Are Melli and Sepah ascending towards global compliance standards?

Very interesting reports emerged this long weekend about a very unique and curious “crisis” in Iranian politics.  Specifically, it was reported that Bank Melli and Bank Sepah, two of Iran’s largest financial institutions, had recently rejected business related to the country’s Islamic Revolutionary Guard Corps (IRGC, commonly referred to as the Sepah).  The reason presented was the issues facing the IRGC, which still remains on the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) list.  The Iranian banks’ decisions show a readily-apparent desire to rejoin the international banking community – a significant challenge for financial institutions in Iran even after the Joint Comprehensive Plan of Action (JCPOA, the so-called nuclear deal) was implemented in January 2016 as part of sanctions relief afforded Iran. This has certainly not pleased certain elements in Iran’s political system. But why?

Being on the SDN list effectively means the IRGC is banned from dollar transactions and still cannot deal with foreign entities owned or controlled by U.S. persons.  The Guards, which control large swaths of Iran’s economy, face much bigger problems, however.  Given the de-risking trends we have seen in banks in recent years, the sanctions have indeed led to a cascading effect – the positions embraced by international banks on matters concerning designated entities, sanctions, and anti-money laundering, among other compliance concerns, is often far more conservative than what may be required by law.  For example, despite the vast majority of banking restrictions on Iran being lifted in the wake of the JCPOA and U.S. Secretary of State John Kerry and U.S. Treasury officials explicitly stating non-U.S. banks can engage in legitimate, lawful business with Iran, no major global financial institutions have yet taken the plunge.

How does this relate to the IRGC and what’s going on now? Many banks around the world will not work with the IRGC even if their national laws do not necessarily ban it. However, as Iran seeks to reengage the world and accede to standards called for by the Action Task Force (FATF), a multilateral group that calls for increased transparency to counter international money laundering, it will need to start playing by the rules of international banking and finance.  And that’s what it’s come to with Bank Melli and Bank Sepah.

These old, large institutions, both state-owned, now find themselves in a political “catch-22” situation – on one hand, the Iranian government has not traditionally prioritized foreign direct investment or trade, seeking instead to bolster its ideological agenda even if at the expense of growth and economic development – on the other hand, Iran’s decision to enter nuclear talks and reach an agreement signals its need for its economy to be reconnected with the rest of the world.  What we are seeing now may signal an eventual bifurcation of the Iranian economy – one group seeking to do business considered transparent and clean under international best practices and standards established by groups like the FATF or laws like the UK Bribery Act and U.S. Foreign Corrupt Practices Act (FCPA), and then a second group that will conduct business as usual.  Reconnecting with the world requires playing by the international order’s rules, an action that many centers of power in Iran may oppose due to such behavior’s ramifications.  It remains to be seen if Iranian entities will follow on Melli and Sepah’s actions and begin turning their back on business that will close their door to the world economy, and whether designated groups will themselves begin to lift the rogue status granted them by global political and financial circles.

Posted in Compliance, Iran, OFAC, Sanctions

What’s Holding Up Iran’s Banking?

Much has been said lately about the lack of sufficient banking channels between Iran and the rest of the world, and the spillover effects it is having on Iran’s international economic re-engagement.  The Joint Comprehensive Plan of Action (JCPOA), the so-called “nuclear deal,” was implemented in January 2016 and now nearly 6 months have passed since many of the banking-related sanctions on Iran were eased.  U.S. Secretary of State John Kerry has been emphatic that there is nothing prohibiting legitimate business with Iran, effectively singling out international banks. Nonetheless, there is still very little electronic wiring taking place in or with Iran. So what’s holding things up?

The reason can be limited to primarily two issues – the hesitation of foreign, non-Iranian banks due to past enforcement of sanctions violations as well as self-evident deficiencies in Iran’s banking system.


Past Violations

One commonly-cited reason for the lack of desire by foreign banks to deal with Iran is heavy penalties imposed on such financial institutions by U.S. government authorities, like the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Justice, for sanctions breaches over the years. The relatively recent cases of BNP Paribas ($8.9 billion), HSBC ($1.9 billion), and ING ($619 million)  point to this. These numbers can be terrifying, right? Well, maybe.  These penalties were not, by most objective standards, imposed capriciously – the United States has been able to prove intent to violate the law in these cases.  Stories abound of “wire stripping” (where references to sanctioned countries and entities were removed from payment instructions to avoid flagging in New York, where most transactions involving U.S. dollars are cleared).

