New U.S. Sanctions Against Iran—Increasing Focus On Financial Institutions
August 2012 (No. 1)
On July 31, 2012, a new Executive Order signed by President Obama tightens U.S. sanctions against Iran to the most significant levels to date. On the same date, the U.S. Department of the Treasury imposed sanctions specifically against two banks in China and Iraq, respectively, for providing financial services to sanctioned Iranian banks. The increasing focus on financial institutions reflects the U.S. Government’s attempts to eliminate payment options and mechanisms for the purchase of Iranian petroleum and petroleum and petrochemical products.
The U.S. now has in place a number of sanctions programs targeting Iran and specifically the Iranian petroleum and petrochemical industries. This latest Executive Order expands upon previously imposed sanctions contained in section 1245 of the 2012 National Defense Authorization Act ("NDAA"). Among other things, this Executive Order is designed to deter Iran or other countries from establishing financing or payment mechanisms relating to the purchase of Iranian oil to avoid the NDAA sanctions. There are also specific sanctionable activities relating to the provision of material support and involvement in significant financial transactions involving the National Iranian Oil Company and Naftiran Intertrade Company. Any persons that participate in one of the sanctionable activities listed in the NDAA, as supplemented by this latest Executive Order, face substantial risk of being denied access to the U.S. financial sector, including access to credit or payments through financial institutions or transactions in foreign exchange subject to U.S. jurisdiction.
Also on July 31, 2012 the U.S. Department of the Treasury imposed sanctions against the Chinese bank named Bank of Kunlun and the Iraqi bank named Elaf Islamic Bank for knowingly facilitating significant transactions or providing significant financial services to certain previously-designated Iranian banks. These newest sanctions by the Treasury Department were imposed pursuant to the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 ("CISADA") and the result is that the Bank of Kunlun and the Elaf Islamic Bank are essentially cutoff from direct access to the U.S. financial system, representing likely difficulties for any entities or individuals doing business with those banks.
With each passing month the risks grow dramatically for entities and individuals in the maritime industry, the financial industry and indeed many other international industries that may have direct or indirect dealings with the Iranian oil industry or any of the designated Iranian entities. As always, due diligence and comprehensive compliance programs are critical to minimizing the risks for international companies and their managements and employees.
Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. Thisupdate should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.