Donald Trump's decision to pull US out of Iran nuclear deal "JCPOA", - How to work under them successfully
9 May 2018 by Bachir El Nakib (CAMS), Senior Consultant, Compliance Alert (LLC).
Today, 8th May 2018, the US Presiden Donald Trump pulled the USA out of the Nuclear 5+1 Deal JCPOA with Iran, Tuesday 8th May 2018, moving to re-impose sanctions on the country defying pleas from close allies who had called for the agreement to be preserved.
The decision marks a bitter defeat for America’s top European allies, who have spent months beseeching Mr Trump to stay in a deal that he has denounced as “insane”. Critics warned it would further endanger stability in the Middle East and have repercussions for major companies that have been doing business with Iran following the 2015 accord, accoring to Financial Times.
OFAC has published today "Information on the President's decision with respect to the JCPOA"
Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a statement and Frequently Asked Questions relating to the President’s decision with respect to the JCPOA.
On May 8, 2018, the President announced his decision to cease the United States’ participation in the Joint Comprehensive Plan of Action (JCPOA), and to begin re-imposing the U.S. nuclear-related sanctions that were lifted to effectuate the JCPOA sanctions relief, following a wind-down period. In conjunction with this announcement, the President issued a National Security Presidential Memorandum (NSPM) directing the U.S. Department of the Treasury and other Departments and Agencies to take the actions necessary to implement his decision.
Consistent with the President’s guidance, Departments and Agencies will begin the process of implementing 90-day and 180-day wind-down periods for activities involving Iran that were consistent with the U.S. sanctions relief specified in the JCPOA. To effectuate the wind-down periods, today the State Department issued the necessary statutory sanctions waivers to provide for a wind-down period and plans to take appropriate action to keep such waivers in place for the duration of the relevant wind-down periods. As soon as is administratively feasible, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) expects to revoke, or amend, as appropriate, general and specific licenses issued in connection with the JCPOA. At that time, OFAC will issue new authorizations to allow the wind down of transactions and activities that were authorized pursuant to the revoked or amended general and specific licenses. At the end of the 90-day and 180-day wind-down periods, the applicable sanctions will come back into full effect.
OFAC posted today to its website additional frequently asked questions (FAQs) that provide guidance on the sanctions that are to be re-imposed and the relevant wind-down periods.
The U.S. government will continue to make aggressive use of its authorities to target Iran’s malign behavior.
- Archived Statement Relating to the Joint Comprehensive Plan of Action "Implementation Day" of January 16, 2016
- Archived Previous Joint Plan of Action (JPOA) Archive and Joint Comprehensive Plan of Action (JCPOA) Materials
New Iran-related Legislation:
The Countering America's Adversaries Through Sanctions Act (CAATSA) introduces additional sanctions with regard to Iran. Please visit the link below for more information.
Important Advisories and Information
OFAC issues advisories to the public on important issues related to the Iran sanctions, while these documents may focus on specific industries and activities they should be reviewed by any party interested in OFAC compliance.
- List of Medical Devices Requiring Specific Authorization
- Global Advisory to the Maritime Industry Regarding the Islamic Republic of Iran Shipping Lines
- Advisory on the Presentation of Fraudulent Shipping Documents
- Advisory on the Use of Exchange Houses and Trading Companies to Evade U.S. Economic Sanctions Against Iran
Frequently Asked Questions
OFAC has compiled hundreds of frequently asked questions (FAQs) about its sanctions programs and related policies. The links below send the user to Iran sanctions-related frequently asked questions. There is also a link to the entire list of OFAC's FAQs. Click here to see the entire list of Iran-related FAQs.
List of Foreign Sanctions Evaders (FSE)
On May 1, 2012, the President signed Executive Order 13608, “Prohibiting Certain Transactions With and Suspending Entry Into the United States of Foreign Sanctions Evaders With Respect to Iran and Syria.” This Executive Order strengthens Treasury’s ability to address behavior by foreign individuals and entities determined to have violated, attempted to violate, conspired to violate, or caused a violation of U.S. sanctions on Syria or Iran.
