:
2.1.3.1.1. Bridge Build may facilitate the export of the items to the Iranian buyer if the transaction qualifies for OFAC General License N (“Iran GL N”), which authorizes certain COVID-19-related transactions that would otherwise be prohibited under the Iranian Transactions and Sanctions Regulations ("ITSR").
2.1.3.1.2. This authorization, however, does not apply to certain conditions enumerated in paras. (d) and (e) of the GL.
2.1.3.1.3. Accordingly, BridgehouseLaw distributed an "Assessment" to Bridge Build designed to gather all facts relevant to a comprehensive assessment under paras. (d) and (e). The answers to this Assessment are available [here].
2.1.4. Objective:
2.1.4.1. Provide a comprehensive, objective assessment of whether the planned transaction, as described by Bridge Build, qualifies for authorization under GL N.
2.1.5. Caveats:
2.1.5.1. This assessment is limited to U.S. law. Non-U.S. parties will be responsible for ensuring that all transactions are in full compliance with any applicable non-U.S. laws.
2.1.5.2. Given that BridgeBuild expressly instructed BridgeHouse Law not to contact the manufacturers of the items, and accordingly BridgeHouse Law had to rely on secondary information to classify the items on the Commerce Control List (CCL), any conclusion that the transaction is authorized under GL N will be subject to the following condition: Bridge Build shall confirm with the manufactures that the items are both designated "EAR99." [link to attachment].
2.1.5.3. This assessment relies on facts provided by Bridge Build, as enumerated in the Assessment. Bridge Build has attested that these facts constitute the full scope of its current knowledge pertaining to all relevant matters [link to signed document].
2.1.5.4. Moreover, Bridge Build has acknowledged that it has an ongoing duty to comply with all applicable export laws and, if it becomes aware of any new information that impacts anything presented in this document, it will immediately inform BridgeHouse Law [link to signed document].
2.1.6. Roadmap:
2.2. Executive Summary:
2.3. Overview of U.S. Export Controls:
2.3.1. Introduction:
2.3.1.1. The U.S. export control regime is vast, complex, and constantly changing. At least sixteen federal agencies are responsible for the enforcement of roughly thirty distinct, yet often overlapping, federal statutes and regulations.
2.3.1.2. These laws apply to exports of both tangible and intangible (e.g., technology; technical data; software, trade secrets) items.
2.3.1.3. Violations by business entities and natural persons are subject to both criminal and civil penalties.
2.3.1.4. Generally, the U.S. has jurisdiction with respect to a particular transaction if either: (1) the entity that exports the item is a “U.S. Person” or (2) the item itself is of “U.S. Origin.”
2.3.1.5. Entities that are not technically considered "exporters" are nonetheless generally subject to U.S. jurisdiction if they help "facilitate" an export. These entities are referred to as "facilitators," a term that has been broadly construed.
2.3.2. General Legal Framework:
2.3.2.1. There are three main federal authorities governing U.S. exports:
2.3.2.1.1. 1. The Export Administration Act (EAA) (which technically expired in 2001 but has been continued by executive authority under the International Emergency Economic Powers Act) regulates the export and reexport of commercial and ‘dual use’ (i.e., may be used for commercial and military/proliferation applications) items. The Bureau of Industry and Security (BIS), part of the Department of Commerce (DOC), enforces the corresponding Export Administration Regulations (EAR).
2.3.2.1.2. 2. The Arms Export Control Act (AECA) regulates the export and reexport of “defense articles” and “defense services.” The Directorate of Defense Trade Controls (DDTC), part of the Department of State (DOS), enforces the corresponding International Traffic in Arms Regulations (ITAR).
2.3.2.1.3. 3. The Office of Foreign Assets Control (OFAC), part of the U.S. Department of Treasury, administers and enforces economic and trade sanctions against target countries, governments, persons, and activities. OFAC sanctions are principally authorized by Executive Orders under two broad Congressional grants of authority: the Trading with the Enemy Act (TWEA); and the International Emergency Economic Powers Act (IEEPA).
2.3.3. EAR Overview:
2.3.3.1. Most exports of commercial items from the U.S. to foreign countries fall within the jurisdiction of the Department of Commerce (DOC). The Bureau of Industry and Security (BIS), which is part of DOC, implements EAR, which regulates the export and re-export of most commercial items. These include (1) “purely commercial items” (no obvious military applications) and (2) “dual-use items” (both commercial and military/proliferation applications).
2.3.3.2. As a general matter, before a company may export a commercial item that is subject to EAR, it must determine whether a BIS “License” is required.
2.3.3.3. A relatively small percentage of U.S. exports and reexports require a BIS License. To determine whether a license is required, a company should ask four questions:
2.3.3.3.1. 1. What is being exported?
2.3.3.3.2. 2. Where is the item being exported to?
2.3.3.3.3. 3. Who will receive the item (this must take into account all parties to the transaction)?
2.3.3.3.4. 4. What will the item be used for?
2.3.3.4. Based on the answers to these questions, there are three possible courses of action:
2.3.3.4.1. 1. Export under "No License Required (NLR)." [Part 758]
2.3.3.4.2. 2. Export using License issued by BIS. [Part 758]
2.3.3.4.3. 3. Export using License Exception/ (Part 758]
2.3.4. Key Features of OFAC Sanctions:
2.3.4.1. Programs: OFAC currently administers 25 U.S. economic sanctions programs. These programs are based on jurisdiction (e.g., Iran, Cuba, Syria) and transaction-type (e.g., terrorism, transnational organized crime, narcotics trafficking).
