Summary: In the wake of the United States dropping out of a heavily-negotiated joint deal to ease sanctions if Iran pulls back on purported nuclear proliferation goals, allowing inspectors to validate progress, the already-roiling compliance landscape is further thrown into chaos as sectors that were radioactive, then were not radioactive, are now caustically untouchable again. This puts more pressure on compliance teams to ferret out when correspondent-connected foreign banks are abiding by wind-down timelines related to banking, automotive, aerospace and other industries.

Read length: About 5-7 minutes.


With U.S. President Donald Trump this week pulling out of a heavily negotiated 2015 joint deal with Iran to ease punitive measures if the country slows its purported nuclear proliferation goals, the widely-criticized move has added even more complexity and potential pitfalls to an already roiling, rollicking sanctions compliance landscape.

In a White House briefing, Trump stated that the U.S. would be withdrawing from the Joint Comprehensive Plan of Action (JCPOA) with Iran, a historic deal hammered out through a herculean effort with the support of Britain, France, Germany and others, to ease sanctions in key sectors for the isolated Islamic theocracy, including automotive, aerospace, energy and banking.

The sanctions that were lifted under the JCPOA primarily dealt with secondary sanctions that prohibited many financial institutions and companies that had ties to the United States or transacted in U.S. dollars from supporting most industries in Iran.

When those were eased under the deal, it eventually opened the door to multi-billion deals with companies like Boeing and European rival, Airbus, which will now have to be unwound.

As a result of companies trying to squeeze in last minute business with Iran, or vice versa, U.S. banks with large correspondent networks tied to the Middle East and Turkey, or connecting to foreign banks that do, must be more warry of hidden, nested entities getting access to the U.S. financial system through foreign correspondent portals and behind shell companies with hidden, Iranian beneficial owners.

During his address, Trump stated that the current deal – a landmark Obama administration foreign policy coup – was “defective to its core” and had to be dismantled to make the world a safer place.

The timeframes for the reenactment of sanctions are also extraordinarily aggressive.

Businesses that must pay, or get paid, from Iran or extricate themselves from sensitive legal contracts must generally settle accounts and tie up all ties to Iran in one of two tranches, covering roughly three months and six months.

Cognizant of the compliance chaos that will ensue, the U.S. Treasury’s Office of Foreign Assets Control (OFAC), the country’s main sanctions arm, detailed government and regulatory expectations in new FAQs meant to aid banks, companies and corporates tasked with operationalizing an expedient breakup.

As it stands now, the U.S. Treasury and State Departments have revoked any sanctions waivers issued to implement JCPOA sanctions relief, and has replaced them with temporary waivers to provide for the wind-down of previously-authorized activities in Iran.

Those waivers are quickly evaporating, however, keeping with newly-established 90-day, ending on August 6, 2018, and 180-day, ending on November 4, 2018, wind-down periods for activities involving Iran, according to OFAC.

Here are some examples of what will be re-imposed and in what time frames:

First 90-day wind-down period:

  • Sanctions on Iran purchasing, acquiring U.S. dollars.
  • Sanctions on Iran’s trade in gold or precious metals.
  • Sanctions on acquiring graphite, aluminum, steel, coal, industrial software.
  • Sanctions on significant transactions, purchasing, holding Iranian currency.
  • Sanctions on the purchasing, issuing of Iranian sovereign debt.
  • Sanctions on Iran’s automotive sector.
  • Sanctions related to Persian rugs, due to authorization revocation.
  • Sanctions related to commercial aircraft, parts, due to authorization revocation.

Second 90-day wind-down period:

  • Sanctions on Iran’s port operators, shipping and shipbuilding sectors.
  • Sanctions on petroleum-related transactions, petro products from Iran.
  • Sanctions on transactions by foreign financial institutions with Iran’s Central Bank previously designated under the NDAA.
  • Sanctions on the provision of specialized financial messaging services to Iran’s Central Bank, other financial institutions previously designated under CISADA.
  • Sanctions on the provision of underwriting services, insurance, or reinsurance.
  • Sanctions on Iran’s energy sector.

