By Erich C. Ferrari (source: LobeLog)
Photo: Iranian students celebrating Nowruz, the Iranian New Year, at the LA County Museum of Art on March 14, 2010. Credit: The Farhang Foundation
With the Persian New Year upon us, it seems the Treasury's Office of Foreign Assets Control (OFAC), the main US federal agency tasked with the administration of economic sanctions, has gotten into the spirit. Today it issued General License G, a regulatory authorization designed to permit academic exchanges between Iran and the United States. The license also paves the way for the provision of scholarships to Iranian students, Iranian participation in online courses, and Iranian participation in university entrance and professional certification examinations.
With Iran's participation in on-going talks regarding its disputed nuclear program, the US appears to have found another concession that it can easily offer to the Iranians as a show of good faith. That said, what appears like an easing of sanctions is in reality merely the broadening of a current policy that benefits the Iranian people while also cutting down on the administrative paperwork OFAC will have to handle as it shifts from a specific licensing policy to a generally authorized one.
It really shouldn't come as a big surprise that the US has shifted its position on this type of activity. For some time OFAC has maintained a positive licensing policy in favor of academic exchanges, demonstrating that there is a belief within the government that the types of exchanges authorized by this new license do not harm the integrity of the sanctions program, nor impede US foreign policy objectives. But there have been setbacks. Consider the recent controversy surrounding the cessation of services by companies like Coursera to sanctioned jurisdictions such as Iran. Coursera and similarly situated private education service companies offer Massive Open Online Courses (MOOCs), which for some time where offered to parties in Iran but were recently suspended due to concerns over sanctions compliance. Part of the new General License G seeks to address this issue by authorizing the provision of online courses for certain areas of study.
While this all seems great on paper, sanctions critics will likely point to the fact that the majority of these services and/or exchanges will be accompanied by necessary financial transactions that other US sanctions on Iran currently impede. For example, how will an Iranian pay to participate in an online course? How will tuition payments be made? How does a US citizen relocating to Iran to participate in a course of study at an Iranian university transfer their money there? And where will they keep their funds since sanctions prohibit US persons from having a bank account at an Iranian bank?
General License G tries to answer some of these questions by including a note that makes it clear that US depository institutions can process transactions related to the General License pursuant to 31 C.F.R. 560.516. However, section 560.516 prohibits the debiting or crediting of an Iranian account, therefore all transactions must be routed through foreign financial institutions. The problem is that both domestic and foreign financial institutions have been skittish about processing any Iran-related transactions, even when they are clearly authorized by OFAC.
One possible solution is the new financial channel promised by the Joint Plan of Action that was signed by Iran and world powers on November 24, 2013. However, details about how this financial channel operates have been difficult to discern, with some sources reporting that even those banks being asked to participate with encouragement from the US have been hesitant to do so.
Today's authorization is a great step forward in adjusting the US trade embargo so that it makes sense and minimizes the negative impact on the Iranian people. Yet there are still concerns that this new authorization may not be able to fully achieve its intended effect due to difficulties arising from the ability to transfer funds between the US and Iran. It remains to be seen if the sanctions relief offered thus far by the US following the interim deal reached in Geneva is an adequate solution to allow this authorization to have maximum impact, or if further action will be needed by OFAC in order to achieve such result.
What is likely, however, is that there may be some hesitation by US persons in their willingness to operate under General License G. This may last until they are assured that proper payment channels are in place, and that the financial institutions participating in such channels will not stand in the way of receiving and originating payments under this new license.
About the author: Erich C. Ferrari is the principal of Ferrari & Associates, PC, a Washington, DC boutique law firm specializing in US economic sanctions matters.
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