On November 5, the United States sanctions against Iran returned in full force. As a result, non-U.S. financial institutions that knowingly conduct or facilitate certain significant transactions involving Iran once again confront substantial risk of severance from the U.S. financial system.
Potential denial of U.S. dollar access compelled most non-U.S. banks to cease transactions with Iran prior to the Joint Comprehensive Plan of Action (JCPOA). U.S. law forced foreign banks to choose between providing services to Iran or having access to the United States. This coerced choice likely made the financial secondary sanctions the most consequential authorities in the Iran sanctions program, as it broadly affected international trade with Iran. Irrespective of the European Union Blocking Statute, non-U.S. banks will likely side with the United States and refuse any involvement with Iran.
The Iran-related correspondent and payable-through account sanctions are established through a complex series of Congressional Acts, Executive Orders, and regulations implemented by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). This legal framework causes considerable confusion regarding the scope of these U.S. sanctions authorities, which was further complicated by the November 5 announcement of waivers granted to certain jurisdictions for Iranian oil transactions.
The United States first authorized correspondent and payable-through account sanctions through the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), implemented through the Iranian Financial Sanctions Regulations, 31 C.F.R. Part 561. In late 2011, Congress passed the National Defense Authorization Act (NDAA) for Fiscal Year 2012, which expanded the scope of sanctionable financial activity, but provided for certain exceptions and waivers. The following year’s NDAA included the Iran Freedom and Counter-Proliferation Act (IFCA), which in combination with Executive Order 13645 (now Executive Order 13846) further enhanced OFAC’s authorities.
Current Financial Secondary Sanctions
U.S. law currently authorizes OFAC to impose correspondent and payable-through account sanctions on non-U.S. financial institutions that knowingly conduct or facilitate any significant financial transaction involving the following:
- the Central Bank of Iran;
- a designated Iranian individual or entity, other than banks solely designated for being Iranian;
- the automotive sector of Iran;
- the National Iranian Oil Company (NIOC) or Naftiran Intertrade Company (NICO);
- petroleum, petroleum products, or petrochemical products from Iran;
- the purchase or sale of Iran rials; and
- a derivative, swap, future, forward, or other similar contract whose value is based on the exchange rate of the Iranian rial.
Additionally, non-U.S. financial institutions that maintain Iranian rial denominated funds or accounts outside of Iran are exposed to potential correspondent and payable-through account sanctions.