Today, everyone was talking about the agreement members of the House and Senate came to on a new Iran sanctions bill. However, the news that caught my eye was the issuance of a new executive order and several new designations under the Comprehensive Iran Sanctions Accountability and Divestment Act of 2010 (“CISADA) and the Iranian Financial Sanctions Regulations (“IFSR”). What is significant about these designations was the fact that it was the first set of designations to The Office of Foreign Assets Control’s (“OFAC”) Part 561 List, a list of foreign financial institutions which have been designated under the IFSR and which are no longer allowed to have correspondent banking relationships with U.S. depository institutions.

The new executive order provided new authority to the Department of the Treasury to impose financial sanctions on foreign financial institutions found to have knowingly conducted or facilitated certain significant financial transactions with the National Iranian Oil Company (“NIOC”) or Naftiran Intertrade Company (“NICO”) or for the purchase or acquisition of petroleum or petroleum products from Iran through any channel. In addition, the Department of the Treasury was provided with new authority to impose sanctions on foreign financial institutions engaged in significant transactions for the purchase or acquisition of petrochemical products from Iran, and to block the interests in property of any person determined to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, NIOC, NICO, or the Central Bank of Iran, or the purchase or acquisition of U.S. bank notes or precious metals by the Government of Iran. This executive order also expands the authority of the Department of State under the Iran Sanctions Act and E.O. 13590, “Authorizing the Imposition of Certain Sanctions With Respect to the Provision of Goods, Services, Technology, or Support for Iran’s Energy and Petrochemical Sectors.”

The two financial institutions designated by the sanctioned today by OFAC are Bank of Kunlun in China and Elaf Islamic Bank in Iraq for the alleged provision of financial services to designated Iranian banks, and facilitating the movement of millions of dollars worth of international transactions for Iran.

While OFAC has finally placed some banks on the Part 561 List, it should be noted that Bank of Kunlun does not have any correspondent banking relationships with U.S. depository institutions (or European institutions) and based on a cursory review it was unclear whether Elaf Islamic Bank of Iraq had any either. So while today’s action may not have any immediate, direct impact on the Iranian financial system, we need to keep in mind the timing of these designations; specifically, that they are occurring the day after members of a Congress came to an agreement on new Iran sanctions, and during an election year. While there may be some residual effect of scaring off other foreign financial institutions from dealing with the newly designated banks, the real impact was to steal some of Congress’ thunder on the Iran sanctions issue. It seems that politics has trumped practicality once again as Iran’s financial system becomes the ball being kicked around in this year’s election games.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.