One of the possibly unintended consequences of the heavy fines imposed on banks by the Office of Foreign Assets Control (“OFAC”) for violations of the vaguely and confusingly written Iran sanctions regulations is that banks overreact, exhibiting a Pavlovian response to anything with the word Iran involved and blindly blocking everything in sight. As a result, Iranian-Americans often have a difficult and unpredictable relationship with their own banks here in the United States. As recently reported by the Arizona Republic, Neda Tavassoli, an Iranian-American, had difficulty closing her purchase of a condominium when one of the banks involved needlessly blocked the account holding her funds for the down payment.
The story begins, improbably enough, when her ex-husband, who is also a U.S. citizen, was visiting his family in Iran and checked their joint account from a computer in Iran. The bank then froze that account. Subsequently the bank even froze an unrelated escrow account to which Ms. Tavassoli’s parents, also U.S. citizens, wired the down payment for the condo in issue. Neither Ms. Tavassoli, her ex-husband, her parents nor the U.S. bank from which the parents wired the funds are on the SDN list, so there is no conceivable reason for these accounts to be blocked. None of these parties are even in Iran so there was not even a reason to reject the wire transfer to the escrow account, much less to block it.
Most importantly, checking the account from Iran, which got the whole business started, would not serve as a basis for blocking the account. Whether the bank broke any rules by providing the information back to Iran in response to the account query depends on whether that communication was “incident to the exchange of personal communications over the Internet” and therefore permitted by section 560.540 of the Iran regulations. But even if the exception in section 560.540 for Internet communications does not apply, the proper response by the bank was simply not to respond to the request, not to block the account.