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F ederal Reserv e bank of DALLAS, TEXAS Dallas 75222 Circular No. 80-1 Jan u ary 3, 1980 IRANIAN ASSETS CONTROL REGULATIONS TO ALL BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: Enclosed a re additional amendments effective December 18, 1979 and December 26, 1979 to the T rea su ry Department's Iranian Assets Control Regulations. Sincerely y o u rs, Robert H. Boykin First Vice President Enclosures This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) IN ADVANCE OF PRINTED COPY DEPARTMENT OF THE TREASURY FOREIGN ASSETS CONTROL OFFICE 31 CFR Part 535 Iranian Assecs Control Regulations AGENCY: Office of Foreign Assets Control ACTION: Final Rule SUMMARY: The Office of Foreign Assets Control is amending the Iranian Assets Control Regulations. The purpose of the amendment is to amend §535.531 concerning the payment of certain checks and drafts; to add certain definitional provisions; and to add §535.806 describing the rule making activities of the Office. The need for the amendments is to extend certain provisions of §535.531 which expired on December 14, 1979; to set forth policy concerning payment of checks and drafts; and to announce that the Office will consider, on a case-by-case basis, payment under certain Irrevocable letters of credit. The effect of the amendment is that the authorization for payment for certain checks and drafts will continue for 31 days (not including the previous authorization for documentary drafts drawn under irrevocable letters of credit, which expired December 14, 1979); and that affected parties will be made aware of Office policy on accepted drafts, of the opportunity to submit certain letter of credit problems to the Office for case-by-case consideration, and of certain definitional provisions of the Regulations. EFFECTIVE DATE: December 18, 1979 FOR FURTHER INFORMATION CONTACT: Dennis M. O'Connell, Chief Counsel, Office of Foreign Assets Control, Department of the Treasury, Washington, D.C. 20220, 202-376-0236. - SUPPLEMENTARY INFORMATION: 2- Since the regulations involve a foreign affairs function, the provisions of the Administrative Procedure Act, 5 U.S.C. 553, requiring notice of proposed rule making, opportunity for public partici pation, and delay in effective date are inapplicable. S535.531 now incorporates the overall policy under the Regula tions concerning the payment of checks and drafts involving debits to blocked accounts. (1) The main features of that policy are as follows: §535.531(a) extends the general license for payment of checks and drafts drawn or issued prior to the effective date until January 14, 1980. (2) §535.531(b) revises and recodifies, as a general license, the provisions of former §535.417 (published December 3, 1979) concerning the payment of accepted drafts and other obligations. (3) The general license for payment of certain documentary drafts under irrevocable letters of credit, which expired on December 14, 1979, has not been extended. However, §535.531(c) gives notice that applications for specific licenses for such payments will be considered on a case-by-case basis. Submissions should cover all such letters of credit in which the appli cant is involved, and should be submitted not later than January 10, 1980. (4) §535.531(d) states that any payments made under the provisions of paragraph (a) or (b) of the section in favor of Iran or an Iranian entity must be made into a blocked account in a domestic bank. §535.531(b), by its terms, deals only with accepted drafts where the payee is a person subject to the jurisdiction of the United States. However, the Office will also consider, without commitment, applications to authorize payment of accepted drafts to persons not subject to the jurisdiction of the - United States on a case-by-case basis. 3- Submissions should cover all accepted drafts in which the applicant is involved and should be sub mitted not later than January 10, 1980. 31 CFR Part 535 is amended as follows: 1. §535.310 is added to read as follows: $535,310 Transfer. The term "transfer" shall mean any actual or purported act or trans action, whether or not evidenced by writing, and whether or not done or per formed within the United States, the purpose, intent, or effect of which is to create, surrender, release, transfer, or alter, directly or indirectly, any right, remedy, power, privilege, or interest with respect to any property and, without limitation upon the foregoing, shall include Che making, execu tion, or delivery of any assignment, power, conveyance,check, declaration, deed, deed of trust, power of attorney, power ofappointment, bill of sale, mortgage, receipt, agreement, contract, certificate, gift, sale, affidavit, or statement; the appointment of any agent, trustee, or other fiduciary; the creation or transfer of any lien; the issuance, docketing, filing, or the levy of or under any judgment, decree, attachment, execution, or other judicial or administrative process or order, or the service of any garnish ment; the acquisition of any interest of any nature whatsoever by reason of a judgment or decree of any foreign country; the fulfillment of any condition, or the exercise of any power of appointment, power of attorney, or other power. 