The US Attorney for the Southern District of New York recently unsealed an indictment charging three foreign nationals with moving funds cross border on behalf of the Government of Iran and other Iranian entities, following the arrest of one of the defendants, a Turkish businessman, in Miami. This action indicates that despite the relaxation of US secondary sanctions against Iran following the Joint Comprehensive Plan of Action ("JCPOA"), US authorities will still vigorously enforce applicable Iran sanctions, including the "primary" sanctions applicable to US persons, which have not been substantially relaxed pursuant to the JCPOA.
The arrested defendant, Reza Zarrab, is a businessman based in Turkey. According to the indictment, Zarrab owned and operated several money services businesses in Turkey and the United Arab Emirates. The other defendants include an employee of Zarrab and a senior official at Mallet Exchange, another money service company owned by Bank Mellat, an Iranian state-owned bank.
Allegedly, between 2010 and 2015, the defendants, together with others, conducted millions of dollars worth of transactions on behalf of the Iranian government and Iranian entities. They allegedly made international financial transfers on behalf of Iranian parties without identifying the connection to Iran, which caused some US banks to process these transactions in violation of US sanctions. In one case, the defendants, according to the allegations of the indictment, prepared a letter to the Central Bank of Iran emphasizing on their "willingness to participate in any kind of cooperation in order to implement monetary and foreign exchange anti-sanctions policies."
Each defendant is charged with conspiracy to defraud the United States, conspiracy to violate the International Emergency Economic Powers Act, the enabling legislation of the US sanctions regime, conspiracy to commit bank fraud and conspiracy to commit money laundering.
Points to Note
In recent years, the US has been very actively targeting both US and non-US banks which violate US sanctions by processing financial transactions for sanctioned countries or parties.
These cases usually have involved banks intentionally withholding or changing payment instruction information, resulting in prohibited wire transfers being routed through the US financial system.
This case shows that the US authorities can use a similar approach to target smaller money service companies and money exchange networks that purposely serve as intermediaries to evade US sanctions. Despite the facts that the defendants reside and the relevant actions all happened outside of the US, the financial transactions triggered US primary sanctions because USD transfers constituted export of financial services from the US to Iran and caused violations of US sanctions by US correspondent banks, when USD transfers are cleared through the US financial system.
The case is also noteworthy in that all defendants are individuals. Recently, US prosecutors have forecasted increased focus on individual liabilities in sanctions enforcement actions. Even though the unique nature of the business network run by Zarrab might have contributed to the prosecutors' decision to charge all individuals, the case still marks a general trend in which US authorities will continue to use criminal charges to curb sanctions violations.
Non-US companies engaged in business with Iran, especially following the relaxation of sanctions pursuant to the JCPOA, should be aware of the risk that their actions might still trigger US primary sanctions. It is critical to ensure that financial transactions, including most transactions that are denominated in USD, are not conducted on behalf of Iranian companies for their access to the US financial systems.