Recently the question was raised as to whether certain banks in Iran are blocked due to their placement on the Specially Designated Nationals List maintained by the United States Department of the Treasury Office of Foreign Assets Control (“OFAC”). The banks being referred to are designated as [IRAN] which denotes a designation pursuant to the Iranian Transactions Regulations (“ITR”) as a Government of Iran (“GOI”) entity. The ITR does not contain any blocking provisions and therefore a designation under the ITR does not amount to a blocking as it is thought of in the traditional sense.

What the ITR designation does to these banks is extend the prohibitions found in the ITR to those banks wherever they operate (i.e., outside of Iran). Therefore, a U.S. person would be prohibited from engaging in the importation of services from an [IRAN] designated bank; from exporting goods, services or technology to such bank; from engaging in a trade transactions with such bank; and from facilitation of transactions with such bank, regardless of whether that bank operates in Iran or not.

Well that sounds a lot like the bank is blocked doesn’t it? Not necessarily. The easiest way to understand the distinction is by example and a perfect example is found in OFAC’s Frequently Asked Questions (FAQs) section. In that section OFAC offers the following example:

“A U.S. bank interdicts a commercial payment destined for the account of the French Computer Corporation at Bank Tejarat, in Paris on the books of a U.S. bank. The beneficiary’s address confirms that it’s a company in France. However, this payment must be rejected by the U.S. bank because the account of Bank Tejarat is an “Iranian account” on the books of a U.S. bank and cannot be operated.”

Had Bank Tejarat been a blocked bank then the transaction would have been blocked by the U.S. bank and the funds would have been placed into an interest bearing account until such time when the funds could be released by the bank.

Therefore if an unauthorized transfer of funds is coming from an [IRAN] designated bank, such as Bank Tejarat to the United States it will be rejected, as opposed to blocked. This is an important distinction to keep in mind, particularly when transferring funds from Iran to the United States pursuant to an exemption or an OFAC general license.

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.

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