On July 31, the U.S. Department of Treasury announced two sets of the newest round of sanctions against Iran. One is based on financial restrictions authorized through the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010, otherwise known as CISADA. The other, enacted through Executive Order “Authorizing Additional Sanctions on Iran”, focuses on constriction of Iran’s accessibility to petrochemical resources and its ability to sell oil. These latest rounds of sanctions attempt to squeeze Iran’s financial resources even more, with the goal of constricting the country’s ability to continue its weapons proliferation programs for weapons of mass destruction (WMD) and international terrorism. The Department of Treasury has already enacted numerous sanctions and laws restricting the dealings of U.S. companies or individuals with Iranian financial institutions.
The sanctions under CISADA named two international banks which were found to have been knowingly facilitating transactions and providing financial services to certain Iranian banks that the Department of Treasury had already designated as supporting weapons proliferation and terrorism through financial transactions. The Department of Treasury specifically named the Bank of Kunlun in China and the Elaf Islamic Bank in Iraq as knowingly providing these prohibited services to the designated Iranian banks. Financial institutions around the world cut ties with the proscribed Iranian banks after the U.S. had designated them as supporters of WMD development and international terrorism. However, the Bank of Kunlun and the Elaf Islamic Bank continued financial transactions with the blacklisted Iranian banks, even to the point that the Bank of Kunlun was found to have facilitated hundreds of millions of dollars in transactions to the banks. The Elaf Islamic Bank engaged in tens of millions of dollars of transactions just in the last year with the Iran Development Export Bank, which is one of the proscribed Iranian banks.
Specifically, the sanctions prohibit possessing payable-through accounts or correspondent accounts in the U.S. with these two banks. If such accounts are already open in the U.S. with the designated banks, then the account holders have ten (10) days to close the accounts. Unlike the previous sanctions issued in February 2012 against designated Iranian financial institution, U.S. financial institutions are not required to block or reject any transactions which involve these two banks. However, the Department of Treasury expects U.S. institutions to proactively perform their due diligence related to any dealings with these two listed banks.
As a way of reinforcing the U.S. stance against suspected international terrorism and weapons proliferation, the President signed an executive order (“E.O.”) authorizing sanctions in addition to those targeting the two designated banks. These other new sanctions focus on the Iranian energy and petrochemical sectors. The E.O. authorizes the Department of Treasury to issue financial sanctions against foreign financial institutions who knowingly conduct transactions with the Iranian National Oil Company or the Naftiran Trade Company. The Secretary of the Treasury is also authorized to block the property of persons who have somehow assisted, sponsored or provided goods or services for the Iranian National Oil Company or Naftiran Trade Company. Also, financial sanctions can be imposed on foreign financial institutions who have knowingly conducted significant transactions to obtain petroleum products from Iran through any channel. The goal is to limit as much as possible any work-around ways for Iran to sell its petroleum and petrochemical products. Generally, the E.O. also grants the Secretary of State, in consultation with the Secretary of the Treasury, authority to impose sanctions on any persons who engage in significant transactions to purchase petroleum, petrochemical products or petroleum products from Iran. Finally, the E.O. authorizes the Secretary of the Treasury to block the property of persons who assist, sponsor or support the Government of Iran in obtaining U.S. bank notes or precious metals.
In conjunction with these two sanctions, new legislation has been approved by the U.S. House and Senate which builds upon the new sanctions. The bill entails a variety of aspects targeted toward limiting Iran’s revenue from oil, as the U.S. propones that Iran uses its oil revenue to propel its weapon proliferation activities. The main strategies of the bill include: imposing sanctions on anyone who mines uranium with Iran; sells, leases or provides oil tankers to Iran; or provides insurance to the National Iranian Tanker Co., which is Iran’s state-run shipping line. Additionally, any entity that insures investments in Iran’s oil sector will be penalized, as will anyone who helps Iran avoid sanctions through reflagging of vessels.
Overall, the U.S. government is seeking to strongly limit transactions with Iran in an attempt to force the country to abandon its weapons development.