The United States Treasury Department’s Office of Foreign Asset Control (OFAC) amended its guidance on Iranian sanctions to clarify that some transactions with Iran by non-U.S. institutions are permitted, provided that such transactions do not directly run through the U.S. financial system. The new guidance comes amid complaints from Iran that it is not receiving the sanctions relief bargained for under the Iran Nuclear Deal because remaining U.S. sanctions have effectively scared foreign companies from doing business with Iran. OFAC’s amended guidance is intended to facilitate foreigners engaging in dollar-denominated transactions with Iran.
Specifically, OFAC amended its FAQs related to banking measures transacted with non-U.S. entities and added three new FAQs related to the due diligence requirements for banking customers. The revised guidance clarifies that foreign transactions (to include foreign subsidiaries of U.S. financial institutions) with non-sanctioned entities that are nonetheless “minority owned” or “controlled in whole or in part by an Iranian or Iran-related person on the SDN list” are “not necessarily sanctionable” under U.S. regulations. These clarifications effectively remove the de facto ban on dollar-denominated, foreign transactions with Iranian firms that may be controlled by a person or entity that remains subject to U.S. sanctions.
Caution is always paramount, however, in any transaction subject to OFAC oversight. First, the new guidance does not permit U.S. entities from engaging in transactions with Iran absent a specific license from OFAC. Second, the new guidance on due diligence requirements should give pause to any institution that does not have full awareness of the persons and entities with whom it transacts business. FAQ M. 12 for instance states that OFAC still expects a non-U.S. financial institution to repeat the due diligence that its customers have performed on downstream Iranian individuals or entities if it “has reason to believe that those processes are insufficient.” Similarly, FAQ M. 10 states that while 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 . . . by an Iranian or Iran-related person on the SDN List , OFAC recommends exercising caution . .. to ensure that such transactions do not involve [persons or entities on the SDN list].” This loose language gives wide berth for OFAC to find fault with Iranian transactions that have even an air of insufficient controls. So while foreign-based institutions may now more freely conduct business in Iran, they should still actively avoid transactions that lack complete clarity about the concerned parties or entities.