One Chief Sanctions Compliance Counsel at a major European bank that was fined by OFAC told me recently that his employer declined a meeting with Secretary Kerry -due in part to the fact that there is no assurance as to who will be in charge in the United States next year, and that Secretary Kerry’s words are in effect not binding or assuring.  Some financial institutions entered into so-called “Deferred Prosecution Agreements” or DPAs whereby they agreed not to deal with Iran for a certain number of years.  A number of these financial institutions are evidently still bound by these DPAs.

Although foreign, non-U.S. banks can now deal with Iran within certain parameters, U.S. counterparts generally cannot, unless the underlying transaction is lawful under U.S. law (for example, the sale of certain laptop computers from the United States to Iran).  Some experts now say that banks will not deal with Iran until the unilateral U.S. embargo on Iran is repealed. Seeing Cuba as an example, it could easily be years before that happens.

Iran’s Banking System

So assuming that OFAC and the U.S. Department of Justice were to give reliable assurances somehow that they would not punish lawful business with Iran, that would be a green light to non-U.S. banks to deal with the Iranians, right? Probably not. An additional reason for the reluctance of international financial institutions’ reluctance to deal with Iran has been Iran’ own internal banking system. Iran’s banks, it is said, simply lack proper Antimoney Laundering (AML) policies.  Indeed, Consumer Due Diligence (CDD) (also known as Know Your Customer or “KYC”) policies are considered nearly non-existent in Iran and the Financial Action Task Force (FATF), a multinational organization aimed at fighting money laundering and terrorist financing has included Iran in its list of “high-risk and non-cooperative jurisdictions,” although in late June it decided to suspend counter-measures against it due to positive steps taken by Iran to combat AML.

Beyond this, even certain Iranian officials have admitted the inadequacies and obsolete nature of Iran’s banking system. More will need to be done, everybody seems to admit.  Some in the United States have argued that U.S. experts should be allowed to help the Iranians bolster their compliance policy and adherence to international banking norms.  It seems unlikely for now, but could very well happen as transparency and compliance by Iranian banks could certainly help keep the international financial system cleaner, a benefit to all western countries, and many others as well.

All this said, there has been talk of a number of smaller banks, in certain European jurisdictions as well as countries like Turkey and India, initiating transactions relying on the international SWIFT bank messaging system.  One western journalist based in the Middle East told me that a recent transaction in Iran was handled electronically through a web of transactions and at a 10% commission.  Compare that to the 3% and $15-20 most of us in the United States have to pay for sending money from our computers – a process that generally takes less than about 10 minutes to input!

One theory, which may be the most accurate, is that Iran’s engagement with the global economy will require it to adhere to international standards in a wide array of areas, banking included.  This, along with added sanctions relief, can increase the “upside” of western banks dealing with Iran. In other words, the more they can deal with Iran, the more potential profits they would be missing out on if they choose not to deal with it. The question, however, is how much is enough for a major Tier 1 bank to be willing to comb through transactions with Iran to determine whether to facilitate a lawful one, as opposed to a blanket position of universally refusing to deal with that country?



Posted in Uncategorized

The virtual export and import

I was interviewed earlier this month by Al Jazeera Arabic on a particularly interesting issue concerning U.S. sanctions on Syria.  The question was whether a Skype appearance by a Syrian government official designated on the OFAC Specially Designated Nationals (SDN) list at a Washington, DC conference violated U.S. sanctions.  My answer was, yes, of course! For those who speak Arabic, the interview is below:

So what exactly happened? Bouthaina Shaaban, Syrian President Bashar Al-Assad’s Political & Media Adviser (herself, like Assad, on the SDN list) spoke via Skype at a conference hosted at the National Press Club in Washington.  My take on this was simple – it was a violation on two fronts.  For one, the group inviting her was effectively “importing” a service from Ms. Shaaban (she is in Syria, after all), and arguably “exporting” a service to her by providing her a platform.

