More and more United States-based membership associations have international memberships. At times, such associations may receive inquiries from persons in countries such as Cuba, Iran, or Sudan who want to apply for membership and receive regular membership benefits, including publications, directories, notices of and the right to take part in professional development meetings, training, and certification in order to obtain certain proficiency levels and other similar association services.
However, Cuba, Iran, and Sudan, in particular, are under trade embargoes administered by the U.S. Treasury Department's Office of Foreign Assets Control. Therefore, association counsel need a basic working knowledge of those OFAC embargo rules to advise their clients on how to deal with such inquiries. Moreover, several recent OFAC decisions have added further complexity to this little-known and often-misunderstood area of federal regulation. (President Bush lifted the long-standing embargo against Libya on April 29, or else that country would have been on this list as well.)
Applicable to all "U.S. persons"
Although each set of OFAC regulations differs in purpose and scope, they all generally seek to limit trade and commerce between "U.S. persons" and the respective embargoed country. Given their historic, current, and prospective presence in the United States and their usual origins as U.S. nonprofit entities, almost all United States-based membership associations would be considered "U.S. persons" under these OFAC regulations and hence be subject to their effects in relation to potential members in Cuba, Iran, or Sudan. Even an association that is based outside the United States, but has a substantial presence and regular activities within the United States, could conceivably be deemed a "U.S. person" and subject to these OFAC rules.
As a general matter, under the OFAC definitions, a "U.S. person" can be any U.S. citizen, U.S. permanent resident alien (so-called "green card" holder), or any legal entity organized under U.S. law or a non-U.S. branch thereof, but not a separately incorporated non-U.S. subsidiary. However, OFAC's Cuban rules also reach controlled non-U.S. subsidiaries. Thus, it must be remembered that these OFAC rules cannot only be applied at the association level, but also at the individual member, officer, and director level.
Civil and criminal penalties
The OFAC rules can be punitive on violators. The agency can impose civil fines of up to $11,000 per violation under the Iranian or Sudanese rules or $55,000 under the Cuban rules. Moreover, "willful" violators can be fined up to $50,000 per violation under the Iranian or Sudanese rules or, if the violation occurs under the Cuban rules, up to $1 million for an institution and up to $100,000 for an individual violator. Individuals can also be imprisoned for up to 10 years, as well as fined, under the Iranian, Sudanese, or Cuban rules. Also under the Cuban rules, separate criminal penalties can be assessed up to $1 million for an institution and up to $250,000 for an individual.
Moreover, the regulations say: "...any officer, director, or agent of any corporation who knowingly participates in such violation may be punished by a like fine, imprisonment or both." Thus, the OFAC penalties can be targeted not only at the association as an institutional violator, but also at its individual officers and directors who "knowingly" cause a violation of these laws. Associations and their association counsel need then to be particularly careful if they rely upon part-time, volunteer officers and directors or counsel who may not be as familiar with these OFAC regulations.
Broad general rules
Each set of national embargo rules tends to be worded differently, but the basic notion of a trade embargo is that, absent government permission from OFAC, it is unlawful for a "U.S. person" (as defined) to provide any "goods or services" to an embargoed person or destination, and there is usually a reciprocal ban on accepting (importing) any "goods or services" from an embargoed person or destination. For example, under the Iranian Transaction Regulations, codified at 31 CFR Part 560, unless authorized by OFAC, it is illegal for a U.S. person to provide any goods or services to a person in Iran or to the Iranian government, and it is also illegal for a U.S. person to import any goods or services from a person in Iran or the Iranian government.
Such national embargoes can be imposed and added by OFAC literally overnight by publication in the Federal Register (as in the case of the sanctions imposed on the Federal Republic of Yugoslavia in the 1990s), although most of the current embargoes have been in effect for many years. (Separate and apart from the national embargoes, OFAC also maintains a list of "Specially Designated Nationals" with whom U.S. persons are forbidden to have business dealings, but the SDN system is beyond the scope of this short introduction to OFAC embargoes.)
Effect upon associations
The typical membership benefits package of an international association might well consist of a mixture of goods and services. For example, goods might include association publications, kits of materials, software, and organizational information, such as directories. Similarly, services might include training and professional development programs, testing and certification programs, access to a limited-access association Web site, and the like. Moreover, because these OFAC embargoes tend to run in both directions, an association also needs to be careful not to accept goods or services from persons in embargoed countries such as Iran, unless it has OFAC permission to do so.
Facilitation or avoidance liability
Each of the individual OFAC embargoes contain separate prohibitions against U.S. persons either "facilitating" or otherwise assisting in the "avoidance" of the main bans imposed by these rules. It is therefore critical that associations not run afoul of these separate prohibitions by endeavoring actively to steer individual inquiries from persons in the embargoed countries to non-U.S. persons in the hope of being able to provide indirectly what cannot be done directly by those U.S. persons.
Analytical approaches to OFAC embargoes
The initial step for association counsel is to work with association managers to tabulate the various membership benefits, services, and activities that may impinge upon the OFAC embargoes for the relevant countries. Then, for each such benefit, service, or activity, an individualized legal assessment must be made under the relevant OFAC embargo rules (with a clear understanding that, in some cases, a different result may be obtained for the very same benefit, service, or activity from country to country due to individual differences in the various embargo programs).