List of CISADA and NDAA Prohibitions or Conditions
In order to implement certain provisions of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), the National Defense Authorization Act of Fiscal Year 2012 (NDAA), the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA) and certain executive orders, OFAC has developed a list of foreign financial Institutions that are subject to sanctions under these laws and orders. This list can be found below in multiple formats.
- The List of Foreign Financial Institutions Subject to Part 561 (the “Part 561 List”) (PDF)
- The List of Foreign Financial Institutions Subject to Part 561 (the “Part 561 List”) (text)
- Changes to the Part 561 List (PDF)
- Changes to the Part 561 List (Text)
Non-SDN Iranian Sanctions Act (NS-ISA) List
On October 9, 2012, the President signed Executive Order (E.O.) 13628, which provides for, among other things, the implementation of certain sanctions set forth in the Iran Threat Reduction and Syria Human Rights Act of 2012 (TRA). Section 1 of E.O. 13628 provides that the Secretary of the Treasury, pursuant to authority under the International Emergency Economic Powers Act (IEEPA), shall take action to implement certain sanctions set forth in Section 6 of the Iran Sanctions Act of 1996, as amended (ISA), when the President, the Secretary of State, or the Secretary of the Treasury imposes such sanctions on a person pursuant to provisions of ISA, the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, as amended, or the TRA. Section 6 of ISA includes both blocking and non-blocking sanctions. Click here for additional information on the NS-ISA List.
- Changes to the Non-SDN Iranian Sanctions Act List (PDF) - (2016)
- Changes to the Non-SDN Iranian Sanctions Act List (Text) - (2016)
- Archive of Changes to the NS-ISA List
Specific Guidance on the Iran Sanctions
OFAC offers guidance on a variety of subjects related to the Iran sanctions. Most of this guidance is specific in nature. General guidance on the Iran sanctions can be found in the Sanctions Brochures section at the top of this page.
- Guidance on the Sale of Food, Agricultural Commodities, Medicine, and Medical Devices by Non-U.S. Persons to Iran
- Industry Guidance on Shah Deniz Consortium
- Clarifying Guidance on Humanitarian Assistance and Related Exports to the Iranian People
- Clarifying Guidance on Humanitarian Assistance and Related Exports to the Iranian People (translated into several languages by the U.S. State Department)
- Interpretive Guidance And Statement of Licensing Policy on Internet Freedom in Iran
- Treasury Department Reaffirms Commitment to Fostering Internet Freedom and Supporting the Iranian People
- Guidance on the Donations of Food and Medicine to Iran and the Non-Specified Areas of Sudan
- Guidance on Sponsorship of Conference by the Government of Iran or Iranian persons
- Guidance on Transshipments to Iran
- Are U-Turn payments for Iran still permitted?
- CISADA: The New U.S. Sanctions on Iran
- French translated version of CISADA: The New Sanctions on Iran - Resume analytique de la Loi sur la responsabilite, le desengagement et les sanctions generales contre l'Iran
- Spanish translated version of CISADA: The New Sanctions on Iran - Hoja de datos: Ley Integral de Sanciones, Rendición de Cuentas y Desinversión contra Iran
- Russian translated version of CISADA: The New Sanctions on Iran - Справка: Закон о всеобъемлющихсанкциях в отношении Ирана, привлечении к ответственности и дивестировании
- Arabic translated version of CISADA: The New Sanctions on Iran - بيان حقائق: قانون العقوبات الشاملة ضد إيران والمحاسبة والتجريد من الممتلكات
OFAC issues interpretive guidance on specific issues related to the sanctions programs it administers. These interpretations of OFAC policy are sometimes published in response to a public request for guidance or may be released proactively by OFAC in order to address a complex topic.
