On September 20, 2019, the U.S. Department of Treasury’s Office of Foreign Assets Control designated the Central Bank of Iran, the National Development Fund of Iran, and the Etemad Tejarat Pars Co. under Executive Order 13224, OFAC’s counter-terrorism authority (E.O. 13224). The U.S. pointed to attacks on Saudi Arabia’s oil fields as the catalyst for this designation.
With respect to the Central Bank of Iran’s counter-terrorism designation, OFAC finds that the Central Bank of Iran provided material support, specifically facilitating financial transfers for the Iranian Revolutionary Guard’s Quds Forces (IRGC-QF) and Hizballah. The material financial support included providing the IRGC-QF extensive access to foreign currency in the amount of several billions of U.S. dollars and euros, and facilitation of IRGC-QF transfers to Hezbollah.
We highlight the Central Bank of Iran’s designation as this is the most commercially significant. While the Central Bank of Iran is already blocked under U.S. sanctions as it is a part of the Government of Iran, that did not subject transactions with it to U.S. secondary sanctions but the September 20th 2019 counter terrorism designation does. Now, non-U.S. persons are subject to designation risk if their transactions with the Central Bank of Iran are deemed a “knowingly significant transaction” involving the Central Bank of Iran. For non-U.S. banks providing significant financial services for entities designated under E.O. 13244, this can also potentially subject that bank to U.S. correspondent account or payable-through account sanctions.
OFAC Frequently Asked Question (FAQ) 636 provides insight on just how broad OFAC interprets the world of potentially significant transactions noting that the mere involvement of a designated bank, other than banks only blocked because of their Government of Iran status, may lead OFAC to determine a transaction is significant. With such a broad interpretation of a signification transaction, if banks were already somewhat apprehensive to assist with receipt of payments for business activity with Iran, this is only going to make this challenge greater as the Central Bank of Iran often plays a less obvious role in many of those transactions.
For example, in the humanitarian trade context [agricultural, medicine, and medical device sales] the Central Bank of Iran might take a financing or foreign currency provision role. Now such a Central Bank of Iran role might be enough of a hook to expose the whole transaction to U.S. secondary sanctions risk. While the September 20, 2019 designation came with a press release statement noting that the U.S. “has a long standing policy of allowing for the sale of [humanitarian trade] and OFAC will continue to consider [such] requests related to humanitarian trade with Iran as appropriate,” practically banks may still not be willing to service humanitarian trade transactions, or generally any other transactions that the Central Bank of Iran might “touch,” directly or indirectly without additional OFAC guidance, or potentially an OFAC license.
The ability to get paid for business activity with Iran just starkly increased in difficulty.