November 28, 2011 –
Treasury Announces New Sanctions on Iran Including Section 311 Measures

On November 19, President Obama signed Executive Order 13590 (“E.O. 13590”), authorizing sanctions on persons that knowingly provide:

• Goods, services, technology or support for the development of petroleum resources:  Sale, lease or provision of goods, services, technology or support to Iran that could directly and significantly contribute to the enhancement of Iran’s ability to develop petroleum resources located in Iran could trigger sanctions if a single transaction has a fair market value of $1 million or more, or if a series of transactions from the same entity have a fair market value of $5 million or more in a 12-month period; or

• Goods, services, technology or support for the maintenance or expansion of the petrochemical sector:  Sale, lease or provision of goods, services, technology or support to Iran that could directly and significantly facilitate the maintenance or expansion of its domestic production of petrochemical products, could trigger sanctions if a single transaction has a fair market value of $250,000 or more, or if a series of transactions from the same entity have a fair market value of $1 million or more in a 12-month period.

If a person is found to have provided a good, service, technology or support described in E.O. 13590, the Secretary of State may impose sanctions, including prohibitions on: foreign exchange transactions; banking transactions; property transactions in the United States; U.S. Export-Import Bank financing; U.S. export licenses; imports into the United States; loans of more than $10 million from U.S. financial institutions; U.S. government procurement contracts; and, for financial institutions, designation as a primary dealer or repository of U.S. government funds.

Additionally, State has designated four (4) individuals/entities (Nuclear Reactors Fuel Company, Noor Afzar Gostar Company, Fulmen Group and Yasa Part) under Executive Order 13382 (“E.O. 13382”), for their role in Iran’s nuclear procurement networks.  Treasury has designated seven (7) individuals/entities (Javad Rahiqi, Modern Industries Technique Company, Neka Novin, Parto Sanat, Paya Partov, Simatic and the Iran Centrifuge Technology Company) for their connection to the Atomic Energy Organization of Iran (AEOI), which is a key actor in Iran’s nuclear program.  The AEOI was listed in the Annex to E.O. 13382 and has been sanctioned by the United Nations in Security Council resolution 1737.  E.O. 13382 blocks the assets under U.S jurisdiction of the designated persons and prohibits U.S. persons from engaging in transactions with such designated persons.

Section 311 of the USA Patriot Act

Of particular importance, Treasury has identified the Islamic Republic of Iran as a jurisdiction of primary money laundering concern under Section 311 of the USA Patriot Act (“Section 311”) based on Iran’s support for terrorism, pursuit of weapons of mass destruction (WMD), reliance on state-owned/controlled agencies to facilitate WMD proliferation, and the deceptive financial activities that Iranian financial institutions and other state-controlled entities engage in to facilitate Iran’s illicit conduct and evade sanctions (the “Finding”).

In issuing the Finding, Treasury has, for the first time, identified the entire Iranian financial sector, including Iran’s Central Bank, private Iranian banks and branches and subsidiaries of Iranian banks operating outside of Iran, as posing illicit finance risks for the global financial system.  The Finding details the involvement of Iranian government agencies and banking institutions in WMD proliferation, support for terrorism and other illicit conduct.  The Finding also includes new information about the Central Bank of Iran’s role in facilitating Iran’s illicit conduct and Iran’s efforts to evade international sanctions.

As a result of the Finding, Treasury has determined that reasonable grounds exist for the imposition of the fifth special measure (“Special Measure”) authorized by section 5318A(b)(5), to prohibit the opening or maintaining of correspondent accounts by any domestic financial institution or agency for or on behalf of a foreign banking institution, if the correspondent account involves the Islamic Republic of Iran.

Consequently, Treasury has issued a Notice of Proposed Rulemaking (“Proposed Rule”) to prohibit covered financial institutions as defined in 31 CFR 1010.657(a)(2) of the Proposed Rule (“Financial Institutions”) from establishing, maintaining or managing in the United States any correspondent account for, or on behalf of, banking institutions in Iran.  As a corollary to this prohibition, Financial Institutions would be required to apply special due diligence (“Special Due Diligence”) to their correspondent accounts to guard against the improper indirect use by Iranian banking institutions.  At a minimum, the Special Due Diligence must include: (i) a notice (“Notice”) to correspondent account holders that the Financial Institution knows or has reason to know provide services to Iranian banking institutions, that such correspondents may not provide Iranian banking institutions with access to the correspondent account maintained at the Financial Institution; and (ii) reasonable steps (including screening mechanisms) to identify any indirect use of the Financial Institution’s correspondent account by Iranian banking institutions, to the extent that such indirect use can be determined from transactional records maintained by the Financial Institution in the normal course of business.  The Proposed Rule provides a sample Notice.

To read a complete copy of the Finding and the Proposed Rule, click on the following links:

http://www.fincen.gov/statutes_regs/patriot/pdf/Iran311Finding.pdf
http://www.fincen.gov/statutes_regs/patriot/pdf/Irn311RulemakingProposalSpecialMeasure.pdf