- Guidance on the Provision of Certain Services Relating to the Requirements of U.S. Sanctions Laws
- Guidance on Certain Publishing Activities
- Interpretive Guidance And Statement of Licensing Policy on Internet Freedom in Iran
- Substantive Enhancement of Information (Iran)
- Guidance on Internet Connectivity (Iran)
- Exports/Aircraft Safety (Iran)
- Equipment to manufacture goods which may be sold to Iran
- Internet Access to Informational Materials (Iran)
- Export of Services - Surveys & Interviews (Iran)
- Iran: Travel Exemption
- Posting of Information from Iran on Website
- Index of All Published Interpretative Guidance
Applying for a Specific OFAC License
It may be in your and the U.S. government’s interest to authorize particular economic activity related to Iran. Certain activities related to Iran may be allowed if they are licensed by OFAC. Visit the link below to apply for an OFAC license.
- Apply for an OFAC License Online - Authorization from OFAC to engage in a transaction that otherwise would be prohibited.
- Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) Program Information and TSRA License Application Process - Guidance and licensing information for exports of agricultural commodities, medicine, and medical devices
Guidance on OFAC Licensing Policy
Certain activities related to Iran may be allowed if they are licensed by OFAC. Below OFAC has issued guidance and statements on specific licensing policies as they relate to Iran.
- Licenses for Legal Fees and Costs - Guidance on the Release of Limited Amounts of Blocked Funds for Payment of Legal Fees and Costs Incurred in Challenging the Blocking of U.S. Persons in Administrative or Civil Proceedings
- Entities Owned By Blocked Persons - Guidance On Entities Owned By Persons Whose Property And Interests In Property Are Blocked
- Statement of Licensing Policy related to the support of democracy and human rights in Iran and academic and cultural exchange programs
- Statement Of Licensing Procedure on support of human rights-, humanitarian-, and democracy related activities with respect to Iran
- Statement of Licensing Policy for Activities Related to the Export or Re-Export to Iran of Commercial Passenger Aircraft and Related Parts and Services
OFAC issues general licenses in order to authorize activities that would otherwise be prohibited with regard to Iran. General licenses allow all US persons to engage in the activity described in the general license without needing to apply for a specific license.
- Iran General License (No. J-1) - Authorizing the Reexportation of Certain Civil Aircraft to Iran on Temporary Sojourn and Related Transactions (Amended 12/15/2016)
- Iran General License (No. I) - Authorizing Certain Transactions Related to the Negotiation of, and Entry into, Contingent Contracts for Activities Eligible for Authorization Under the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services
- Iran General License (No. H) - Authorizing Certain Transactions relating to Foreign Entities Owned or Controlled by a United States Person
- Iran General License (No. G) - Certain Academic Exchanges and the Exportation or Importation of Certain Educational Services Authorized
- Iran General License (No. F) - Authorizing Certain Services in Support of Professional and Amateur Sports Activities and Exchanges Involving the United States and Iran
- Iran General License (No. E) - Authorizing Certain Services in Support of Nongovernmental Organizations’ Activities in Iran
- Iran General License (No. D-1) - General License with Respect to Certain Services, Software, and Hardware Incident to Personal Communications.
- List of Medical Devices Requring Specific Authorization
- Iran General License - Authorizing the Exportation or Reexportation of Food Items
- Iran General License - Authorizing the Exportation or Reexportation of Replacement Parts for Certain Medical Devices
- Iran General License - Related to Consular Funds Transfers and to the Transportation of Human Remains
- Iran General License Related to Personal Communication Services - Exportation of certain services and software over the internet
- Iran General License (No. 2) - Authorizing U.S. persons who are employees or contractors of six international organizations to perform transactions for the conduct of the official business of those organizations in or involving Iran
Executive Orders, Statutes, Rules and Regulations Relating to Iran
The Iran sanctions program represents the implementation of multiple legal authorities. Some of these authorities are in the form of executive orders issued by the President. Other authorities are public laws (statutes) passed by The Congress. These authorities are further codified by OFAC in its regulations which are published the Code of Federal Regulations (CFR). Modifications to these regulations are posted in the Federal Register. In addition to all of these authorities, OFAC may also implement United Nations Security Council Resolutions (UNSCRs) with regard to Iran.
