Many US sanctions on Iran remain in effect despite ban lift

Thursday, 21 January 2016

More detailed commentary has appeared on the partial lifting of US and EU sanctions against Iran, announced at last weekend's so-called 'Implementation Day'.

Although Washington has lifted nearly all secondary financial and banking sanctions applicable to non-US persons, and to non-US entities owned or controlled by US persons, it has not removed the wide-ranging financial transaction and export restrictions that apply to US persons and companies.

Also remaining in effect is the prohibition on 'facilitation' by US persons of Iran-related transactions of non-US persons, albeit with limited exceptions, explains law firm Wilmer Hale.

However, the US has removed a large number of individuals and entities from the Specially Designated Nationals and Blocked Persons (SDN) and other sanctions lists, though the Iranian government itself remains on the blocked list. US persons must continue to block the property and interest in property of all such entities unless otherwise authorised, said Wilmer Hale.

With a few exceptions, US financial institutions are still barred from engaging in any Iran-related transactions, and must not allow Iranian financial transfers such as dollar clearing to go through the US financial system. US firms are also still forbidden from conducting any transactions with the Central Bank of Iran. Foreign financial institutions may also be subject to US secondary sanctions if they enable forbidden transactions with Iranian financial institutions or other Iranian entities that remain on the block list. Firms should also consider whether their due diligence procedures can check that any counterparty is not more than 50 per cent beneficially owned by a sanctioned party, individually or in aggregate.

'International banks can in general terms engage in transactions with Iranian banks without fear of US penalties provided that they do not take place in the US jurisdiction', noted law firm Stephenson Harwood. However, they will still need to satisfy themselves about the source of funds emanating from Iran and the destination of payments made to Iran, it said. As a result, it will take some time for international banks to become comfortable in processing payments involving Iranian-related funds, largely because of the fear of US penalties.

By contrast, EU sanctions relief is relatively comprehensive says Wilmer Hale. The EU Council has removed almost all Iran-related persons and entities from its sanctions lists, and lifted most restrictions applicable to EU persons and entities. These include financial transfers to and from Iran, including use of the SWIFT financial messaging services by non-listed Iranian entities. Certain non-listed Iranian banks will be able to open branches, subsidiaries or representative offices in the EU, and EU financial institutions may also open offices in Iran.

'Implementation Day marks a significant divergence between US and EU sanctions requirements, which poses unique risks to firms with global operations', remarked Wilmer Hale. 'Financial institutions and their risk appetites are likely to play a pivotal role in the implementation of this sanctions relief. Those headquartered or doing business in the EU will need to navigate a complex framework of legal nuances if they choose to permit Iran-related transactions on behalf of their clients.'


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