But other sanctions programs, particularly areas that could allow Iran access to technology to build weapons, including dual-use components with civilian and military nuclear implications, along with designations related to terror finance, weapons proliferation and human rights abuses, have remained inviolate and in effect.


ACFCS Q&A Snapshot: In aftermath of Trump withdrawal on Iran, what should banks be worried about?  

ACFCS talked to Farhad Alavi, managing partner for Akrivis Law Group, a boutique firm that advises on international sanctions, export controls and anti-corruption compliance, to get a sense of what are some of the new pain points, pitfalls and issues that could leave institutions exposed to more regulatory scrutiny or penalty potentialities. Here is what he had to say:

What are the biggest pitfalls for domestic and international banks now that certain Iran sanctions are snapping back into place? 

  1. Understanding where the law stands at the moment (be it now, or in August, October or after that). Given that some sanctions relief affecting US persons will be revoked, it will be critical for US banks to know their own customers and their activities to make sure what they are doing has not become illegal.
  2. Further to the above point, realize that some transactions will remain lawful.
  3. With respect to Iranian money movement, a lot of this movement is not traceable so it’s key to understand all aspects of the transaction, not just the leg that they see (from the third company to their bank).
  4. US and foreign banks will naturally need to know a lot more about their customers and their businesses and try to make sure they are not misled by their customers.

How does this complicate, or make easier, sanctions for banks? Can they just go back to not allowing anything related to Iran?

The banks have often adopted that position, even during the JCPOA, and this was a major reason behind Iran not being able to benefit as much as it could have in theory – the banking facilities weren’t there, in part due to unilateral US sanctions remaining in place.

However, generally, when more activities are prohibited, many companies naturally shy away from activity with a sanctioned jurisdiction, even if the activity remains permissible.

What sectors should banks be more worried about that will become more off limits now? Automotive? Aerospace? Medical? Textiles? 

Automotive, aviation, and energy come most to mind.

I know that most U.S. banks likely weren’t doing anything with Iran, even under allowed specific and general licensing. But should U.S. and international banks be worried about TBML or sanctioned, nested entities coming in through correspondent portals? 

Yes. That can always be an issue. This will particularly be an issue as the valves of money movement into and out of Iran become increasingly shut off.

What are some of your general thoughts about the deal and what banks should be aware of?

As for the deal, the wind-down envisioned by the US is exceptionally ambitious given the short amount of time and the scope of activities it curtails.

Will Iran be a nuclear terrorist superpower?

The U.S. pulling out of the deal could hurt itself more than hamstringing Iran’s apparent nuclear proliferation goals, said Debra Geister, Managing Director of AML Advisory Services at Matrix IFS, a compliance consultancy, and former compliance officer.

Some pundits have prognosticated that Iran has no real intention of creating nuclear weapons, but negotiated the deal to be “more engaged with businesses around the world,” she said, adding that the U.S. pulling out could create friction with allies and hurt the country’s credibility on the world stage. “It makes the U.S. look a lot less reliable and stable.”

As for bank compliance teams, they will have to push forward anew to ensure foreign banks near Iran, and what is becoming a virtual proxy, Turkey, are appropriately winding down business and looking behind opaque, risky ownership structures that could be hiding designated entities, Geister said.

In practice, that means U.S. and international institutions querying their foreign correspondent networks about certain customers in key jurisdictions and sectors, such as automotive, energy, aerospace and others, she said.

As well, Geister said, in her own investigations analyzing bank transactions, she has noticed a surge in Iran entering the international financial system through crypto exchanges using Turkish financial institutions.

The virtual currency exchanges are evading sanctions and “cleaning money for Iran by moving funds through Turkey,” she said. “If banks are not looking for that kind of activity through their crypto exchange clients, they will facilitate it. We must be aware that is occurring because we have seen U.S. banks involved.”

As for Trump, he made his feelings clear in his address.

“If we do nothing, we know exactly what will happen,” he said. “In just a short period of time, the world’s leading state sponsor of terror will be on the cusp of acquiring the world’s most dangerous weapons.”