For a lot of U.S. persons whose extended family is in another country, the first major international transaction one may encounter might be receiving an inheritance or gift from a foreign country. Receiving gifts often happen during milestones, such as graduation, getting married, buying a house, or starting a family. Receiving an inheritance is frequently not as predictable.
When dealing with Iran, this issue is profoundly complicated by the existing sanctions regulations, namely the Iranian Transactions and Sanctions Regulations (ITSR.)
OFAC attorneys work with a large number of individuals who are trying to navigate how complex sanctions programs meant to isolate Iran from the global economy impact fundamentally personal transactions of receiving one’s inheritance after the passing of a relative.
Steps to Take
There are several important steps one should take in understanding how sanctions apply to these transactions, the most important being that even though inheritances are very personal transactions, and not related necessarily to any business, the United States’ Iran sanctions still apply. These sanctions also apply differently depending on the nature of the inheritance and any involvement by U.S. persons in the process.
In particular, the sanctions apply differently to these three different scenarios:
- Inherited real property (including if a person is going to sell their property)
- Inherited funds not derived from the sale of the property
- Processing an estate in Iran
This is an overview of some of the first analytical steps that a person should take when trying to grapple with how U.S. sanctions may apply to these situations.
The United States Iran sanctions programs are written in layers. The first layer concerns what prohibitions may apply to any given situation. This is true when analyzing any sanctions programs and its applicability toward a set of facts. When dealing with the ITSR, it is important to remember that the first dozen or so sections of the ITSR go through, and systematically prohibit, virtually all transactions that might take place between a United States citizen or permanent resident and Iran. See 31.C.FR Section 560-201 through 560-215
What this means is that, except in very few instances, a United States person (citizen, permanent resident, U.S. alien or anyone living in the United States) will need an OFAC license authorization to conduct a transaction involve in Iran.
There are two very different types of license authorization that are offered by OFAC. The first is general license authorization where the authorization does not come from any piece of paper that the government gives to a person based on their set of facts. Rather, they are authorized by a self-executing general license written directly into the law that automatically applies to any person who meets the conditions authorizing them to engage in certain types of transactions.
Put differently, if a person meets the condition of the general license as stated in the law, they are automatically authorized to engage in the type of transaction which is described in that general license.
However, general licenses are written narrowly and every condition must be met. If any condition is not met then the general license no longer applies and a person needs to file with the United States Department of the Treasury to request a specific license for their set of facts.
In practice, what this means is that when contemplating how to proceed with an inheritance-related transaction, a person needs to look first to see if any general license applies and, if the conditions do not fit perfectly, then they will likely need to obtain a specific license from OFAC. An attorney can help describe the contours of the general license and when a specific license may apply.
Following a License Authorization
Once a person has received license authorization for an Iran inheritance or they have discussed the process with their OFAC lawyer and understand the process, it is time to consider how the economic sanctions impact routine transactions with third party vendors and financial institutions. Even if a person has a license authorization, banks and other parties that might be involved in the transaction are very wary of being involved in any Iran-related transaction because it opens them up to liability.
For this reason, it is very important to work with counsel so that a person can be as open with their financial institution as possible. If the financial institution does not feel comfortable with the transaction or if the transaction is in process when a financial institution learns about the Iran connection, then there is a very real possibility that the bank will block the funds even if a person knows their transaction was licensed by OFAC.
In addition, as banks and other third parties are aware, the structuring of a transaction can impact whether the license applies or not. There are certain ways that a transaction can be structured to disqualify the transaction from a general license.
There are anti-money laundering concerns that banks deal with on a regular basis, as well as federal laws on anti-money laundering reporting that can impact how a bank handles that transaction. It is prudent to contact counsel for questions about transactions before they are completed. If a transaction is blocked, it can take a long time to have the funds released because unblocking requires specific authorization from OFAC for blocked funds to be released.