Federal Regulations Restrict, or Prohibit, Business Transactions with Countries Subject to U.S. Sanctions

United Nations [Public domain], via Wikimedia CommonsDoing business across international borders involves a careful review of numerous potential legal hurdles. In a few cases, doing business with a particular country may be restricted, or even outright prohibited, under U.S. foreign policy. New York and New Jersey businesses considering international opportunities should carefully assess whether any federal regulations will affect their plans. Even small businesses can find themselves in violation of international trade restrictions if they are not careful. The U.S. Department of the Treasury, through its Office of Foreign Assets Control (OFAC), enforces various restrictions associated with U.S. sanctions. Last summer, it found a U.S. company with overseas subsidiaries in violation of trade sanctions against Iran. It later issued a document clarifying the rule, known as “General License H,” permitting U.S. companies to do business with that country.

The relationship between the U.S. and Iran has been strained since 1979, shortly after a revolution overthrew Iran’s U.S.-backed leader. A group of Iranians seized control of the U.S. Embassy in the capital, Tehran, and held a group of Americans hostage inside for 444 days. President Jimmy Carter issued the first set of sanctions against Iran, Executive Order 12170, on November 14, 1979, freezing billions of dollars of Iranian assets. The U.S., the United Nations, and other countries have imposed additional sanctions against Iran since then. These include a wide variety of restrictions on trade. The greater New York City area is home to a large number of Iranian immigrants and people of Iranian descent, so these regulations could have a particularly significant impact on this region.

The current sanctions regime is largely based on the Iran and Libya Sanctions Act of 1996. OFAC regulations prohibit the importation of various goods and services from Iran, investment in Iranian businesses, and other transactions. 31 C.F.R. § 560.101 et seq. While U.S. businesses remain subject to a total ban on transactions with Iran, see 31 C.F.R. §§ 560.204, 560.206, General License H allows foreign companies owned or controlled by a U.S. business to engage in limited transactions with the country. Exactly how they can do that remains unclear, but the license states that they may establish “operating policies and procedures” for transacting business with Iran, and they may set up “globally integrated…business support system[s]” for the purpose of such activities.

In August 2015, OFAC issued a Finding of Violation (FOV) against an American oil services company, based on the alleged acts of a wholly owned subsidiary based in the U.S. Virgin Islands. OFAC found that the company exported goods to Iran from 2004 to 2010 in violation of its regulations, and it engaged in other prohibited transactions. It issued the FOV “in lieu of a civil monetary penalty,” but not all companies get such consideration.

Business transactions attorney Samuel C. Berger represents businesses and business owners in Northern New Jersey and New York City. Our fixed-fee legal-service packages enable our clients to better understand their legal rights and obligations, and empower them to run their businesses more effectively. To schedule a confidential consultation with a member of our team, contact us today online, at (201) 587-1500, or at (212) 380-8117.

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Photo credit: United Nations [Public domain], via Wikimedia Commons.