On October 8, 2020, the US Treasury Department’s Office of Foreign Assets Control (OFAC) identified the Iranian financial sector as subject to Executive Order (EO) 13902 and, based on such identification, designated 18 Iranian banks. Our previous blog post on EO 13902 is available here. OFAC also issued a general license and Iran-related Frequently Asked Questions, as further described below.
The action represents a significant escalation of the sanctions targeting Iran’s financial sector, yet many humanitarian transactions and activities will continue to be authorized. The primary concern will be for those non-US parties operating wholly outside US jurisdiction where (i) newly sanctioned Iranian financial institutions or the Iranian financial sector are involved, and (ii) the transaction would not be authorized under the Iranian Transactions and Sanctions Regulations (ITSR) if engaged in by a US Person.
Identification of Iran’s Financial Sector and SDN Designations
EO 13902 authorizes the imposition of secondary sanctions against persons operating in Iran’s construction, mining, manufacturing, or textiles sectors, or any other sector of the Iranian economy identified by the Secretary of the Treasury, in consultation with the Secretary of State. Following the identification of Iran’s financial sector under EO 13902, sanctions may now be imposed on (i) persons operating in Iran’s financial sector; (ii) persons who have knowingly engaged in a “significant transaction” for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with Iran’s financial sector; and (iii) persons who materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to or in support of, any person designated under EO 13902 for operating in Iran’s financial sector. Correspondent account or payable-through account restrictions may also be imposed on foreign financial institutions that have knowingly conducted or facilitated “significant financial transactions” in connection with the Iranian financial sector or persons designated under EO 13902.
Concurrent with the announcement, OFAC designated as Specially Designated Nationals (SDNs) 17 Iranian banks pursuant to EO 13902, for operating in Iran’s financial sector or for being owned or controlled by Iranian banks, and one bank under EO 13382, a counter-proliferation authority. A list of the newly designated banks is available here. Following the 45-day wind down period described below, “significant transactions” with these SDNs may result in the imposition of secondary sanctions against non-US persons engaging in the targeted activities.
GL L and FAQs
- General License L “Authorizing Certain Transactions Involving Iranian Financial Institutions Blocked Pursuant to Executive Order 13902” (“GL L”) authorizes US Persons to engage in transactions involving Iranian financial institutions designated pursuant to EO 13902 in connection with transactions that are authorized, exempt, or otherwise not prohibited under the ITSR. FAQs 842, 843, 844, 845, 846, and 847 (the “Financial Sector FAQs”) were issued by OFAC to clarify the scope and extent of sanctions and the applicability of GL L.
- US Persons operating under existing ITSR general licenses, specific licenses or exemptions may continue to do so despite the involvement of the newly designated financial institutions. Humanitarian-related activities, including sales of agricultural commodities, medicine and medical devices, are examples of transactions that may proceed in accordance with the terms of their ITSR authorizations, even if they involve financial institutions designated under EO 13902. In addition, FAQ 843 clarifies that US Persons relying on humanitarian-related ITSR general or specific licenses do not need to seek additional authorization to continue engaging in the same activities.
- For non-US persons, the Financial Sector FAQs also clarify that OFAC will not generally view their transactions or activities to be sanctionable if they could be permissibly undertaken by US Persons, e.g., humanitarian activities, including sales of agricultural commodities, medicine or medical devices consistent with the terms of ITSR general licenses.
- Importantly, FAQ 845 provides a 45-day wind down period for non-US persons to conclude previously non-sanctionable activities involving the Iranian financial sector or the newly designated Iranian banks, ending on November 22, 2020. OFAC anticipates releasing additional guidance regarding “non-significant” activities involving the Iranian financial sector and designated Iranian financial institutions that will not be sanctionable after the end of the wind-down period.