- 13716 - Revocation Of Executive Orders 13574, 13590, 13622, And 13645 With Respect To Iran, Amendment Of Executive Order 13628 With Respect To Iran, And Provision Of Implementation Authorities For Aspects Of Certain Statutory Sanctions Outside The Scope Of U.S. Commitments Under The Joint Comprehensive Plan Of Action Of July 14, 2015 (Effective Date - January 16, 2016)
- 13645 - Authorizing the Implementation of Certain Sanctions Set Forth in the Iran Freedom and Counter-Proliferation Act of 2012 and Additional Sanctions With Respect To Iran (Effective Date - July 1, 2013)
- 13628 - Authorizing the Implementation of Certain Sanctions Set Forth in the Iran Threat Reduction and Syria Human Rights Act of 2012 and Additional Sanctions with Respect to Iran (Effective Date - October 9, 2012)
- 13622 - Authorizing Additional Sanctions With Respect to Iran (Effective Date - July 30, 2012)
- 13608 - Prohibiting Certain Transactions With and Suspending Entry Into the United States of Foreign Sanctions Evaders With Respect to Iran and Syria (Effective Date - May 1, 2012)
- 13606 - Blocking the Property and Suspending Entry Into the United States of Certain Persons With Respect to Grave Human Rights Abuses by the Governments of Iran and Syria via Information Technology (Effective Date - April 23, 2012)
- 13599 - Blocking Property of the Government of Iran and Iranian Financial Institutions (Effective Date - February 6, 2012)
- 13590 - Authorizing the Imposition of Certain Sanctions With Respect to the Provision of Goods, Services, Technology, or Support for Iran’s Energy and Petrochemical Sectors (Effective Date - November 20, 2011)
- 13574 - Authorizing the Implementation of Certain Sanctions Set Forth in the Iran Sanctions Act of 1996, as Amended (Effective Date - May 23, 2011)
- 13553 - Blocking Property of Certain Persons With Respect to Serious Human Rights Abuses By The Government of Iran and Taking Certain Other Actions (Effective Date - September 29, 2010)
- 13059 - Prohibiting Certain Transactions With Respect to Iran (Effective Date - August 20, 1997)
- 12959 - Prohibiting Certain Transactions With Respect to Iran (Effective Date - May 7, 1995)
- 12957 - Prohibiting Certain Transactions With Respect to the Development of Iranian Petroleum Resources (Effective Date - March 16, 1995)
- 12613 - Prohibiting Imports From Iran (Effective Date - October 29, 1987)
- 12294 - Suspension of Litigation Against Iran (Effective Date - February 26, 1981)
- 12284 - Restrictions on the Transfer of Property of the Former Shah of Iran (Effective Date - January 23, 1981)
- 12283 - Non-Prosecution of Claims of Hostages and for Actions at the United States Embassy and Elsewhere (Effective Date - January 23, 1981)
- 12282 - Revocation of Prohibitions Against Transactions Involving Iran (Effective Date - January 23, 1981)
- 12281 - Direction To Transfer Certain Iranian Government Assets (Effective Date - January 23, 1981)
- 12280 - Direction To Transfer Iranian Government Financial Assets Held By Non-Banking Institutions (Effective Date - January 23, 1981)
- 12279 - Direction To Transfer Iranian Govt. Assets Held By Domestic Banks (Effective Date - January 23, 1981)
- 12278 - Direction To Transfer Iranian Government Assets Overseas (Effective Date - January 23, 1981)
- 12277 - Direction To Transfer Iranian Government Assets (Effective Date - January 23, 1981)
- 12276 - Direction Relating to Establishment of Escrow Accounts (Effective Date - January 23, 1981)
- 12211 - Prohibiting Certain Transactions With Iran (Effective Date - April 17, 1980)
- 12205 - Prohibiting Certain Transactions With Iran (Effective Date - April 17, 1980)
- 12170 - Blocking Iranian Government Property (Effective Date - November 14, 1979)
- Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA), 18 U.S.C. § 2332d
- Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), PL 111-195
- Countering America's Adversaries Through Sanctions Act (CAATSA), PL 115-44
- Iran Freedom and Counter-Proliferation Act of 2012 (IFCA) (PL 112-239)
- International Emergency Economic Powers Act (IEEPA), 50 U.S.C. §§ 1701-1706
- Iran Sanctions Act of 1996, as Amended, 50 U.S.C. § 1701 note
- International Security and Development Cooperation Act of 1985 (ISDCA), 22 U.S.C. § 2349aa-9