2. $535,312 is added to read as follows: - S535.312 4- Interest. Except as otherwise provided la this part, the term "Interest" when used with respect to property shall mean an Interest of any nature whatsoever, direct or Indirect. 3. 5535.417 is revoked. 4. $535,531 is amended to read as follows: S535.531 Payment of certain checks and drafts. (a) A bank subject to the jurisdiction of the United States Is hereby authorized to make payments from blocked accounts with such banking Institu tion of checks and drafts drawn or issued prior to the effective date, Provided, that: (1) The amount involved in any one payment, acceptance, or debit does not exceed $3,000; or (2) The check or draft was within the United States in process of collection by a domestic bank on or prior to the effective date and does not exceed $50,000. (3) The authorization contained in this paragraph shall expire at the close of business on January 14, 1980. (b) A bank subject to the jurisdiction of the United States as its own obligation may make payment to a person subject to the jurisdiction of the United States who is the beneficiary of any letter of credit issued or confirmed by it, or on a draft accepted by it, prior to the effective date, where the letter of credit was issued or confirmed on behalf of Iran or an Iranian entity, Provided that: (1) Notwithstanding the provisions of §535.902, no blocked account may at any time be debited in connection with such a payment. (2) Such a payment shall give the bank making payment no special priority or other right to blocked accounts it holds in the event that - 5- such blocked accounts are vested or otherwise lawfully used in connection with a settlement of claims. (3) Nothing in this paragraph prevents payment being made to the beneficiary of any draft or letter of credit or to any banking institution pursuant to §535.904. (c) The Office will consider on a case-by-case basis, without any conmitment on its part to authorize any transaction or class of transac tions, applications for specific licenses to make payments from blocked accounts of documentary drafts drawn under irrevocable letters of credit issued or confirmed by a domestic bank prior to the effective date, in favor of any person subject to the jurisdiction of the United States. Any bank or payee submitting such an application should include data on all such letters of credit in which it is involved. Applications should be submitted not later than January 10, 1980. (d) Paragraphs (a) and (b) do not authorize any payment to Iran or an Iranian entity except payments into a blocked account in a domestic bank unless Iran or the Iranian entity is otherwise licensed to receive such payment. 5. §535.806 is added to read as follows: §535.806 Rule Making. (a) In general, rule making by the Office of Foreign Assets Control involves foreign affairs functions of the United States to which the pro visions of the Administrative Procedure Act, 5 U.S.C. 553, requiring notice of proposed rule making, the opportunity for public participation and a delay in effective date are inapplicable. However, the Office of Foreign Assets Control may consult with interested groups or persons in connection with the issuance of rules or the establishment of licensing policies. - (b) 6- Any Interested person may recomnend in writing to the Director of the Office of Foreign Assets Control the issuance, amendment or the repeal of any rule. Dated: December 18. 