Iran is dismissing threats by the United States that sanctions would be imposed upon the Central Bank of Iran as retaliation for an the alleged “Iran Terror Plot”, Iran contends that even if the U.S. were to attempt to move forward with the designation that the United Nations would block the plan and other central banks would not accept it.

As is well known, the United States and its European allies have already pushed the United Nations to impose multiple rounds of sanctions over Iran’s nuclear program and have taken it upon themselves to impose their own unilateral sanctions programs which have had the effect of deterring investment in Iran’s oil sector and have increased the difficulty associated with moving money in and out of the country. Targeting the Central Bank of Iran for sanctions would in theory make it more difficult for Iran to receive payment for exports.

Earlier this year, such difficulties were evidence when Iran was temporarily unable to receive payment of nearly $5 billion of petrodollars from India due to that nation’s discontinued use of the payment system previously being utilized to pay Iran.

Although the U.S. has taken steps to designate some of the parties alleged to have been involved in the plot, President Obama has stated that he will act to bring international support for even tougher sanctions on Iran.

As most readers of this blog are aware, U.S. persons are already generally prohibited from doing business with any bank in Iran, including the Central Bank. However, the impact of this designation could effectively shut down all transactions with Iran that are in or will be in rials. Thus, the designation of Central Bank of Iran could have significant consequences on Iran even without international support.

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.