It was reported in Dubai-based Gulf News today that British banking giant HSBC will be closing many accounts belonging to Iranian, Syrian, or Sudanese nationals. A similar report was featured in the New York times several days ago, detailing how certain banks in Persian Gulf states such as HSBC and Barclays were closing certain accounts. Notably, there are exceptions for certain types of accounts and larger deposits, etc.
What is interesting about this is that it is part of a growing trend where (1) banks are arguably more vigilant than what U.S. laws provide; and (2) banks are taking more drastic positions in the GCC than even United States banks are doing here. In the U.S., the OFAC regulations place limitations on accounts held by individuals “ordinarily resident in Iran.” In other words, if an individual primarily lives in Iran, the U.S. depository institution is forced to keep this account in a semi-limbo state, even if the depositor is a U.S. citizen. Interestingly, the banks often take logging in from Iran or Syria as a sign that the individual is in Iran, freezing the account and asking questions until they unfreeze. It has also created a nightmare for individuals who reside in Iran and want to keep their money out of the country. However, save certain recent examples where student accounts have come under attack, if you live in the United States (even on a non-immigrant visa), being Iranian or Syrian does not necessarily taint your likelihood of successfully opening a bank account the way that it does for some in third countries.
It will be interesting to see if OFAC resolves to provide more clarity to enable banks to separate the good from the bad. In a way, this dovetails mounting complaints that U.S. sanctions have hindered the flow of medicine to Iran. The U.S.’ common retort is that medical supplies, pharmaceuticals, and food are in part carved out of the sanctions regime. However, what is often not explained is that the Treasury Department has been pushing third country banks for years to dissuade them from dealing with Iran, leading to a cascading effect in shipping, insurance, and logistics. This has arguably created a view where anything remotely related to Iran is often viewed as toxic, leaving supply chain players to all but abandon Iran business. OFAC recently issued some guidance on this issue, but will it do more to educate businesses around the world as to how they can comply with the sanctions regimes without arguably hurting unintended players? Being in the U.S. arguably requires American entities to invest heavily in compliance, but banks in Europe, the Middle East and Asia may more hesitant and constrained to hire U.S. compliance counsel, leaving them to make less nuanced distinctions in their compliance methods – throwing the legal out with the illegal.