Notably, Ms. Shaaban was designated by OFAC on August 30, 2011 pursuant to Executive Order 13573 (May 20, 2011). This Executive Order allows the President to designate, among other entities, any person deemed “to be a senior official of the Government of Syria.” This enables an asset freeze of such persons’ assets if they come into the possession of a U.S. person, and generally U.S. persons cannot deal with such persons absent specific OFAC authorization.  But that’s not why it was really prohibited – the applicable language in the Syrian Sanctions Regulations, 31 CFR Part 542 (the “SSR”) applies to a much broader range of entities than those particularly singled out by OFAC and placed on the list.  Notably, 31 CFR §§ 542.207 and 542.208 of the SSR bar most imports and exports between Syria and the United States.  Now, if Ms. Shaaban had been in a third country, say Switzerland, it would still be an issue for other reasons, including the fact that she is an SDN.

Beyond the world of SDNs and even just Syria, and perhaps more importantly for every day matters, the case brings to light OFAC’s traditional position on the definition of “import” and “export.” In common-day parlance, these terms imply the explicit movement of actual, tangible goods.  But not quite according to OFAC.  For example, OFAC has deemed certain employment of U.S. persons in Iran to be the prohibited “exportation” of prohibited services to Iran requiring OFAC licenses.  Conversely, holding a bank account in a sanctioned country can constitute the prohibited “importation” of services.  Ms. Shaaban’s speaking is much the same.  This is important to consider for compliance purposes and why simply reading the regulations is often not enough to understand their purpose and OFAC’s position on the issue(s).


Posted in Uncategorized

Discussing the Iran Deal on Al Jazeera English

I was on Al Jazeera English tonight discussing the announcement of the implementation day of the Joint Comprehensive Plan of Action (JCPOA), the nuclear deal reached between Iran and the P5+1 (United States, United Kingdom, France, China, Russia, and Germany) and the nature of the limited sanctions relief granted Iran.

Posted in Uncategorized

When will the Sanctions Be Removed?

We are all waiting for the IAEA to provide its certification on Iran’s nuclear energy program, which will be the cue for the P5+1 (the United States, United Kingdom, France, China, Russia, and Germany) to begin the process of sanctions relief for Iran.  Some reports have it at today, but given that it is already late afternoon in Europe and early evening in Tehran, this is unlikely.  The more likely possibility is Monday, although estimates as late as Tuesday have also been circulating.

Keep posted on this blog for more information.

Posted in Uncategorized

How does the Nuclear Deal Affect Personal Transactions Involving Iran?



Happy new year! Best wishes for a healthy and prosperous 2016.  Today’s topic will deal with the recent nuclear deal between Iran and the P5+1 states (the United States, United Kingdom, France, Russia, China and Germany) announced in July 2015, known as the “Joint Comprehensive Plan of Action” or “JCPOA” or “برجام” in Persian).  Many have been confused about the scope of changes that will take place.  This post deals with the deal’s impact on personal transactions involving U.S. persons and Iran.

Many have wrongfully thought the JCPOA signals the end of requirements administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).  This, however, could not be farther from the truth.  If there is one thing you take away from this post, let it be that the JCPOA is not the end of U.S. sanctions on Iran.

The euphoria has been fantastical. Many in the Iranian-American community have talked about mentoring tech startups, investing in Iran, or perhaps selling consumer goods such as apparel and building materials to Iran.  It may be interesting to note that all these activities will continue to be prohibited even once the JCPOA is implemented!

  1. Will all sanctions against Iran be repealed?

Absolutely not.  As you may know, most unilateral U.S. sanctions on Iran were implemented by President Clinton in 1995.  Those laws continue to exist today in the form of the Iranian Transactions and Sanctions Regulations, 31 CFR Part 560 (the “ITSR”).  These sanctions apply to “United States persons,” which the law defines to include U.S. citizens and permanent residents (wherever they are located, even in Iran), individuals physically in the United States (such as individuals on an employment, student, or tourist visa), and U.S. companies and their foreign subsidiaries.  Remember, irrespective of any other passports you may hold, if you meet the definition of a “U.S. person,” the laws fully apply to you.

The JCPOA is an agreement on Iran’s nuclear program.  The ITSR are in place because of Iran’s alleged support of terrorism and its human rights abuses.  Therefore, the bulk of the ITSR will remain intact, with only minor changes.  The JCPOA is not a final settlement of all of the United States’ grievances vis-à-vis Iran.

