On August 16, 2010, the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”) promulgated the Iranian Financial Sanctions Regulations (the “Regulations”) to implement provisions of the Iran Sanctions, Accountability, and Divestment Act of 2010. The Regulations generally became effective on August 16, 2010 and they focus on the conduct of foreign financial institutions. Below is a summary of the Regulations’ prohibitions and potential penalties.

Prohibited Conduct

The Regulations prohibit certain “knowing” conduct by foreign financial institutions, regardless of the location of the conduct and its relevant currency. It is important to note that “actual” knowledge is not required as the predicate for a violation – constructive knowledge (i.e., “should have known”) is sufficient.

The following conduct by a foreign financial institution is prohibited:

• Facilitating the efforts of the Government of Iran to “acquire or develop weapons of mass destruction or delivery systems for weapons of mass destruction” or to provide support for foreign terrorist organizations or support for acts of international terrorism.
• Facilitating the activities of a person subject to financial sanctions pursuant to United Nations Security Council (“UNSC”) Resolutions 1737, 1747, 1803, or 1929, or any other resolution adopted by the Security Council that imposes sanctions with respect to Iran (the “UNSC Resolutions”).
• Engaging in money laundering to acquire or develop weapons of mass destruction or delivery systems for weapons of mass destruction, to provide support for foreign terrorist organizations or support for acts of international terrorism, or to facilitate activities of a person subject to financial sanctions pursuant to the UNSC Resolutions.
• Facilitating efforts by the Central Bank of Iran or any other Iranian financial institution to acquire or develop weapons of mass destruction or delivery systems for weapons of mass destruction, to provide support for foreign terrorist organizations or support for acts of international terrorism, or to facilitate activities of a person subject to financial sanctions pursuant to the UNSC Resolutions.
• Facilitating a significant transaction or providing significant financial services for:
  • Iran’s Islamic Revolutionary Guard Corps (“IRGC”) or any of its agents or affiliates whose property and interests in property are blocked pursuant to the International Emergency Economic Powers Act (“IIEPA”) or
  • A financial institution whose property and interests in property are blocked in connection with Iran’s proliferation of weapons of mass destruction, delivery systems for weapons of mass destruction, or Iran’s support for international terrorism.

It should be noted that the Regulations also provide that any person that is owned or controlled by a U.S. financial institution may not knowingly engage in any transaction with or for the benefit of the IRCG or any of its agents or affiliates whose property or interests in property are blocked pursuant to the IIEPA.

Penalties

If the Secretary of the Treasury finds that a foreign financial institution has engaged in one or more of the activities described above, then the Secretary may impose one or more strict conditions on the opening or maintaining by a U.S. financial institution of a correspondent account or a payable-through account in the United States. In addition, a civil penalty may be imposed of up to the greater of $250,000 or twice the amount of the transaction for which the penalty was imposed. Finally, there is a potential criminal penalty of up to $1 million and/or up to twenty years in prison.

A U.S. financial institution that knew or should have known that a person or entity under its control violated, attempted to violate, conspired to violate, or caused a violation of the Regulations will also be liable for a civil penalty up to the greater of $250,000 or twice the amount of the transaction for which the penalty was imposed.

If you have any questions or concerns about this legislation, please contact Bruce G. Paulsen (212-574-1533).