1. Hot Topics in OFAC Compliance – Iran Sanctions
Association of International Bank Audit and Compliance Professionals
September 27, 2018

2. Sanctions – beyond the politics Transnational Criminal Organizations Terrorist Financing Weapons of Mass Destruction Proliferation Human rights atrocities Narcotics

3. The Various Types of Sanctions
“Primary”
“Secondary”
Jurisdiction Based (“embargo” since 1978)
Prohibits (almost) all transactions associated with a jurisdiction and its government, including government owned entities, agencies, instrumentalities wherever located.
Behaviours Based (aka “list based” aka “smart” sanctions since 1995)
Prohibits (almost) all transactions with entities or individuals or political groups based on their specific actions and activities
Sectoral Sanctions (not yet used for Iran)
Prohibits only limited, specific transactions with certain specifically named entities (targets a narrowly defined “sector” of the economy)
“SEC Reporting” (ITRSHRA 2012)
issuers required to file periodic reports with the SEC must disclose in quarterly and annual reports information about dealings involving Iran – even if the activity is authorized
Not technically a sanction, but the reporting is perceived as carrying negative consequences and inhibiting lawful activity
“With Us or Against Us” (ILSA 1996 / CISADA 2010)
Targets entities who are outside of U.S. jurisdiction and that continue to transact with parties under U.S. primary sanctions
Market access decision: non-U.S. person risks being shut out from U.S. market and business with U.S. persons
Types of restrictions that can be imposed:
Designated as an SDN and have assets in U.S. frozen and cessation of business
Precluded from doing business with U.S. persons without asset freeze
Restricting access to USD clearing and USD FX
Imports into U.S. prohibited
No business with U.S. federal government
Cannot participate in transactions requiring U.S. export/re-export licenses
Cannot obtain financing through U.S. banks
Principal executives denied entry to U.S. / Principal executives accounts in U.S. frozen
“Export Controls”
Trade Sanctions Reform Act (“TSRA”) Exemptions

4. Iran Sanctions – What happens next?
U.S. Withdrawal from the JCPOA and re-imposition of sanctions
US President Trump withdraws the U.S. from the JCPOA and establishes timelines for when U.S. sanctions will be re-imposed following wind-down periods. U.S. officials have repeatedly warned those who don't wind down their economic ties to Iran "risk severe consequences.“
The first phase of the “snap-back” took effect on August 7 and targets the Islamic Republic's access to US banknotes and precious metals, designed to cut Iran from global markets and further inhibit access to US-dollar dominated transactions. Also reimposes sanctions on key industry sectors focusing on planes, cars and carpets and graphite, aluminum, steel, coal, gold and some software. German automaker Daimler called off the production and sale of Mercedes-Benz trucks in Iran indefinitely after the sanctions came into force.
A second phase of sanctions — which are expected to be more impactful take effect on November 5. Focus on parties who are engaging with Iran’s oil sector, shipping and ports, and transactions with Iran’s Central Bank (several U.S. senators insisting that SWIFT must disconnect Iran’s central bank from the network). Several countries, however, including China, India and Turkey have indicated they are not willing to entirely cut their Iranian energy purchases and are hoping to obtain waivers.
EU / China / Russia Response - All remaining parties to the deal have reiterated their commitment to the full and continued implementation of the nuclear deal. They seek to support and maintain the normalization of trade and economic relations with Iran, so long as Iran continues to comply, by protecting businesses from US sanctions and looking to create mechanisms to transfer value outside the U.S. financial system.
EU Blocking Regulations. Its main purpose is thus to protect EU operators engaging in lawful international trade and/or movement of capital as well as related commerce activities with third countries in accordance with EU law. EU Guidance Note: Official Journal of the European Union, August 8, 2018 (2018/C 277 I/03) content/EN/TXT/?uri=uriserv:OJ.CI ENG&toc=OJ:C:2018:277I:TOC
FAQ 5.   Does the Blocking Statute oblige EU operators to do business with Iran or Cuba? EU operators are free to conduct their business as they see fit in accordance with EU law and national applicable laws. This means that they are free to choose whether to start working, continue, or cease business operations in Iran or Cuba, and whether to engage or not in an economic sector on the basis of their assessment of the economic situation. The purpose of the Blocking Statute is exactly to ensure that that such business decisions remain free, i.e., are not forced upon EU operators by the listed extra-territorial legislation, which the Union law does not recognise as applicable to them.
Non-US/Non-USD value transfer mechanism / central bank to central bank payments

5. Common Compliance Risk: Circumvention
Increased level of Iranian goods in the global market resulting in more trade transactions involving Iranian goods – and a corresponding increase in discrepancies between supporting trade documentation (invoices and bills of lading) and payment instructions where the Iranian nexus is often changed, disguised, or removed. (i.e. falsified origin of goods, port of loading or port of discharge).
Removing information indicating a link to a sanctioned person or country from payment messages and transaction documentation
Undertaking transactions through intermediaries in non-sanctioned countries
Using front companies incorporated in non-sanctioned countries to carry out transactions on behalf of the sanctioned party
Disguising the origin of funds by routing through local banks in jurisdictions that do not enforce sanctions prior to transferring the funds to international banks