10 November 2008

[Federal Register: November 10, 2008 (Volume 73, Number 218)]
[Rules and Regulations]               
[Page 66541-66542]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10no08-14]                         

-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Office of Foreign Assets Control

31 CFR Part 560

 
Iranian Transactions Regulations

AGENCY: Office of Foreign Assets Control, Treasury.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Office of Foreign Assets Control of the U.S. Department of 
the Treasury (``OFAC'') is amending the Iranian Transactions 
Regulations, to narrow the scope of existing section by revoking an 
authorization previously granted to U.S. depository institutions to 
process ``U-turn'' transfers, and to make certain other conforming and 
technical changes.

DATES: Effective Date: November 10, 2008.

FOR FURTHER INFORMATION CONTACT: Assistant Director for Compliance, 
Outreach & Implementation, tel.: 202/622-2490, Assistant Director for 
Licensing, tel.: 202/622-2480, Assistant Director for Policy, tel.: 
202/622-4855, Office of Foreign Assets Control, or Chief Counsel 
(Foreign Assets Control), tel.: 202/622-2410, Office of the General 
Counsel, Department of the Treasury, Washington, DC 20220 (not toll 
free numbers).

SUPPLEMENTARY INFORMATION:

Electronic and Facsimile Availability

    This document and additional information concerning the Office of 
Foreign Assets Control (``OFAC'') are available from OFAC's Web site 
(http://www.treas.gov/ofac) or via facsimile through a 24-hour fax on-
demand service, tel.: 202/622-0077.

Background

    The Iranian Transactions Regulations, 31 CFR part 560 (the 
``ITR''), implement a series of Executive Orders that began with 
Executive Order 12613 of October 30, 1987, issued pursuant to 
authorities including the International Security and Development 
Cooperation Act of 1985 (22 U.S.C. 2349aa-9). In that order, after 
finding, inter alia, that the Government of Iran was actively 
supporting terrorism as an instrument of state policy, the President 
prohibited the importation of Iranian-origin goods and services. 
Subsequently, in Executive Order 12957, issued on March 15, 1995, under 
the authority of, inter alia, the International Emergency Economic 
Powers Act (50 U.S.C. 1701-1706) (``IEEPA''), the President declared a 
national emergency with respect to the actions and policies of the 
Government of Iran, including its support for international terrorism, 
its efforts to undermine the Middle East peace process, and its efforts 
to acquire weapons of mass destruction and the means to deliver them. 
To deal with that threat, Executive Order 12957 imposed prohibitions on 
certain transactions with respect to the development of Iranian 
petroleum resources. On May 6, 1995, to further respond to this threat, 
the President issued Executive Order 12959, which imposed comprehensive 
trade and financial sanctions on Iran. Finally, on August 19, 1997, the 
President issued Executive Order 13059 consolidating and clarifying the 
previous orders.
    Section Sec.  560.516 of the ITR contains authorizations with 
respect to certain transactions that are processed by U.S. depository 
institutions, as well as by U.S. registered brokers or dealers in 
securities. OFAC now is amending Sec.  560.516 to narrow the scope of 
authority provided in paragraph (a) of this section. As amended, 
paragraph (a) of Sec.  560.516 authorizes U.S. depository institutions 
to process transfers of funds to or from Iran, or for the direct or 
indirect benefit of persons in Iran or the Government of Iran, only if 
the transfer meets one of the conditions set forth in the sub-
paragraphs to paragraph (a) and does not involve debiting or crediting 
an Iranian account, as defined in Sec.  560.320 of the ITR. Prior to 
this amendment, sub-paragraph (a)(1) authorized such transactions when 
the transfer was by order of a non-Iranian foreign bank from its own 
account in a domestic bank to an account held by a domestic bank for a 
non-Iranian foreign bank. This is commonly referred to as the ``U-
turn'' authorization. It is so termed because it is initiated offshore 
as a dollar-denominated transaction by order of a foreign bank's 
customer; it then becomes a transfer from a correspondent account held 
by a domestic bank for the foreign bank to a correspondent account held 
by a domestic bank for another foreign bank; and it ends up offshore as 
a transfer to a dollar-denominated account of the second foreign bank's 
customer. OFAC now is narrowing the scope of authority provided by 
paragraph (a) of Sec.  560.516 by deleting sub-paragraph (a)(1) and, 
thereby, revoking the authorization for ``U-turn'' transfers.
    The reasons OFAC is revoking this authorization include the need to 
further protect the U.S. financial system from the threat of illicit 
finance posed by Iran and its banks. This threat was highlighted in 
March of 2008 when the United Nations Security Council adopted 
Resolution 1803, which calls upon all states ``to exercise vigilance 
over the activities of financial institutions in their territories with 
all banks domiciled in Iran...in order to avoid such activities 
contributing to the proliferation [of] sensitive nuclear activities, or 
to the development of nuclear weapon delivery systems * * *.'' 
Moreover, on October 16, 2008, the Financial Action Task Force 
(``FATF''), the world's premier standard-setting body for anti-money 
laundering and counter-terrorist financing (``AML/CFT''), warned for 
the fourth time about the risks posed to the international financial 
system by continuing deficiencies in Iran's AML/CFT regime, and in 
particular emphasized Iran's lack of effort in addressing the risk of 
terrorist financing. The FATF called on all countries to strengthen 
preventive measures to protect their financial systems from the risk.
    As a result of this amendment, effective November 10, 2008, U.S. 
depository institutions no longer will be allowed to process ``U-turn'' 
transfers involving Iran, thereby precluding transfers designed to 
dollarize transactions through the U.S. financial system for the direct 
or indirect benefit of Iranian banks or other persons in Iran or the 
Government of Iran. OFAC is revising and republishing Sec.  560.516 of 
the ITR in its entirety because, in addition to removing sub-paragraph 
(a)(1), OFAC also is amending this section to delete references to 
outdated provisions and make other minor technical changes. OFAC also 
is revising Sec.  560.405 and Sec.  560.532 of the ITR to make certain 
conforming changes by deleting references to outdated provisions.