What changes will the JCPOA bring about then?  First off, many European Union (EU) sanctions on Iran will be repealed.  Second, many U.S. sanctions on third country activities involving Iran will be removed.  For example, non-U.S., non-Iranian companies will no longer face potential reprisal if they invest in Iran’s petrochemical industry or sell Iran high amounts of refined petroleum.  This will impact the range of activities non-U.S., non-Iranian companies will be able to lawfully do with Iran, and to some extent foreign subsidiaries of U.S. companies (notably, U.S. persons will not be able to move opportunities they themselves cannot do to foreign subsidiaries or foreign companies).

  1. Will any changes will take place directly for U.S. persons?

Yes, but they will be measured.  First, the legal changes will be limited to the reauthorized importation of Iranian-origin dried goods (such as pistachios), caviar, and Iranian carpets.  Additionally, OFAC is expected to establish a licensing regime to authorize U.S. companies seeking to do business with certain parts of Iran’s civil aviation sector.  For example, U.S. companies will be able to obtain OFAC licenses to sell civilian aircraft to Iran.  This is generally the extent for U.S. persons.

Beyond the letter of the law, you can probably expect to see already authorized transactions with Iran to become a bit easier to execute.  For example, it may become easier to send and receive lawful remittances from Iran or to sell authorized medical, food or information technology (IT) items to Iran.  These are items that are to a large extent generally allowed, subject to certain conditions.  With less Iranian banks on OFAC’s Specially Designated Nationals (SDN) list (one of many blacklists maintained by the U.S. government), and Iran’s reentry into SWIFT, the financial transactions for these already-authorized transactions may become substantially easier.  Shipping lawful items and insuring such shipments may, within the confines of applicable law, become easier too.

  1. Will individuals still need licenses for personal transactions?

Generally, yes.  OFAC has over the years relaxed many of its requirements and issued a number of “general licenses,” which are general authorizations allowing certain transactions without requiring OFAC authorization, so long as you acted within the framework of the law.  However, many transactions will continue to require specific OFAC licenses.  These include the sale of many types of real property in Iran, the sale of all other assets there (including businesses, shares of stock, etc.), the opening and closure of bank accounts in Iran, and the engagement in many charitable activities.

U.S. persons will notably continue to be prohibited from investing in Iran (irrespective of where the funds originate), most employment in Iran, opening bank accounts there, and buying property in Iran absent specific OFAC authorization.

Notably, “facilitation” remains prohibited.  This is particularly important as many have been indicated interest at potentially mentoring Iranian tech startups or brokering deals with Iran.  With very limited exception, brokering, facilitating, enabling, and matchmaking remain strictly off limits for U.S. persons.

  1. Will OFAC take a softer approach towards sanctions violations?

Probably not.  Many view the JCPOA as a first step towards U.S.-Iran rapprochement.  It remains to be seen whether that is the case. However, what is clear is that the Obama Administration by many measures faced a very uphill battle to get this deal through Congress.  Many opposed to the JCPOA thought the deal was too accommodating of the Iranian government.  Given the negative opinion many have towards the deal, many believe that the Administration will be more resolved to show that it is not appeasing Iran and that it is still resolute on enforcing the sanctions that remain in place.  As such, it is fairly commonly believed that the OFAC and the U.S. Department of Justice (which enforces the sanctions from a criminal law perspective) will actually ratchet up their enforcement of the laws.


The JCPOA is a formidable step towards Iran’s economic reintegration with the rest of the world, but the sanctions are far from gone, particularly for U.S. persons.  Notably, the laws have not yet fully changed and the relief will be phased in.  Even once they do change, compliance should be at the forefront of the minds of not just businesses, but any individual seeking to engage in transactions with or involving Iran.  The euphoria surrounding the deal should not cloud one’s understanding and one should always seek the advice of those knowledgeable in this area rather than risk violating these very complicated laws and regulations.

Posted in Compliance, Iran, OFAC, Personal, Sanctions

OFAC Clarifies its Position on a Foreign Bank: What this Says about 3rd Country Actors

While email notifications from OFAC are fairly regular to those of us who practice in the field, I don’t think I’ve ever received one on a Sunday night, particularly not a Sunday night preceding a federal holiday.  Tonight’s interestingly timed notification was about Banco Continental, S.A., a Honduran financial institution you may likely have never heard about.  So why did OFAC notify us on Sunday night and what did it notify us about?

