Treasury Updates Sanctions Guidance

October 12, 2016

Treasury sealOn October 7, the U.S. Treasury Department updated its frequently asked questions document on the lifting of U.S. sanctions as part of the nuclear deal. Regulations on dollar-denominated transactions between foreigners and Iran were relaxed. The “update was intended to clarify the scope of sanctions lifting under the (nuclear deal) and the sanctions that remain in place, and does not represent additional sanctions relief," Treasury said, according to the Associated Press. Senator Tom Cotton (R-AK), however, accused the Obama administration of trying to “funnel as much business to Iran as possible.” The following are the amended sections.

After Implementation Day, can foreign financial institutions, including foreign incorporated subsidiaries of U.S. financial institutions, process transactions denominated in U.S. dollars or maintain U.S. dollar-denominated accounts on behalf of the Government of Iran or any person subject to the jurisdiction of the Government of Iran, such as NIOC or the CBI?

Yes. Foreign 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, or in which there is an interest of a person whose property and interests in property are blocked solely pursuant to Executive Order 13599 and section 560.211 of the ITSR, including NIOC, the CBI, and other individuals and entities that meet the definition of the Government of Iran or an Iranian financial institution, 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 SDN List or conduct described in FAQ A.3.ii-iii. See section K of these FAQs for information on General License H, which authorizes U.S.-owned or -controlled foreign entities to engage in certain activities involving Iran.

However, even after Implementation Day, foreign financial institutions, including foreign-incorporated subsidiaries of U.S. financial institutions, need to continue to ensure they do not process U.S. dollar-denominated transactions involving Iran through the U.S. financial system or otherwise involve U.S. financial institutions (including their foreign branches), given that U.S. persons continue to be prohibited from exporting goods, services (including financial services), or technology directly or indirectly to Iran, with the exception of transactions that are exempt or authorized by a general or specific license issued pursuant to the ITSR. U.S. persons continue to be prohibited from engaging in any transactions involving Iran, including in currencies other than the U.S. dollar, with the exception of transactions that are exempt or authorized by OFAC. [01- 16-2016; updated on 10-07-2016]

Can U.S. financial institutions transact with, including by opening or maintaining correspondent accounts for, non-U.S., non-Iranian financial institutions that maintain correspondent banking relationships with Iranian financial institutions that are not on the SDN List?

Yes. U.S. financial institutions can transact with, including by opening or maintaining correspondent accounts for, non-U.S., non-Iranian financial institutions that maintain correspondent banking relationships or otherwise transact with Iranian financial institutions that are not on the SDN List. It remains prohibited, however, for non-U.S. financial institutions to route transactions involving Iran to or through the U.S. financial system, or involve U.S. persons in such transactions, unless the transactions are exempt from regulation or authorized by OFAC. Non-U.S., non-Iranian financial institutions should have appropriate systems and controls to ensure that they do not route transactions involving Iran to or through the U.S. financial system unless the transactions are exempt from regulation or authorized by OFAC. [06-08-2016; updated on 10-07-2016]

Is it sanctionable for non-U.S. persons to engage in transactions with an entity that is not on the SDN List, but that is minority owned, or that is controlled in whole or in part, by an Iranian or Iran-related person on the SDN List?

It is not necessarily sanctionable for a non-U.S. person to engage in transactions with an entity that is not on the SDN List but that is minority owned, or that is controlled in whole or in part, by an Iranian or Iran-related person on the SDN List. However, OFAC recommends exercising caution when engaging in transactions with such entities to ensure that such transactions do not involve Iranian or Iran-related persons on the SDN

For non-U.S. persons conducting due diligence on a potential Iranian counterparty, does OFAC consider only checking the SDN List to be sufficient due diligence?

Screening the names of Iranian counterparties against the SDN List is a step that would generally be expected, but that is not necessarily sufficient (see FAQ A.6). In addition to checking the SDN List, non-U.S. persons should consult with their local regulators regarding due diligence expectations in their domestic jurisdictions. In particular, the non-U.S. person should ensure that its due diligence procedures conform to its internal risk-assessment and overall compliance policies, which – in addition to other business considerations – should be based on best practices of the particular industry at issue and conform to guidance and expectations of the non-U.S. person’s home country regulators. OFAC suggests maintaining records documenting those due diligence efforts (see FAQ M.2). [10-07-2016]

Does OFAC expect non-U.S. financial institutions to conduct due diligence on their customer’s Iranian customers?

OFAC considers the appropriate level of due diligence to depend on the financial institution’s role in a transaction (see FAQ 116). While OFAC would consider it a best practice for a non-U.S. financial institution to perform due diligence on its own customers, OFAC does not expect a non-U.S. financial institution to repeat the due diligence its customers have performed on an Iranian customer unless the non-U.S. financial institution has reason to believe that those processes are insufficient. Non-U.S. financial institutions should consult with their local regulators regarding due diligence expectations in their domestic jurisdictions. [10-07-2016]

Click here for the full FAQ.