IRAN DEAL AND THE U.S. CORRESPONDENT BANKING DUE DILIGENCE

By Bachir El Nakib

With the UN Security Council approval of the 5+1 Iran's Agreement to curb its nuclear program in exchange for the lifting of some sanctions may simplify the correspondent banking for U.S. institutions and offer broader opportunities to the rest of the world, and if it clears the U.S. Congress and if the International Atomic Energy Agency verifies that Iran is keeping to its side of the bargain, sanctions preventing non-U.S. banks from doing business with Iran will be lifted

The immediate results will show a lot of financial services stuff on the institutional side and the correspondent banking side that is going to be lifted that is in place now," Ganis said during a webcast held last week by AML Services International LLC, a firm that provides financial crime risk management training.

While U.S. sanctions related to Iran's nuclear program, which were put into place in the early 2000s, will be lifted, decades-old sanctions targeting Tehran's current regime will remain in place. So will sanctions over Iran's alleged role as a financier of militant groups the United States has blacklisted as terror groups.

As a result, the deal with Iran will have a limited impact on the ability of U.S. banks to touch transactions linked to Iran, Ganis said. More immediately beneficial to U.S. banks would be a lifting of the so-called secondary sanctions, involving third-country banks that do business with Iranian banks, said Ganis.

(Ganis is a former sanctions officer at Fidelity Investments and former counsel to the U.S. House Committee on Banking and Financial Services). 

"Not only is it illegal for U.S. banks to do business with Iranian Bank A, it's also illegal for them to do business with Romanian Bank B that does business with Iranian Bank A," he said.

Still, if all of the above-mentioned hurdles are cleared and the U.S.-Iran deal comes into force, "there's going to be certain kinds of due diligence that folks are hopefully doing today on non-Iranian foreign banks about their dealings with Iran that will no longer be necessary." 

"It does not mean that all of your customers are going to be able to start selling goods and services in Iran and having dollar wire transfers come back from Iran and go into their accounts," he said. "It's largely the secondary sanctions, sanctions against dealing with foreign banks that are not in Iran but that do business in Iran, that we expect to have lifted." 

Among other things, this will mean U.S. banks will be able to begin dealing with foreign counterparts that choose to do business in Iran, transacting in Iranian sovereign debt and engaging in other activity.

International banks and most insurers are likely to steer clear of dealing with Iran for some time, fearing they could face fines from U.S. regulators despite the nuclear deal, Reuters has reported. But Germany's largest bank by assets, Deutsche Bank, has said it would consider business in Iran when sanctions disappear.

U.S. citizens still will not be able to purchase Iranian goods and services due to the Iranian Sanctions Transaction Regulations, which will remain in force despite the deal, Ganis noted.

"I think we're looking at 2016 easily before the implementation date that will trigger a lot of the lifting (of sanctions)," he said.