- Iran Threat Reduction and Syria Human Rights Act of 2012 H.R. 1905 (PL 112-158)
- National Defense Authorization Act For Fiscal Year 2012 PL 112-81
- National Emergencies Act (NEA), 50 U.S.C. §§ 1601-1651
- Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), 22 U.S.C. §§ 7201-7211
Code of Federal Regulations
- 31 CFR Part 535 - Iranian Assets Control Regulations
- 31 CFR Part 560 - Iranian Transactions and Sanctions Regulations
- 31 CFR Part 561 - Iranian Financial Sanctions Regulations
- 31 CFR Part 562 - Iranian Human Rights Abuses Sanctions Regulations
Federal Register Notices
- 81 FR 94254-16 - Changes to the Iran TSRA regulations and definition of Iranian-origin goods
- 79 FR 18990-14 - Final Rule Amending the Iranian Transactions and Sanctions Regulations by expanding an existing general license that authorizes the exportation or reexportation of food to individuals and entities in Iran to include the broader category of agricultural commodities.
- 78 FR 16403-13 - Amendement to the Iranian Financial Sanctions Regulations, 31 C.F.R. part 561 (the “IFSR”), to implement sections 503 and 504 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (the “TRA”) and certain provisions of Executive Order 13622
- 77 FR 75845-12 - Publication of Final Rule Amending the Iranian Transactions and Sanctions Regulations, 31 CFR Part 560
- 77 FR 66918-12 - Amendments to the Iranian Financial Sanctions Regulations to implement sections 214 through 216 of the Iran Threat Reduction and Syria Human Rights Act of 2012
- 77 FR 64666-12 - 31 CFR Part 560 - Iranian Transactions Regulations; Final Rule
- 77 FR 16170-12 - Amendement to the Iranian Transactions Regulations to redefine the term "entity owned or controlled by the Government of Iran" to substantially conform to the definition in the amended Iranian Financial Sanctions Regulations
- 77 FR 11724-12 - Amendment to the Iranian Financial Sanctions Regulations: Implementing subsection 1245(d) of the National Defense Authorization Act for Fiscal Year 2012 ("NDAA")
- 76 FR 63197-11 - Iranian Transactions Regulations - Amendments to authorize certain consular funds transfers and the transportation of human remains
- 76 FR 63191-11 - Iranian Transactions Regulations - Amendments to authorize the exportation or reexportation of food items
- 76 FR 7695-11 - Iranian Transactions Regulations - regulations with respect to Iran to implement Executive Order 13553
- 75 FR 59611-10 - Iranian Transactions Regulations - Amendment to remove general licenses authorizing the importation of, and dealings in, certain foodstuffs and carpets of Iranian origin and related services
- 75 FR 49836-10 - Iranian Financial Sanctions Regulations - New regulations to implement the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010
- 75 FR 34630-10 - amendment to the Iranian Transactions Regulations in the Code of Federal Regulations to expand the scope of Appendix A to Part 560 to encompass any person determined by OFAC to be the Government of Iran
- 75 FR 10997-10 - Amendments to authorize certain types of exportation
- 74 FR 61030-09 - an interim final rule which makes technical changes to certain sections of the Sudanese Sanctions Regulations and the Iranian Transactions Regulations, 31 CFR parts 538 and 560
- 74 FR 36397-09 - allows U.S. banks to continue operating the accounts of U.S. persons who are temporarily in Iran
- 73 FR 73788-08 - Final rule amending the Iranian Transactions Regulations to expand the scope of Appendix A
- 73 FR 66541-08 - Revoking an authorization previously granted to U.S. depository institutions to process U-turn transfers
- 72 FR 15831-07 - Amendment to the Iranian Transactions Regulations related to the movement of specific goods via diplomatic pouch
- 72 FR 12980-07 - Clarification of Policy with Respect to the Process for Issuing Certain TSRA Licenses
- 71 FR 53569-06 - Treasury Cuts Iran's Bank Saderat Off From U.S. Financial System
- 71 FR 48795-06 - Official Activities of Certain U.S. Organizations
- 71 FR 29251-06 - Revisions to IEEPA made by the Combating Terrorism Financing Act of 2005
- 70 FR 15761-05 - Administrative Collection of Civil Penalties
- 70 FR 15583-05 - Broker-dealer amendment to ITR.