After making such an assessment, the next step is to determine if the OFAC regulations themselves provide an express "exemption" for the particular benefit, service, or activity in question. Each set of OFAC regulations sets forth a number of exemptions that, in effect, mean the exempted goods or services are outside the realm of OFAC's regulatory powers. For example, under the so-called "Berman Amendment" passed by Congress in 1988, OFAC does not have the statutory authority to regulate, directly or indirectly, the import or export of "information and informational materials." That term includes "...publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and news wire feeds..." and may include payment for the same, depending on the embargo program involved. Thus, due to that exemption, U.S. associations retain their ability to provide the full range of their normal membership publications to their members in the embargoed countries.
If no exemption is available, indicating that a particular good or service may be subject to regulation by OFAC, then the next step in the analysis is to determine if OFAC has issued any "general license" or comparable ruling that indicates OFAC consents to the provision of such good or service to an embargoed country. Some general licenses are published within the body of the OFAC regulations themselves; others are published separately but not codified within the CFR. Other regulatory interpretations may also be issued from time to time by OFAC that can have the equivalent legal effect of a general license. This step is probably the most difficult part of the assessment because the body of law is so mixed and not so easy to find, much less to understand, unless one practices in this field regularly.
Finally, if an association finds that a particular good or service included in its membership package is neither exempt nor covered by a general license or its equivalent, the association will face a basic choice: it can choose not to offer that particular good or service to persons in the affected embargoed country, or it can choose to file a "specific license" application with OFAC and seek individual permission for that benefit, service, or activity and, if such a license is granted, it can proceed to provide that good or service. However, as a practical matter, many associations may find that the costs and delays attendant to such a specific license application are prohibitive.
Recent "exemption" rulings
It is not possible in the short space of a newsletter article to survey all the regulatory guidance issued by OFAC that could impact associations. However, in November 2003, for the first time, OFAC ruled that a U.S. nonprofit organization can lawfully have dues-paying members in Iran and can receive payment of such dues as long as such payments are done through third-country banks in accordance with the regulations noted in 31 CFR Part 560.516. However, in the same ruling, OFAC indicated that it would be an unlawful provision of "services" for that group to provide "professional certification, professional certification exams, [or] credit card services" to those members. Moreover, OFAC also said it would be unlawful for the group to form any "chapters, special interest groups, [or] colleges" in Iran or to provide any support thereto from the United States, although it would be permissible to allow "attendance by Iranian nationals at public education programs sponsored" by the nonprofit organization as long as there were no prohibited services offered at such a meeting or conference. The ruling also indicated that the group would need to supply more data on its specific publications on certification eligibility requirements, educational requirements, and examination information to determine if they would be "exempt" materials under the "information and informational materials" exemption. It remains to be seen whether OFAC would extend the logic of this November 2003 ruling from persons in Iran to individuals in two other embargoed countries, Cuba or Sudan, and it may well require further contact with OFAC to establish its positions on those other countries.
Moreover, in two related rulings issued in September 2003 and April 2004, OFAC determined that, in the area of scholarly publications, the publishing activities of The Institute of Electrical and Electronics Engineers, Inc., are "exempt" and thus outside OFAC jurisdiction:
- Iranian authors may submit their manuscripts to IEEE.
- IEEE may send Iranian manuscripts to member volunteers for peer review comments or questions.
- IEEE member volunteers, as peer reviewers, may communicate their comments or questions on those manuscripts to the Iranian authors.
- IEEE may facilitate this dialogue between peer reviewers and Iranian authors.
- IEEE may engage in normal copy or style editing of such accepted manuscripts prior to publication, including relabeling units of measurement; correction of grammar or spelling; choosing new fonts; relabeling illustrations to conform to IEEE's style manual; resizing or repositioning illustrations to fit on a printed page appropriately; inserting an appropriated author biography and photograph; and adding page folios with publication titles and page numbers.
- IEEE may publish such Iranian-origin papers (including any incorporated comments from the peer reviewers), as long as IEEE does not itself substantively edit or revise the manuscripts for the Iranian authors or direct their substantive editing or revision.
OFAC explicitly indicated that these rulings would be applicable under its Cuban, Iranian, Libyan, and Sudanese embargo rules (but as noted above, the Libyan embargo has been lifted). Accordingly, other associations whose scholarly publication processes are identical or substantially similar to IEEE's may take comfort that their own interactions with members or authors in these countries in respect of scholarly publications will be likewise "exempt" and thus lawful without further OFAC review.
As societies and associations in the United States seek more international membership and more global presence, they will encounter U.S. legal regimes that have heretofore only been of concern to multinational corporations or to businesses selling their goods and services on a transnational basis. Among those regimes are the national embargoes administered by the Office of Foreign Assets Control, which has now clearly signaled that its regulations can and will be applied equally to nonprofit societies and associations that have or seek members in any of the embargoed countries. To a surprising extent, OFAC has ruled in recent months that such societies and associations may have dues-paying members in embargoed countries and can provide a wide range of "information and informational materials" to such members without offending the embargo rules.
However, the exact impact of these OFAC embargoes will necessarily vary with the nature of each group's unique membership benefits, services, and activities. It is therefore incumbent upon association counsel to have a basic understanding of these embargo rules as they advise their clients and, as necessary, to have access to special export control counsel who can advise on these sometimes obscure and yet potentially far-reaching regulations.
Reprinted with permission from the American Society of Association Executives, Washington, D.C. http://www.asaenet.org.