Public Participation

    Because the amendment of the ITR involves a foreign affairs 
function, the provisions of Executive Order 12866 and the 
Administrative Procedure Act (5 U.S.C. 553) requiring notice of 
proposed rulemaking, opportunity for public participation, and delay in 
effective date, are inapplicable. Because no notice of proposed 
rulemaking is required for this rule, the Regulatory

[[Page 66542]]

Flexibility Act (5 U.S.C. 601-612) does not apply.

Paperwork Reduction Act

    The collections of information related to the ITR are contained in 
31 CFR part 501 (the ``Reporting, Procedures and Penalties 
Regulations''). Pursuant to the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507), those collections of information have been approved by 
the Office of Management and Budget under control number 1505-0164. An 
agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless the collection of 
information displays a valid control number.

List of Subjects in 31 CFR Part 560

    Administrative practice and procedure, Banks, Banking, Brokers, 
Foreign Trade, Investments, Loans, Securities, Iran.

0
For the reasons set forth in the preamble, the Office of Foreign Assets 
Control amends 31 CFR part 560 as follows:

PART 560--IRANIAN TRANSACTIONS REGULATIONS

0
1. The authority citation of part 560 continues to read as follows:

    Authority: 3 U.S.C. 301; 18 U.S.C. 2339B, 2332d; 22 U.S.C. 
2349aa-9; 31 U.S.C. 321(b); 50 U.S.C. 1601-1651, 1701-1706; Pub. L. 
101-410, 104 Stat. 890 (28 U.S.C. 2461 note); Pub. L. 106-387, 114 
Stat. 1549; Pub. L. 110-96, 121 Stat. 1011; E.O. 12613, 52 FR 41940, 
3 CFR, 1987 Comp., p. 256; E.O. 12957, 60 FR 14615, 3 CFR, 1995 
Comp., p. 332; E.O. 12959, 60 FR 24757, 3 CFR, 1995 Comp., p. 356; 
E.O. 13059, 62 FR 44531, 3 CFR, 1997 Comp., p. 217.

