The front line of Iran sanctions compliance and enforcement has been the banking sector. With the arrival of “Implementation Day” under the Joint Comprehensive Plan of Action (JCPOA), financial institutions and persons engaging in financial transactions face an adjusted, but still complex, sanctions environment.
U.S. banks and their foreign branches will continue to be prohibited from transactions and services relating to Iran (unless pursuant to a U.S. authorization). The broad U.S. embargo on Iran-related trade, transactions, services and investment, as well as prohibitions and blocking requirement for specially designated nationals (SDNs) and other sanctioned parties, continue in place for U.S. persons anywhere located and persons or property in the United States. U.S. export controls and anti-money laundering Special Measures also continue in force.
U.S. dollar transactions relating to Iran will continue to be prohibited when clearing the U.S. financial system, even where the underlying transaction is between two non-U.S. parties acting outside the United States. There is no new allowance of “U-Turn” transactions.
Non-U.S. banks acting outside of the United States will no longer face prohibitions relating to Iran in the way of broad U.S. secondary sanctions or EU sanctions and asset freezes. However, OFAC will continue to maintain sizeable lists of Iranian and Iran-related SDNs and other designations carrying secondary sanctions. U.S. dollar transactions remain prohibited as noted above. Some Iranian parties will remain on EU and Canadian asset freeze lists. Thus, in practice, banks around the world will face ongoing compliance and risk-assessment challenges even where transactions are not technically prohibited.
Thus, in the wake of Implementation Day, the key changes will apply to non-U.S. financial institutions. Sanctions will continue to present two compliance challenges – exposure to U.S. and other nations’ sanctions and export jurisdiction and ongoing U.S. secondary sanctions.
1. U.S. and Other Nations’ Primary Sanctions. Non-U.S. banks will need to ensure there is no U.S. jurisdictional nexus where they participate in or support transactions relating to Iran, particularly for transactions involving Iranian banks. The U.S. guidance confirms that all Iranian financial institutions and the Central Bank of Iran remain blocked, and thus, U.S. banks, their foreign branches and non-U.S. bank affiliates or accounts in the United States are obligated to block any funds or property in which an Iranian financial institution has an interest. Where operating from jurisdictions such as EU member countries or Canada, Iran-related parties also may be subject to local measures including asset freezes.
2. U.S. Secondary Sanctions. Non-U.S. banks no longer face exposure to secondary sanctions for:
- Transactions with the Central Bank of Iran or Iranian financial institutions or providing them certain financial messaging services;
- Transactions with the National Iranian Oil Company (NIOC), the Naftiran Intertrade Company (NICO), the National Iranian Tanker Company (NITC), and other individuals and entities identified by OFAC as the Government of Iran;
- Transactions in Iranian Rial or maintaining Rial accounts outside of Iran;
- Purchase, subscriptions to, or facilitation of the issuance of Iranian sovereign debt, including governmental bonds;
- Providing U.S. bank notes to the government of Iran; and
- Other transactions that previously prohibited by secondary sanctions related to the energy/extractive, petroleum/petrochemical, gold and precious metals, raw and semi-finished metals, automotive, shipping and port, insurance and certain other sectors;
However, certain other U.S. secondary sanctions remain in effect, including:
A. Over 200 Iranian or Iran-related parties continue to be designated as SDNs. Secondary sanctions still apply to significant transactions with or provision of material and certain other support to Iranian SDNs; the Islamic Revolutionary Guards Corps (IRGC) and its designated agents or affiliates; and certain other SDNs designated in relation to proliferation or terrorism-related activities. U.S. sanctions designations information will reportedly be updated to identify Iran-related parties carrying secondary sanctions.
B. U.S. authority to designate non-U.S. persons for activities relating to Iran continue, including those for supporting terrorist groups or activities; human rights violations; weapons proliferation including missile delivery systems; activities in Syria and Yemen; diversion of items intended for the Iranian people; dealing with SDNs or providing certain services to SDN banks; relation to or support for the IRGC members; and acting as foreign sanctions evaders (FSE).
Depending on the activity, U.S. law authorizes one or more secondary sanctions, including blocking (SDN designation) or listing by the U.S. State Department; loss or limitation of U.S. correspondent banking privileges; and a menu of additional secondary sanctions provided in U.S. statutes (so called “menu based sanctions”).