The U.S. Treasury Department released new guidance on June 8 that appears intended to reassure European and other non-U.S. banks wary of doing business with Iran. In an updated explanatory document published by the Office of Foreign Assets Control, the Treasury Department stated that the U.S. financial system will remain open to foreign banks doing business with non-sanctioned Iranian financial institutions, as long as any U.S. employees in those foreign banks are “ring-fenced” from Iran-related business. This new guidance, however, merely restates U.S. policy. It falls well short of the specific assurances that have been sought by European bankers and officials. As a result, the new guidance is unlikely to have much impact.
The updated guidance is a bit more specific than previous iterations. It states: “U.S. financial institutions can transact with … non-U.S., non-Iranian financial institutions that … transact with Iranian financial institutions that are not on the SDN list.” In other words, foreign banks that do business with Iran will still be able to access U.S. financial institutions, as long as they steer clear of sanctioned Iranian companies and individuals. This statement, however, merely re-iterates a longstanding U.S. position.
The new guidance also reinforces three important U.S. prohibitions. First, the reference to “the SDN list” implicitly renews the threat of U.S. sanctions by reminding foreign banks that blacklisted Iranian institutions remain off-limits. These sanctions still target foreign entities for dealing with certain blacklisted Iranian sectors and entities, such as those linked to terrorism or to the Islamic Revolutionary Guard Corps (IRGC). Second, foreign banks will still be forbidden from “rout[ing] Iran-related transactions through U.S. financial institutions or involv[ing] U.S. persons in such transactions.” Third, while foreign companies with American managers or directors can do business with non-sanctioned Iranian companies, all U.S. persons “must be walled of or ‘ring-fenced’ from Iran-related business.”
Wary European banks and officials are unlikely to be satisfied by the new language. According to a June 7 report in Bloomberg, European Union financial ministers unsuccessfully sought to gain more explicit guidance on the reach and application of remaining U.S. sanctions during talks in Brussels in May. U.S. officials reportedly declined to provide any additional assurances beyond their publicly stated policy. The Bloomberg report also quoted Francesco Fini, an EU official, as saying that several EU companies have lobbied the European Commission to bring their individual cases to the Treasury Department in order to gain legal clearance to do business with Iran. France’s government is also reportedly in talks with OFAC in an attempt to gain legal assurance for companies seeking to enter the Iranian market. The new OFAC guidance does not provide any mechanism for case-by-case clearance or review for individual companies.
The continued reluctance of European and other non-U.S. banks to re-enter the Iranian market is reinforced by their concern about the lack of transparency in Iran and Iran’s weak anti-money laundering and terrorist financing regulations. As a result, it is difficult for banks to know whom they are dealing with, and whether that party is on the U.S. blacklist, or is controlled by a blacklisted entity. Foreign companies risk violating remaining U.S. sanctions by doing business—even unknowingly—with blacklisted entities. According to a report by the London-based law firm Clyde & Co, 58 of 100 British executives surveyed said they are staying out of the Iranian market because of fear of the regulatory penalties that have remained in place after the implementation of the nuclear deal. Thirty percent of the executives said they were so fearful of sanctions that they were even reluctant to discuss plans to enter Iran with their own banks. Businesses are also fearful of the possibility that sanctions could be re-imposed if Iran violates the deal.
Iran has voiced frustration with the slow pace of the economic benefit it has received. Iranian banks reportedly have had difficulty processing international financial transactions and repatriating billions of dollars in previously frozen oil revenue from overseas accounts.
Treasury spokeswoman Betsy Bourassa told Bloomberg that U.S. Treasury and State Department officials “have traveled worldwide to meet with government and private sector partners to provide additional clarity on our sanctions.” Ms. Bourassa attributed some of the slow pace of Iran’s re-integration into the global economy to factors beyond U.S. control, such as Iran’s “destabilizing activity in the region” and a lack of transparency in its financial system. Daniel Glaser, Assistant Secretary of the Treasury for Terrorist Financing, echoed this position in May, citing the limitations of Iran’s financial system: “If Iran wants access to the international financial system, and Iran clearly does and it’s something that they are entitled to, they need to understand that the international financial system is a rules-based system. And Iran understands those rules and Iran is working to put a system in place that implements those rules. This is something [that] is going to develop over time.”