Yesterday, I wrote about the strange development of OFAC issuing a general license to export food to Iran despite the alleged bomb plot thwarted earlier this week. Today, I consider the other side of the story which is deals with the talk coming from both the White House and Congress that Iran will face the toughest sanctions yet over the alleged bomb plot. One can only surmise that this means the U.S. government will take steps to target the Central Bank of Iran for sanctions and place them on the Specially Designated National and Blocked Persons List (SDN List) administered by the United States Department of the Treasury Office of Foreign Assets Control (OFAC).

Certainly this has been a measure which has been heavily considered and sought after in Congress over the last few months, however, the Executive Branch has been rather quiet on whether or not it would consider taking such a move. Off the record, a few current and former officials within the government have told me that it was unlikely to happen and that such a move would be irresponsible. However, in light of recent events, it does seem that the administration is considering the move and that it is likely to happen. Indeed, David Cohen, Undersecretary of Terrorism and Financial Intelligence, testified before Congress yesterday and stated that the administration was considering such a designation.

As I have written before, the designation of the Central Bank of Iran would be devastating for Iran’s economy. Some have equated such a designation to being the nuclear option in sanctions against Iran. If strictly interpreted this designation could be used to block every transaction in which rials are or have been used that passes through U.S. jurisdiction. This is because once an OFAC blocking of a target party occurs then any transaction in which they have interest is required to be blocked. Central Bank of Iran controls the currency of the rial; therefore, if given a very strict interpretation, they have an interest in every transaction in rials. As such, those transactions could all be blocked. Again, this is a very strict interpretation and its unclear whether OFAC or the U.S. government would take that aggressive of a position in enforcing such a measure.

While it certainly looks like the recent events surrounding the alleged bomb plot will be the impetus for placing the Central Bank of Iran on the list, the question arises: under what basis will they be designated? In order to legally target an entity or individual for sanctioning it must relate to an international emergency which threatens the national security interests of the United States and for which the President can exercise his authority under the International Emergency Economic Powers Act (IEEPA).

Previously, other Iranian banks and entities have been designated upon the basis that they were supporting the proliferation activities of those seeking Weapons of Mass Destruction or providing assistance to designated global terrorists. In the current scenario, there has been no evidence that Central Bank of Iran has been involved in either of those activities. Therefore, the President would either have to issue an executive order stating that the Central Bank of Iran’s activities constitute an international emergency that threatens the national security interests of the United States or Congress would have to pass a new law targeting the Central Bank of Iran. I think the latter scenario is more likely here, however, I also believe the action will be entirely punitive in nature and not necessarily related to the Central Bank of Iran’s activities, for which they almost certainly would have already been sanctioned had they truly constituted a threat to national security. It will be interesting to see the basis established in any forthcoming executive order sanctioning the Central Bank of Iran or the findings of Congress if a law is passed to sanction them. For now it seems pretty clear to me that we will see the designation of Central Bank of Iran in the future, although the reasons for sanctions against them may be more related to punishing the Government of Iran as opposed to any activities carried out by the bank itself.

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.