OFAC was giving guidance on the liquidation of a foreign bank.  Huh? Well, it turns out that this past Wednesday (October 7), OFAC designated Banco Continental and a number of related businesses and individuals on its Specially Designated Nationals (SDN) list for its alleged role in money laundering and drug trafficking (hence the designation under the Foreign Narcotics Kingpin Designation Act, commonly known as the “Kingpin Act”).  This came in tandem with efforts by the U.S. Drug Enforcement Agency (DEA) and the Office of the U.S. Attorney in the Southern District of New York (SDNY) to pursue the Rosenthal family, who is behind this bank and its upstream parent, Inversiones Continental (Panama) S.A. de C.V., which does business as Grupo Continental.  This company is the parent of a number of entities operating in Honduras.  The Honduran government then stepped in and ordered the liquidation of Banco Continental.

So what did OFAC say? OFAC has declared that non-U.S. persons can generally work towards the liquidation of Banco Continental without fear of being designated on the SDN list themselves, provided, among other things, that they do not confer benefit onto the bank or the designated entity. U.S. persons will of course require licensing from OFAC to be involved in such activities.

So why is this important for those who did or do not do business with Grupo Continental or any of its affiliates or fellow designated entities?  Why do non-Americans need assurances from OFAC that they will not be penalized by the Office?  OFAC’s declaration says a lot about the increasing extraterritorial impact of its regulations. Broadly speaking, OFAC’s regulations generally cover U.S. persons, and arguably rarely cover non-U.S. persons (there are obviously many U.S. sanctions covering non-U.S. persons but those are often handled by the Departments of State or Commerce).  However, due to the increasing number of investigations by OFAC (along with the U.S. Department of Justice) and the increasingly extra-territorial approach of Treasury officials, many foreigners are afraid to touch transactions that are limited or prohibited for U.S. persons. In other words, even if a foreign entity can engage in certain business, if that business is sensitive for U.S. persons because of OFAC regulations, then oftentimes the foreign entity will want nothing to do with the transaction.

This touches on an issue that has become increasingly visible in recent months and years to some of us practicing in this field.  A lot of our time has to be spent comforting foreign entities that they will not get in to trouble for engaging in transactions that, while involving a sanctioned country, for example, are exempt or permissible under U.S. law.  By exempt or permissible I do not mean for the foreign entity, but for U.S. persons.  The best example is food and medical sales to Iran, which are largely permitted by General License by OFAC.  Financial institutions in third countries often want assurances from OFAC that a certain type of transaction is lawful, and OFAC has had to make public pronouncements on this type of thing before.  Therefore, OFAC’s statement on Sunday night follows a similar theme – surely there are some Hondurans and others in the region afraid to even touch Banco Continental, even though the reach of U.S. law may not necessarily extend to those individuals.

Thinking back to my Iran example, this highlights the ignorance of the scope of OFAC laws among many in various industries, especially outside the United States.  It does not just affect Iran, as you can see it can affect many countries under U.S. sanctions, such as Cuba.  People do not know the laws and often draw unnecessary red lines that limit U.S. persons on transactions they are authorized to engage in.  More often than not, we have to petition OFAC with a request to provide interpretive guidance on a stated pattern – to give us its legal position on something we already know its legal position.  The more knowledge empowered everybody is – the less likely the chances of violating the law and the less likely that U.S. persons will have to face unduly high legal costs and delays in their lawful activities.

Posted in Uncategorized
Akrivis Law Group, PLLC
Washington, DC

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This website aims to provide notes and commentary on international legal, business, and political developments in economic and other sanctions. It is intended solely for information and entertainment purposes and should in no way be construed as legal advice. If you have any questions or are unclear on any of the subject matters addressed or discussed on this site, please consult a licensed legal professional. Views presented in the comments and outside links do not necessarily reflect those of the website author. All external links on this website to articles and documents are external and provided for informational purposes only. They have no relation to the author of this website unless specified otherwise.

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Copyright 2015 Farhad R. Alavi.
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