1979 (s) Stanley L. Soamerfield Stanley L. Soamerfield Director Approved: (s) Richard J. Davis Richard J. Davis Assistant Secretary [AUTHORITY: Secs. 201 - 207, 91 Stat. 1626; 50 U.S.C. 1701 - 1706; E. 0. Ho. 12170, 44 FR 65729.1 Filed: December 18, 1979 IN ADVANCE OF PRINTED COPT Title 31 - MONET AND FINANCE: Treasury Chapter V - Foreign Assets Control Department of Che Treasury Part 535 - Iranian Assets Control Regulations AGENCY: Office of Foreign AsseCs Control ACTION: Final Rule SUMMARY: The Office of Foreign AsseCs Control is amending Che Iranian Assets Control Regulations. The purpose of Che amendmenCs is Co clarify Che rules and policies dealing wlch letter of credic situations, to add certain interpretative provisions, and to add Subpart F concerning reports. The need for the amendments is that the Office has received many telephone and written inquiries regarding the interpretation of the relevant provisions. The effect of the amendments is that the effect of the Regulations on various transactions will be clarified. EFFECTIVE DATE: December 18, 1979, FOR FURTHER INFORMATION CONTACT: Dennis M. O'Connell Chief Counsel Department of the Treasury Washington, D.C. 20220 (202) 376-0236 SUPPLEMENTARY INFORMATION: Since the regulations involve a foreign affairs function, the provisions of the Administrative Procedure Act, 5 U.S.C. 553, requiring notice of proposed rule making, opportunity for public participation and delay in effective date are Inapplicable. In addition to other miscellaneous provisions, the amendments herein include the following: - 2- 1. Letter of credit rules. Section 535.416 provides inter pretations as to the applicability of these regulations to possible transactions involving letters of credit. The amendments to this section published today are Intended to amplify some of the interepretations previously given. 2. Pre-judgment attachments. New section 535.418 makes clear that section 535.504 authorizes pre-judgment attach ments, but does not authorize any payment or delivery of blocked property to a court, marshal, sheriff or similar entity. 3. Advised letters of credit. Section 535.567 is being modified to make clear that specific licenses will be granted under the criteria described to allow payments from blocked accounts only in hardship cases. This has always been the purpose of this licensing policy. 4. Standby letters of credit and performance bonds. Section 535.568, relating to certain standby letters of credit and performance bonds, is being amended to include a provision that notwithstanding any other provision of law no payment may be made under any such instrument before sufficient time (.eight business days) has passed to allow the account party to apply for a specific license under section 535.568(b). 31 CFR, Part 535 is amended as follows: - 1. 3- Section 535.416(d) and (e) are amended to read as follows: Section 535.416 Letters of Credit * (d) * g. * * * Prior to the effective date, a bank subject to the jurisdiction of the United States has Issued or confirmed a documentary letter of credit for a non-Iranian account party in favor of an Iranian entity. The Iranian entity presents documentary drafts which are deficient in some detail. May the non-Iranian account party waive the documentary deficiency and authorize the bank to make payment? A. Yes, provided payment is made into a blocked account in a domestic bank. However, the non-Iranian account party is not obligated by these regulations to exercise a waiver of documentary deflcienles. In cases where such a waiver is not exercised, the bank's payment obligation, if any, under the letter of credit remains blocked, as does any obligation, contingent or otherwise, of the account party. The documents are also blocked. (e) Prior to the effective date, a bank subject to the jurisdiction of the United States has issued or confirmed a documentary letter of credit for a non-Iranian account party in favor of an Iranian entity. The Iranian entity does not make timely, complete, or proper presentation of documents, and the letter of credit expires. Does there remain a blocked payment obligation held by the bank? A. blocked. No, but any documents held by the bank continue to be It is also possible that the account party still has a related obligation to the Iranian entity and any such obligation would be blocked. * * * * * - 2. 4- Section 535.418 is added to read as follows: Section 535.418 Authorization of judicial proceedings under Section 535.504 * * * * * The general authorization for judicial proceedings contained in Section 535.504(a) includes pre-judgment attachment. However, Section 535.504(a) does not authorize payment or delivery of any blocked property to any court, marshal, sheriff, or similar entity, and any such transfer of blocked property is prohibited without a specific license. It would not be consistent with licensing policy to issue such a license. 