On November 6, 2008, OFAC announced the elimination of the U-turn general license to the Iranian Transactions Regulations (“ITR”), 31 C.F.R. 560.516. This move finalizes a year-long erosion of this particular general license that began when OFAC amended the ITR to except Bank Saderat from the U-turn general license. As a result of the elimination of the U-turn for all but a few types of transactions, financial institutions—both domestic and international—must now take additional steps to monitor previously authorized U.S. dollar transactions involving Iranian financial institutions and persons in Iran—or subject themselves to significant monetary penalties and reputational harm. Further, international financial institutions can no longer engage in U.S. dollar transactions with persons in Iran or the Government of Iran without putting their U.S. correspondents in near-certain violation of the ITR.
As a result of the November 6 amendment to the ITR, a U.S. financial institution may no longer engage in a U-turn transaction that involves any Iranian bank, or is for the direct or indirect benefit of persons in Iran or the Government of Iran. OFAC has further clarified that this prohibition applies to state-owned and privately-owned Iranian banks, Iranian companies and the settlement of third-country trade transactions that involve Iran.
If presented with a transaction that does not involve a Specially Designated National (“SDN”) but involves an Iranian bank, an Iranian entity, a person in Iran or the Government of Iran, the U.S. financial institution must reject the transaction. If the transaction involves an SDN, including the following financial institutions, the U.S. financial institution must block the transaction, place the funds in an interest-bearing account, and notify OFAC:
- Bank Sepah
- Bank Saderat (a.k.a. Iran Export Bank or Bank Saderat PLC)
- Bank Melli Iran Zao
- Bank Kargoshaee (a.k.a. Kargosa’i Bank)
- Bank Melli
- Melli Bank PLC
- Arian Bank (a.k.a. Aryan Bank)
- Bank Mellat
- Mellat Bank SB CJSC (a.k.a. Mellat Bank DB AOZT)
- Persia International Bank PLC
- Export Development Bank of Iran
U-Turns Continue to Apply to Limited Transaction Types
OFAC’s amendment to the U-turn general license continues to authorize funds transfers by U.S. financial institutions, through intermediary third-country banks, to or from Iran or for the direct or indirect benefit of the Government of Iran or a person in Iran where the underlying transaction is:
- A non-commercial remittance to or from Iran;
- The exportation to Iran or importation from Iran of information and informational materials;
- A travel-related remittance;
- Payment for the shipment of a donation of articles to relieve human suffering; or
- An underlying transaction authorized by OFAC pursuant to either a specific or general license.
Implications for the Future
In continuing a trend initiated over a year ago, U.S. law enforcement, national security and anti-terrorism agencies have continued to identify new means to deny Iranian entities direct or indirect access to the U.S. financial system. The Treasury Department’s most recent action further demonstrates U.S. resolve to deny Iran access to the financial system and to penalize third-country institutions willing to continue transacting business with Iranian entities. Until there is appreciable harm to the international financial system or significant progress on multilateral sanctions against Iran’s uranium enrichment program, we expect the United States to keep raising the risk of doing business with Iran.