- 69 FR 75468-04 - General License for Publishing Activities
- 68 FR 11741-03 - Authorization of Certain Humanitarian Activities by Nongovernmental Organizations in Iraq and Iran
- 66 FR 38553-01 - Amendments to the Iranian Assets Control Regulations
- 66 FR 36683-01 - Exports of Agricultural Products, Medicines, and Medical Devices to Cuba, Sudan, Libya, and Iran; Cuba Travel-Related Transactions
United Nations Security Council Resolutions
- 2231 - Endorses the Joint Comprehensive Plan of Action (20 July 2015)
The provisions of Security Council resolutions 1696 (2006), 1737 (2006), 1747 (2007), 1803 (2008), 1835 (2008), 1929 (2010), and 2224 (2015) have been terminated subject to re-imposition in the event of significant non-performance of JCPOA commitments.
- 1929 - Reaffirming its commitment to the Treaty on the Non-Proliferation of Nuclear Weapons. (9 June 2010)
- 1803 - Reaffirming its commitment to the Treaty on the Non-Proliferation of Nuclear Weapons. (3 March 2008)
- 1747 - Reaffirming its commitment to the Treaty on the Non-Proliferation of Nuclear Weapons. (24 March 2007)
- 1737 - Reaffirming its commitment to the Treaty on the Non-Proliferation of Nuclear Weapons. (23 December 2006)
- 1696 - Reaffirming its commitment to the Treaty on the Non-Proliferation of Nuclear Weapons. (31 July 2006)
Economic sanctions have fast become a favourite international foreign policy tool and are now the international community's de facto response to "rogue" or "troubled" states. This article looks at how sanctions affect banks and other FIs and how to work under them successfully.
What do sanctions consist of?
Economic sanctions usually consist of trade sanctions and financial sanctions. This article is about financial sanctions but, briefly, trade sanctions generally take the form of restrictions on the sale and purchase of particular goods and services, such as arms embargoes. Trade sanctions are particularly relevant to banks in the context of their trade finance business.
At the core of financial sanctions is an asset freeze on specifically targeted persons. Although the scope of the asset freeze may differ between different international and national regimes, it is usually made up of two parts: a freeze of the "funds and economic resources" of designated persons; and a prohibition on making "funds and economic resources" available to them. The effect will generally be that all business with a designated person should cease. In short, therefore, banks should not make payments to or participate in transactions involving sanctioned parties unless the payment/transaction has been licensed.
International and national regimes
Sanctions usually begin at United Nations (UN) level in the form of a Security Council Resolution, but because Security Council Resolutions require a majority vote and five out of 15 members have the power of veto, UN sanctions are usually the most diluted, reflecting political compromises. Once a Security Council Resolution has been adopted, it is for each of the 192 UN member states to implement it into their national legislation. Precisely how they do so is a matter for them and this can often lead to inconsistency as to how the sanctions are implemented.
To implement UN sanctions at EU level, the EU adopts a decision and accompanying regulation. EU Regulations are directly applicable and effective in all EU member states, but they require national legislation to provide effective penalties for breaches. The EU is able to introduce sanctions much more quickly than the UN simply because the interests of the EU member states are (generally) more aligned. The EU therefore adopted sanctions earlier this year against Egypt, Syria and Tunisia without action being taken by the UN. For the same reasons, where EU sanctions implement UN sanctions, the EU sanctions are usually stronger and more comprehensive.