2.3.4.2. Exemptions and Licenses: Most OFAC sanctions programs have exemptions and licenses (general and specific) authorizing otherwise prohibited types of transactions. To export an item authorized under a specific license, an exporter must apply for and obtain a license from OFAC. To export an item under a general license, an exporter does not need to obtain a specific document, but must determine whether it qualifies for the license and document its reasoning.
2.3.4.3. The “50% Rule”: U.S. sanctions apply by operation of law to any entity owned in the aggregate, directly or indirectly, 50 percent or more by persons on the SDN List, such that the entity itself is considered to be a blocked person and all the same restrictions apply to it.
2.3.4.4. Strict Liability: U.S. sanctions are a strict liability regime. Any person who violates the sanctions regulations may be subject to civil and/or criminal penalties. If prohibited conduct occurs, it can be a violation of law whether or not one intended to engage in the activity.
2.3.4.5. Secondary Sanctions. Even if the U.S. does not technically have jurisdiction over a foreign entity, it may nonetheless impose sanctions in certain instances. These sanctions principally target foreign individuals and entities (including non-U.S. banks) for engaging in certain enumerated activities.
2.4. Regime Governing Sanctions against Iran:
2.4.1. ITSR
2.4.1.1. OFAC's regulatory powers with respect to Iran derive from a series of Executive Orders and Statutes, most notably the "International Emergency and Economic Powers Act" (IEEPA).
2.4.1.2. The cornerstone of the U.S. sanctions regime against Iran is the "Iranian Transactions and Sanctions Regulations" (ITSR) [31 CFR Part 560]." "Subpart B" of ITSR enumerates several "Prohibitions." [§560.201 through §560.216].
2.4.1.3. As a general matter, these prohibitions only apply to "U.S. persons." There is, however, one provision that applies directly to non-"U.S. Persons." [§560.205].
2.4.2. Humanitarian Exceptions for COVID Relief
2.4.2.1. New General Licenses
2.4.2.1.1. On June 17, 2021, OFAC issued a press release announcing three new General Licenses (GLs).
2.4.2.1.2. OFAC issued the GLs pursuant to National Security Memorandum-1, which directed Treasury, Commerce, State, HHS, and USAID to promptly review existing U.S. and multilateral financial and economic sanctions to evaluate whether they are unduly hindering responses to the COVID-19 pandemic worldwide.
2.4.2.1.3. These GLs expand upon existing humanitarian exemptions, exceptions, and authorizations to cover additional COVID-19- related transactions and activities.
2.4.2.2. General License N
2.4.2.2.1. General License N (GL N) expands authorizations under the Iran sanctions program to cover certain items that previously would have required a specific license for exportation or reexportation to Iran, such as certain COVID-19 testing or vaccine manufacturing equipment.
2.4.2.2.2. Both U.S. persons and non-U.S. persons whose activities are within U.S. jurisdiction may rely upon the authorizations in GL N provided they meet the applicable conditions. To assist potential exporters, OFAC concurrently published several FAQs (906-11). FAQs 907 and 908 both expressly state that the authorizations under GL N apply to the export of Covid-19- related medications:
2.4.2.2.3. It is crucial to keep in mind that these authorizations are subject to a number of conditions outlined in paras. (d) and (e) of GL N.
2.5. GL N Assessment:
2.5.1. Methodology [Reference Decision Tree]:
2.5.1.1. Question: Is the transaction authorized under GL N?
2.5.1.2. Threshold Matters:
2.5.1.2.1. The transaction is subject to EAR because it is not subject to the exclusive jurisdiction of another federal entity. Specifically, DOS has no jurisdiction because the items do not appear on the U.S.M.L. and do not fall under ITAR's "catch-all" category.
2.5.1.2.2. DOC has jurisdiction over the transaction because Bridge Build is a U.S. Person (Georgia LLC) and would be acting as a "facilitator" (bringing together buyers and sellers).
2.5.1.2.3. Assuming that the items are designated EAR99, the transaction does not require a License under EAR:
2.5.1.2.4. Accordingly, next step is to look at ITSR and OFAC exemptions.
2.5.1.3. Authorized Transactions (paras. (a) through (c))-->
2.5.1.3.1. 1. Does transaction meet language of GL N (a)(1)?
2.5.1.3.2. These transactions are expressly authorized unless they are prohibited by paras. (d) or (e).
2.5.1.3.3. 2. Assuming the transaction qualifies for authorization under GL N, will it be concluded before the license expires?
2.5.1.3.4. 3. To the extent that the transaction will involve the Central Bank of Iran (CBI), will the CBI’s activities be limited to processing of funds transfers or trade financing transactions that are ordinarily incident and necessary to give effect to transactions authorized under GL N? [para. (c)]
2.5.1.4. Para. (d)-->
2.5.1.4.1. Product Classification-->
2.5.1.5. Para. (e)-->
2.5.1.5.1. (1) and (2)-->
2.5.1.5.2. (3) and (4)-->End-use screening-->
2.5.1.5.3. (5)-->Compliance with other applicable laws-->
2.5.1.6. Prohibited Transactions (paras. (d) and (e))-->
2.5.1.6.1. Even if a transactions is presumptively authorized under the preceding paras., it will not be authorized if it does not meet the conditions of para. (d) or is prohibited under para. (e).