Obama Administration Issues Changes to Iran Sanctions Regulations That Benefit Exporters of Medicine, Medical Devices and Agricultural Products

Medical Devices and Medicine

The revised GLs include the following beneficial changes for medical device and pharmaceutical manufacturers:

• OFAC has changed its approach from a positive list of medical devices that are eligible for the GL to a negative list approach; that is, most medical devices are now eligible for the GL unless they are identified on the new List of Medical Devices Requiring Specific Authorization, in which case a company must apply for and receive a specific license to sell such devices and engage in related activities;
  • OFAC has provided informal guidance confirming that under the revised GL, all devices that were previously set forth on the List of Medical Supplies remain eligible for the GL, and that the agency did not intend to narrow the scope of items authorized for sale pursuant to the GL with these amendments;
• Companies may re-import into the U.S. broken, defective, or non-operational medical devices or medicine in connection with product recalls, adverse events, or other safety concerns, provided that the medical devices or medicine were previously exported to Iran pursuant to the GL or a specific license;
  • OFAC has informally confirmed that this authorization extends to re-importation of non-U.S. origin medical devices if such devices would be classified as EAR99, as well as the importation of EAR99 U.S.-origin medical devices into, for example, the E.U. affiliate of a U.S. company for servicing or repairs, and that U.S. persons may approve or facilitate such returns;
• Medical device manufacturers may export a certain number of replacement parts to replace broken or nonoperational parts in authorized medical devices, or such replacement parts as are necessary and ordinarily incident to the proper preventative maintenance of such medical devices (previously, such exports were limited to a one-for-one replacement basis);
• Medical device manufacturers may export software necessary for the installation and operation of medical devices or replacement parts exported pursuant to the GL or a specific license, as well as updates for such software, provided that these are limited to the provision of safety and services updates, and the correction of system or operational errors in medical devices or replacement parts;
• Medical device manufacturers may provide services necessary to maintain and repair medical devices exported pursuant to the GL or a specific license, including inspection, testing, calibration, or repair services to ensure patient safety or effective operation of the devices, provided that such services do not substantively alter the functional capacities of the medical device as originally authorized for export.
• Companies may provide training that is necessary and ordinarily incident to the safe and effective use of medicine and medical devices, whether in Iran or in third countries;
  • In an FAQ published the same day, OFAC explained that training activities that are necessary and ordinarily incident to the safe and effective use of medicine and medical devices include:
    “the dissemination of product information on the intended use of the device; comparisons of other devices and options; and the manufacturer’s instructions for use, labeling, warning, contraindications, storage, and maintenance of the medicine or device to be necessary and ordinarily incident to the safe and effective use of medicines and medical devices. Other examples include training health care professionals to use medical devices safely in order to achieve the desired patient outcome, training on procedures for cleaning and inspecting devices regularly to ensure they are functioning correctly, ongoing training and periodic testing to ensure users stay competent, and training on procedures for adverse events or device failure.”
  • We understand that OFAC intended to cover a broad variety of training methods that are necessary and ordinarily incident to the safe and effective use of medical devices and medicine, but not all activities are authorized.  In particular, training activities associated with marketing or promotions may not be authorized if they do not contain a significant safe and effective use training component.  Companies should carefully assess any proposed activities to determine if they may qualify for this GL.

Agricultural Commodities

• The list of excluded agricultural commodities ineligible for the GL has been narrowed – for example, companies may now export or reexport shrimp and shrimp eggs to Iran;
• Companies may engage in safe and effective use training regarding agricultural commodities;
• Companies may re-import into the U.S. agricultural commodities previously exported to Iran pursuant to a product recall or other safety concerns.

Remaining Restrictions

• Transactions involving military, law enforcement, or intelligence end users remain generally prohibited;
• Payment terms for items sold pursuant to the GL remain restricted to those set forth at 31 C.F.R. § 560.532 (e.g., cash in advance, sales on an open account, letters of credit with a third-country financial institution);
• Items sold pursuant to the GL, whether medical devices, medicines, or agricultural commodities, must still be classified as EAR99, and may not be described under an Export Control Classification Number (“ECCN”) set forth on the Commerce Control List (“CCL”).

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In light of these amendments, companies engaged in trade with Iran should reassess the extent to which they still require specific licenses from OFAC to engage in such activities.  Similarly, companies should assess whether they may now sell additional products to Iran pursuant to the revised general license.  Finally, the significant scope of these changes makes this an opportune time to reassess a company’s compliance policies and procedures to bring them in line with OFAC’s new requirements.