3. Section 535.502 is amended by revising the heading and adding new paragraph (c) as follows: Section 535.502 * (c) Effect of license or authorization * * * * Any regulation, ruling, instruction or license authorizing a transaction otherwise prohibited under this part has the effect of removing a prohibition or prohibitions in Subpart B from the transaction, but only to the extent specifically stated by its terms. Unless the regulation, ruling, instruction or license otherwise specifies, such an authorization does not create any right, duty, obligation, claim, or interest in, or with respect to, any property which would not otherwise exist under ordinary principles of law. 4. Section 535.567 is amended to read as follows: Section 535.567 * (a) Payment under advised letters of credit * * * * Specific licenses may be issued for presentation, acceptance, or payment of documentary drafts under a letter of credit opened by an - 5- Iranian entity and advised by a domestic bank or an Iranian bank subject to the jurisdiction of the United States, provided, that: (1) The letter of credit vas advised prior to the effective date; (2) The property which is the subject of the payment under the letter of credit was not in the possession or control of the exporter on or after the effective date; (3) The beneficiary is a person subject to the jurisdiction of the United States. Cb) As a general matter, licenses will not be issued if the amount to be paid to asingle payee exceeds $500,000, or if hardship cannot be shown. S. Section 535.568 is amended t o read as follows: : Section 535.568 Certain standby letters of credit and performance bonds (a) Notwithstanding any other provision of law, payment into a blocked account In a domestic bank by an issuing or confirming bank under a standby letter of credit in favor of an Iranian entity is prohibited by Section 535.201 and not authorized, notwithstanding the provisions of Section 535.508, if either Cl) a specific license has been issued pursuant to the provisions of paragraph Cb) hereof or C2) eight business days have not expired after notice to the account party pursuant to paragraph Cb) hereof. Cb) Whenever an issuing or confirming bank shall receive such demand for payment under a standby letter of credit, it shall promptly notify the person for whose account the credit was opened. Such person may then apply within five business days for a specific license authorizing - 6- the account party to establish a blocked account on its books in the name of the Iranian entity in the amount payable under the credit, in lieu of payment by the issuing or confirming bank into a blocked account and reimbursement therefor by the account party. (c) If necessary to assure the availability of the funds blocked, the Secretary may at any time require the payment of the amounts due under any letter of credit described in paragraph (a) into a blocked account in a domestic bank or the supplying of any form of security deemed necessary. (d) Nothing in this section precludes any person for uhose account a standby letter of credit was opened or any other person from at any time contesting the legality of the demand from the Iranian entity or from raising any other legal defense to payment under the standby letter of credit. (e) This section does not affect the obligation of the various parties to the instruments covered by this section if the instruments and payments thereunder are subsequently unblocked. (f) For the purposes of this section, the term "standby letter of credit" shall mean a letter of credit securing performance of, or repayment of, any advance payments or deposits, under a contract with Iran or an Iranian entity, or any similar obligation in the nature of a performance bond. (g) The regulations do not authorize any person subject to the jurisdiction of the United States to reimburse a non-U.S. bank for payment to Iran or an Iranian entity under a standby letter of credit, - 7- except by payment into a blocked account in accordance with Section 535.508 or paragraph (b) of this section. (h) A person receiving a specific license under this section shall certify to the Office of Foreign Assets Control within five business days after receipt of that license that it has established the blocked account on its books as provided by paragraph (b) thereof. 