On August 16, 2010, the United States Department of the Treasury issued the Iranian Financial Sanctions Regulations ("the IFSR"), 75 Fed. Reg. 49,836, to implement subsections 104(c) and 104(d) of the recent Comprehensive Iran Sanctions Accountability and Divestment Act of 2010 ("CISADA"). Treasury issued the IFSR well ahead of its September 29, 2010 deadline under the statute, noting that it was doing so "[c]onsistent with the President's commitment to rigorous implementation" of the new Iran sanctions. "Under these regulations, Treasury will close down or severely restrict the access of foreign financial institutions to the United States if they engage in any of a range of activities involving designated Iranian proliferation or terrorist entities," said Office of Foreign Assets Control Director Adam J. Szubin. August 16, 2010 Press Release at http://www.ustreas.gov/press/releases/tg829.htm.
CISADA was signed on July 1, 2010 by President Obama after the United Nations Security Council voted on June 9, 2010 to impose sanctions on Iran for its ongoing violation of the Nuclear Non-Proliferation Treaty (UN Security Council Resolution 1929). CISADA amends and extends sanctions imposed under the Iran Refined Petroleum Sanctions Act of 2009 and the Iran Sanctions Act of 1996 (formerly the Iran and Libya Sanctions Act of 1996).
Congress implemented 104(c) and 104(d) to prohibit, or to impose strict conditions on, the opening or maintenance in the United States of a correspondent or payable-through account by a foreign financial institution that the Treasury Department finds "knowingly" engages in facilitating any of the following (hereinafter "prohibited activities"):
- The Government of Iran's ("GOI") or Iran's Revolutionary Guard Corps ("RGC") efforts to acquire or develop weapons of mass destruction ("WMD") or WMD delivery systems;
- GOI or RGC efforts to provide support for organizations designated as foreign terrorist organizations or for acts of international terrorism;
- the activities of a person subject to UN Security Council financial sanctions;
- money laundering in support of the above activities;
- the efforts of Iranian financial institutions to carry out the above activities;
- "a significant transaction or transactions" or "provid[ing] significant financial services" for RGC or a party or financial institution whose property is blocked because of Iran's WMD proliferation or support for international terrorism.
The Regulations define "knowingly" to mean actual or constructive knowledge. 31 C.F.R. § 561.314. A foreign institution can be found to have knowledge if it "[knew] or should have known" of the conduct, circumstance or result of engaging in one of the prohibited activities.
To determine whether financial transactions or services are "significant," the IFSR provide for the consideration of a number of enumerated factors, including, but not limited to:
- the size, number and frequency of the transactions or services;
- the nature of the transactions or services, including their type, complexity or commercial purpose;
- whether the transactions or services were performed with the involvement or approval of management;
- whether the transactions or services were part of a pattern of conduct or a business development strategy;
- how economically significant the transactions were for the parties involved;
- whether the transactions involved the use of deceptive financial practices.
31 C.F.R. § 561.404.
Per CISADA, the Secretary of the Treasury may impose "strict conditions" on the opening or maintaining of U.S. correspondent accounts or payable-through accounts for a foreign financial institution that knowingly engages in any of the prohibited activities. The IFSR list the following as examples of strict conditions that could be imposed:
- prohibiting any provision of trade finance through the correspondent account or payable-through account of the foreign financial institution;
- restricting the transactions that may be processed through the correspondent account or payable-through account of the foreign financial institution;
- placing monetary limits on the transactions that may be processed through the correspondent account or payable-through account of the foreign institution;
- requiring pre-approval from the U.S. financial institution for all transactions processed through the correspondent account or payable-through account.
31 C.F.R. § 561.201(b).
Additionally, instead of imposing strict conditions, or after imposing strict conditions, the Secretary of the Treasury may issue a flat prohibition precluding the opening or maintaining of U.S. correspondent accounts or payable-through accounts for a foreign institution that is found to knowingly engage in the prohibited activities. 31 C.F.R. § 561.201(c).
Pursuant to CISADA, the IFSR provide for civil and criminal penalties for violating the new requirements or prohibitions. Any person who violates the strict conditions or a prohibition may be subject to civil penalties up to $250,000 or twice the transaction value, and criminal penalties of up to 20 years in prison and $1,000,000 for willful violations of the law. 31 C.F.R. § 561.701.