On January 17, 2016, as part of the Iranian Joint Comprehensive Plan of Action (“JCPOA”), the Obama administration agreed to support the lifting of United Nations sanctions on two Iranian state banks—Bank Sepah and Sepah International. Bank Sepah is Iran’s oldest and third largest bank in terms of assets. Sepah International is Bank Sepah’s London-based affiliate and was pivotal to Iran’s pre-sanctions international trade.
The United States also removed the weapons proliferation-related sanctions from the following Iranian banks:
- Bank Melli (a.k.a. Bank Melli Iran a.k.a. National Bank of Iran),
- Export Development Bank of Iran (a.k.a. Bank Toseh Saderat Iran a.k.a. Bank Towseeh Saderat Iran aka Bank Towseh Saderat Iran a.k.a. EDBI),
- Bank Refah (a.k.a. Bank Refah Kargaran a.k.a Workers’ Welfare Bank (of Iran)),
- Europaisch-Iranische Handelsbank AG (f.k.a. Deutsch-Iranische Handelsbank AG a.k.a. Europaeisch-Iranische Handelsbank a.k.a. Europaesch-Iranische Handelsbank Aktiengesellschaft a.k.a. German-Iranian Trade Bank),
- Bank of Industry and Mine (of Iran) (a.k.a. Bank Sanad Va Madan a.k.a. “BIM”),
- Bank Tejarat, and
- Bank Mellat
As a third step, the United States clarified through the Office of Foreign Asset Controls (OFAC) how non-U.S. financial institutions could support Iranian commerce denominated in U.S. dollars, in certain conditions.
U.S. support of the U.N.’s lifting of sanctions, delisting of these banks, and clarifying how transactions can be done in U.S. dollars address compliance concerns presented by an apparent conflict between the lawfulness of commerce with Iran (when conducted by non-U.S. companies) and continued banking restrictions on U.S. banks whose participation would be required to clear and/or settle U.S.-denominated transactions. European and other non-U.S. companies seeking to enter the Iranian market lawfully found that regulatory ambiguities and/or perceived risks of compliance violations resulted in many international banks refusing to support U.S. dollar-denominated transactions involving Iranian commerce – absent specific licensure from OFAC.
The clarification as to U.S. dollar transactions occurred on October 7, 2016, when OFAC clarified its responses to “Frequently Asked Questions” relating to the JCPOA. OFAC states that “[f]oreign financial institutions, including foreign-incorporated subsidiaries of U.S. financial institutions, may process transactions denominated in U.S. dollars or maintain U.S. dollar-denominated accounts that involve Iran or persons ordinarily resident in Iran … provided that such transactions or account activities do not involve, directly or indirectly, the United States financial system or any United States person, and do not involve any person on the [Specially Designated Nationals] List ...”.
Compliance challenges remain, however. The delisted banks are not permitted access to the U.S. financial system and U.S. companies are still prohibited from doing business with Iranian banks and companies. The other aspects of the U.S.-Iranian embargo remain in force, producing compliance risks if global companies do not have clear lines of permitted and prohibited conduct between their U.S. and other operations. Finally, Iran remains a high corruption risk, as well as a material risk for diversion of controlled technologies.
This means that non-U.S. companies need to know the U.S.-controlled content (if any) of goods or technologies destined for Iran to determine if restriction requirements apply. Non-U.S. companies are also well advised to have strong controls regarding corruption and, if applicable, U.S. laws concerning anti-boycott.