Despite Quicker Response Times, OFAC Can Do More to Ease Humanitarian Sanctions Pressure, Observers Say

The Treasury's Office of Foreign Assets Control has been quickly addressing humanitarian licensing issues from industry but could be doing more to encourage the flow of aid to Iran, a former OFAC official and a sanctions lawyer said. OFAC has been rightly criticized for not doing enough to eliminate industry fears of sanctions, said Brian O’Toole, a former senior adviser to the OFAC director, adding that the government should rethink restrictions surrounding humanitarian trade. And although OFAC issued a guidance (see 2004160039) encouraging banks to process humanitarian-related transactions involving Iran, banks continue to seek more assurances, lawyer Kerry Contini said.

“By all accounts, OFAC is acting very quickly in the last two months in response to this COVID crisis to address questions from industry, to address licensing issues for those exemptions and for transactions,” said O’Toole, a senior fellow with the Atlantic Council, speaking during an April 21 webinar hosted by the think tank. “But even that quick response doesn't always address the issues that the industry is facing.”

In some cases, OFAC has been “more responsive and quicker” during the COVID-19 pandemic, Contini said. “For companies that submit requests that normally might take a very long time, OFAC has been quite responsive and actually helped guide towards the right answer,” she said during the webinar. Contini also pointed to OFAC’s recent guidance, which said the agency plans to expedite humanitarian requests from industry. While that language was a good sign for industry, Contini said OFAC includes similar language in other licenses, which sometimes take “seven months” for a response. “I hope when they say expedited, they mean it in a totally different way than it's been used in the past,” she said.

O’Toole said there is merit to criticisms (see 2004100044) that the Trump administration has not gone as far as past administrations to eliminate risks related to humanitarian transactions. He pointed to the 2003 Bam earthquake in Iran, in which the George W. Bush administration issued broad general licenses “very quickly.” While O’Toole said OFAC shouldn’t “just remove sanctions,” past administrations have taken a “more proactive stance towards sanctions relief,” which OFAC should mirror. “I think one of the takeaways that I hope comes out of this is that there needs to be a kind of rethinking in this government of some of the conditions that surround the restrictions on humanitarian deliveries,” said O’Toole, who worked in the Treasury Department from 2009 through 2017.

But O’Toole also said he understands OFAC’s reluctance to issue additional general licenses, which can “over-expand the permissions” for humanitarian aid and allow sanctioned Iranian entities to take advantage of the lifted pressure. “You can't fix every single problem with humanitarian aid delivery merely by switching something up with sanctions, providing a general license, providing a specific license or a comfort letter,” he said. “If you open that aperture too much, it provides space for bad people to take advantage.” OFAC’s director said the agency does not plan to issue new humanitarian-related general licenses (see 2004170017).

Without broader licenses and additional OFAC assurances, banks may continue to be unwilling to process Iran-related transactions. While it is not impossible to convince a bank to process the sale, it can be “very difficult,” Contini said. She said banks place a high priority on obtaining a comfort letter: written proof from OFAC that they will not be targeted for the transaction. But many humanitarian exports to Iran fall under OFAC’s general licenses, which were created in part to allow exporters to ship goods without input from the Treasury Department. “OFAC wouldn't really typically issue letters to companies confirming that a general license applies,” Contini said. “That would defeat the whole purpose of the general license.” Even so, banks continue to press industry for more assurance. “Banks want comfort,” Contini said. “They want transaction-specific comfort that the particular payment they're going to process will not get them in trouble.”