Subpart D--[Amended]

0
2. Revise Sec.  560.405 to read as follows:


Sec.  560.405  Transactions incidental to a licensed transaction 
authorized.

    Any transaction ordinarily incident to a licensed transaction and 
necessary to give effect thereto is also authorized, except:
    (a) A transaction by an unlicensed Iranian governmental entity or 
involving a debit or credit to an Iranian account not explicitly 
authorized within the terms of the license;
    (b) Provision of any transportation services to or from Iran not 
explicitly authorized in or pursuant to this part other than loading, 
transporting, and discharging licensed or exempt cargo there;
    (c) Distribution or leasing in Iran of any containers or similar 
goods owned or controlled by United States persons after the 
performance of transportation services to Iran;
    (d) Financing of licensed sales for exportation or reexportation of 
agricultural commodities or products, medicine or medical equipment to 
Iran or the Government of Iran (see Sec.  560.532); and
    (e) Letter of credit services relating to transactions authorized 
in Sec.  560.534. See Sec.  560.535(a).

Subpart E--[Amended]

0
3. Revise Sec.  560.516 to read as follows:


Sec.  560.516  Payment and United States dollar clearing transactions 
involving Iran.

    (a) United States depository institutions are authorized to process 
transfers of funds to or from Iran, or for the direct or indirect 
benefit of persons in Iran or the Government of Iran, if the transfer 
is covered in full by any of the following conditions and does not 
involve debiting or crediting an Iranian account:
    (1) The transfer arises from an underlying transaction that has 
been authorized by a specific or general license issued pursuant to 
this part;
    (2) The transfer arises from an underlying transaction that is not 
prohibited by this part, such as a non-commercial remittance to or from 
Iran (e.g., a family remittance not related to a family-owned 
enterprise); or
    (3) The transfer arises from an underlying transaction that is 
exempted from regulation pursuant to Sec.  203(b) of the International 
Emergency Economic Powers Act (50 U.S.C. 1702(b)), such as an 
exportation to Iran or importation from Iran of information and 
informational materials, a travel-related remittance, or payment for 
the shipment of a donation of articles to relieve human suffering.
    (b) United States registered brokers or dealers in securities are 
authorized to process transfers of funds to or from Iran, or for the 
direct or indirect benefit of persons in Iran or the Government of 
Iran, if the transfer is covered in full by any of the conditions set 
forth in paragraph (a) of this section and does not involve the 
debiting or crediting of an Iranian account.
    (c) Before a United States depository institution or a United 
States registered broker or dealer in securities initiates a payment on 
behalf of any customer, or credits a transfer to the account on its 
books of the ultimate beneficiary, the United States depository 
institution or United States registered broker or dealer in securities 
must determine that the underlying transaction is not prohibited by 
this part.
    (d) Pursuant to the prohibitions contained in Sec.  560.208, a 
United States depository institution or a United States registered 
broker or dealer in securities may not make transfers to or for the 
benefit of a foreign-organized entity owned or controlled by it if the 
underlying transaction would be prohibited if engaged in directly by 
the U.S. depository institution or U.S. registered broker or dealer in 
securities.
    (e) This section does not authorize transactions with respect to 
property blocked pursuant to part 535.

0
4. Revise paragraph (b) of Sec.  560.532 to read as follows:


Sec.  560.532  Payment for and financing of exports and reexports of 
commercial commodities, medicine, and medical devices.

* * * * *
    (b) Specific licenses for alternate payment terms. Specific 
licenses may be issued on a case-by-case basis for payment terms and 
trade financing not authorized by the general license in paragraph (a) 
of this section for sales pursuant to Sec.  560.530. See Sec.  
501.801(b) of this chapter for specific licensing procedures.
* * * * *

    Dated: November 4, 2008.
Adam J. Szubin,
Director, Office of Foreign Assets Control.
[FR Doc. E8-26642 Filed 11-6-08; 11:15 am]

BILLING CODE 4811-55-P