What Do They Mean for Your Bank?
By Amber Goodrich
On May 8, 2018, President Trump announced his decision to withdraw the United States from the Iran Deal, also known as the Joint Comprehensive Plan of Action (JCPOA), a treaty implemented on Jan. 16, 2016. Joined by Iran, China, France, Germany, Russia, the United Kingdom and the United States, the JCPOA allowed sanctions relief to Iran in exchange for curbing its nuclear-related programs.
In conjunction with Trump’s decision, the U.S. reinstated nuclear sanctions on Iran at the conclusion of two wind-down periods, the second of which ended Nov. 4. The wind-down allowed U.S. organizations time to wrap up all soon-to-be sanctioned transactions with Iran.
According to the Treasury Department, “Persons engaging in activity undertaken pursuant to the U.S. sanctions relief provided for in the JCPOA should take the steps necessary to wind down those activities … to avoid exposure to sanctions or an enforcement action under U.S. law.”
The re-instated sanctions cover various types of transactions with Iran in the energy, shipping and banking sectors, including the purchase or acquisition of U.S. dollar banknotes by the Government of Iran; sanctions on petroleum-related transactions, including the purchase of petroleum, petroleum products or petrochemical products from Iran; the provision of underwriting services, insurance or reinsurance; and transactions by foreign financial institutions with the Central Bank of Iran and other designated Iranian financial institutions.
According to an Op-Ed in the Financial Times by U.S. Treasury Secretary Steven Mnuchin, “These actions are an important step towards holding the world’s largest state sponsor of terror accountable for its malign behaviour, human rights abuses, ballistic missiles development, and systematic efforts to exploit the global financial system to fund its revolutionary ambitions.”
What Does This Actually Mean?
Perhaps the biggest and most significant aspect of our country’s Iran Deal withdrawal is the re-instatement of a substantial subset of Iranian names and entities to OFAC’s Specially Designated Nationals (SDN) list, those whose assets are blocked and with whom U.S. persons are prohibited from engaging in activities or transactions.
What this signifies is an enormous update, all at once, to OFAC’s SDN list. By now, all U.S. financial institutions and organizations should have — or must immediately — perform a customer database re-screen to ensure they’re not conducting business with re-instated SDNs. For organizations that do not employ automated watch list screening, this task can seem practically insurmountable from a cost and time standpoint.
What Should Institutions Do Now?
Conducting sanctioned transactions or certain activities with SDNs can mean business-crushing fines by OFAC. In fact, the number of million-dollar civil money penalties has grown exponentially over the last few years. U.S. financial institutions — and all other organizations, for that matter — should:
- If not already doing so, strongly consider implementing automated watch list screening. Trying to manually handle such an enormous update workload can easily overwhelm compliance staff and leave too much room for human error
- If there’s no doubt your institution has recently conducted transactions with Iranian companies or individuals, ensure you cease any further transactions and re-screen your customer database
- Review policies and procedures, particularly those that might have allowed the types of transactions in question
- For non-U.S. subsidiaries of U.S. institutions, terminate any transactions with Iran
- Maintain an overall awareness that these actions by the Trump administration might just be the tipping off point for further events that may greatly affect the country as a whole — well beyond financial transactions
Currently, the U.S. is the only country to withdraw from the Iran Deal, a fact that potentially complicates our relations with the remaining countries involved in the JCPOA, due to what’s called secondary sanctions. Secondary sanctions come into play for cases in which the U.S., another country, and Iran were involved in business dealings prior to our withdrawal from the deal — and the other country continues those dealings with Iran.
For example, if the U.S. conducted transactions with France and Iran involving goods and services used in the Iranian automotive industry — and France continues those transactions that the U.S. has now sanctioned — France could be subject to secondary sanctions. These sanctions can lead to commercial and legal risks.
That’s the million-dollar question. Unfortunately, the answer is “wait and see.” However, if this presidential administration continues on its current course, Iran sanctions could be just the beginning. In fact, relations with a huge petroleum supplier, Saudi Arabia, appear less than solid following the death of journalist Jamal Khashoggi.
For now, it’s vital that financial institutions and all other American businesses remain solidly aware of how this action plays out. And of course, screen and re-screen all customers. For much more on this topic, listen to the Iran Sanctions episode of CSI’s podcast, Fintech Focus.
Amber Goodrich, compliance strategist for CSI Regulatory Compliance, has more than 10 years of financial industry experience. She is a Certified Regulatory Compliance Manager (CRCM) and Certified Bank Secrecy Act (BSA) Professional (CBAP).
Part of the BankNews OnPoint Series