The U.S. is often at the vanguard of sanctions regimes. U.S. sanctions may also have extraterritorial reach. This means that a global risk management approach is necessary for any business with a nexus to the U.S. Further, while official sanctions regimes are one thing, perhaps far more powerful has been the intense lobbying efforts by the U.S. to persuade businesses to stop doing business with Iran.
Closer to home, the UK implements UN and EU financial sanctions by way of statutory instruments (SI) made by HM Treasury. so that it is essential to study the terms of the relevant SI as well.
All sanctions regimes contain exemptions whereby, notwithstanding an asset freeze, certain transactions (such as a pre-sanction contractual obligation or transaction, or transactions necessary to satisfy basic needs, legal and professional fees) can proceed if licensed by the appropriate authorities.
It is important to understand that there is no single place which can award a licence which will afford protection everywhere. While a licence from the Asset Freezing Unit of HM Treasury in the UK should in theory be sufficient protection throughout Europe, it is sometimes not as FIs based on highly conservative advice from their advisors in different EU jurisdictions are advised on occasions to get comfort from other EU regulators. What is more, even if the licence is sufficient comfort throughout Europe, if there is a U.S. angle, e.g., U.S. dollars are involved, a U.S. licence from Office of Foreign Assets Control (OFAC) is likely to be necessary and, depending on the politics, this can be a completely different ball game.
Other potential consequences of breaching sanctions
Penalties in this area are very serious and potentially business-critical, particularly where the U.S. is involved. For instance, a foreign FI's entire access to the U.S. financial system can, in effect, be switched off if it is held to have breached Iranian sanctions. If that were not enough, it can also be fined massively and individuals can be imprisoned for up to 20 years. There are many examples of large-scale fines (which can run to hundreds of millions of dollars) being imposed by the U.S. Treasury.
While much of the prosecution action has occurred in the U.S., the risks in the UK are also very serious. In addition to penalties under the Money Laundering Regulations, breach may lead to fines and up to two years' imprisonment for individuals.
Practical implications and advice
- Do not underestimate the importance of this whole area. Some hugely important foreign policy objectives are being pursued though sanctions. Senior management at FIs need to understand this and to ensure that the area has appropriate priority and resource.
- FIs must have a very well-designed sanctions monitoring and compliance programme. Those involved in establishing and monitoring procedures and processes in this area should read the FSA's decision in relation to RBS. The right IT systems and proper training should be essential components of a sanctions monitoring and compliance programme.
- Best practices require that business should develop, implement and operate a system of procedures and controls to identify any potential connection, direct or indirect, to sanctioned entities. This system should be proactive; and to address fully the risk of exposure, it should incorporate regular collection, synthesis and review of all credible public information, not just governmental lists of prohibited parties. Commercially available databases can be highly efficient to screen customers, clients, counterparties and others. Regulators, political leaders and the media are holding businesses accountable regarding what they consider those businesses should know, not just what they actually know.
- It is critical that policies and procedures are monitored and reviewed as things evolve, as interpretations develop, as experiences emerge and therefore risks change.
- Firms need to be very aware of the long arm of U.S. sanctions. If there is a U.S. nexus, e.g., U.S. dollars are involved at any stage or an entity has a U.S. connection, U.S. sanctions could be relevant.
- Firms should monitor very closely what is happening in the U.S. whose news flows (OFAC press releases, testimonies to congressional committees of relevant individuals) are very important; they should be part of an early warning system.
- Sanctions clauses are becoming increasingly common. They warn counterparties that a sanction may prohibit a bank from, say, dealing with specific countries, persons or assets, and may give the bank discretion not to honour contractual obligations.
- Firms should arm themselves with the right advisors. Some complex issues are involved, and these need to be fully understood and appreciated if risks are to be managed; it may be necessary to interact with the authorities.
- Finally, firms should look out for the opportunity to secure a competitive advantage by being fully on top of the risks, having the right advice and serving their clients. Some people in this area are refusing to do things because they are scared and because they do not really appreciate what they can and cannot do. There is an opportunity to differentiate