6. Subpart F is added to read as follows: Subpart F - Reports 9535.601 Records. Every person engaging in any transaction subject to the provisions of this part shall keep a full and accurate record of each such transaction engaged In by him, regardless of whether such transaction is effected pursuant to license or otherwise, and such record shall be available for examination for at least two years after the date of such transaction, 1535.602 Reports to be furnished on demand. Every person is required to furnish under oath, in the form of reports or otherwise, from time to time and at any time as may be required by the Secretary of the Treasury or any person acting under his direction or authorization complete information relative to any transaction subject to the provisions of this part or relative to any property in which any foreign country or any national thereof has any interest of any nature whatsoever, direct or indirect. The Secretary of the Treasury or any person acting under his direction may require that such reports include the production of any books of account, contracts, letters or other papers, connected with any such transaction or property, in the custody or control of the persons required to make such reports. - 8- Reports with respect to transactions may be required either before or after such transactions are completed. The Secretary of the Treasury may, through any person or agency, investigate any such transaction or property or any violation of the provisions of this part regardless of whether any report has been required or filed In connection therewith. Dated; December 18, 1979_______ (s) Stanley L. Sommerfield Stanley L, Sommerfield Director Approved:(s) Richard J. Davis Richard J. Davis Assistant Secretary /Authority: Secs, 201 - 207, 91 Stat. 1628; 50 U.S.C, 1701 - 1706; E. 0. No. 12170, 44 FR 65729^/ Filed: December 18, 1979. IN ADVANCE OF PRINTED COPY DEPARTMENT OF THE TREASURY OFFICE OF FOREIGN ASSETS CONTROL 31 CFR PART 535 IRANIAN ASSETS CONTROL REGULATIONS AGENCY: Office of Foreign Assets Control ACTION: Final Rule SUMMARY: The Office of Foreign Assets Control is amending the Iranian Assets Control Regulations. The purpose of the anendients is to add interpretative provisions to the Regulations. The need for the amendments is to make it clear that extensions of credit to Iran, except for fully collateralized trade credits, by persons subject to U.S. jurisdiction are covered by the prohibitions of 5535.201, and that transfers of blocked accounts from demand to interest-bearing status at the instruction of the depositor are authorized under S535.508. The effect of the amendments is that these inter pretations will now be available in published form. EFFECTIVE DATE: December 26, 1979 FOR FURTHER INFORMATION CONTACT: Dennis M. O ’Connell, Chief Counsel, Office of Foreign Assets Control, Department of the Treasury, Washington, D.C. 20220, 202/376-0236. SUPPLEMENTARY INFORMATION: Since the regulations involve a foreign affairs function, the provisions of the Administrative Procedure Act, 5 U.S.C. 553, requiring notice of proposed rule making, opportunity for public participation, and delay in effective date are inapplicable. The interpretation contained in £535.419 will- clarify the fact that the prohibitions of $535,201 prohibit any person subject to the jurisdiction of the United States from extending credit to Iran or an Iranian entity after the "effective date" (i.e., November 14, 1979) in the absence of a license. This prohibition applies to post-effective date renewals of credits in existence on November 14, 1979. The prohibition applies regardless of the currency in which the credit was to be denominated. It does not apply to fully collateralized trade credits in view of §535.901. §535.420 clarifies the fact that Iranian owners of blocked assets are authorized by §535.508 to instruct banks holding their accounts to transfer funds from demand to interest-bearing status at any time. 31 CRF Part 535 is amended as follows: 1. §535.419 is added to read as follows: §535.419 (a) Extensions of Credit to Iran. §535.201 prohibits the unlicensed extension of credit to Iran or any Iranian entity, by persons subject to the jurisdiction of the United States, after the effective date. (b) This prohibition applies to the unlicensed renewal of credits in existence on the effective date. (c) This prohibition applies to any currency. credit extended in (d) In view of the provisions of SS535.566 and 535.901, the prohibition does not apply to trade credits which are fully collateralized in foreign currency or in unblocked U.S. dollars received after the effective date. 2. $535,420 is added to read as follows: $535,420 Transfers of accounts under $535.508 from demand to interest-bearing status. $535,508 authorizes transfer of a blocked demand deposit account to interest-bearing status at the instruc tion of the Iranian depositor at any time. Dated: December 26, 1979 Star Director / Office of Foreign Assets Control “ Richard J (/Davis Assistant Secretary [Authority: Secs. 201-207, 91 Stat. 1626; 50 U.S.C. 1701 1706; E.O. No. 12170, 44 FR 65729.] Filed: December 26, 1979 Publication date: December 28, 1979