We have a new sanctions program.

On April 15, 2016, OFAC inaugurated the Hizballah Financial Sanctions Regulations (“HFSR”) located at 31 C.F.R. Part 566. These new regulations implement the Hizballah International Financing Prevention Act of 2015, which became law on December 15, 2015 and imposes secondary sanctions on foreign banks providing financial services to Hizballah or any of its agents or affiliates.

The timing is not surprising. Pursuant to § 102(a)(1) of the Hezbollah International Financing Prevention Act of 2015, the President was required to issue regulations prohibiting or imposing strict conditions on the opening or maintenance in the United States of a correspondent or a payable-through account by a foreign financial institution that the President determines to have engaged in certain activities prohibited by the new legislation. The Act provided the President 120 days to prescribe such regulations. In consideration of the date on which the regulations were implemented (April 15th), OFAC – which operated under a delegation of authority from the President – waited until the last possible moment before issuing the new regulations.

The HFSR is likely to be impactful. 31 C.F.R. § 566.201(a) outlines those prohibited activities that could trigger HFSR sanctions:

(a)      A foreign financial institution engages in an activity described in this paragraph if, in any location or currency, the foreign financial institution, on or after December 18, 2015, knowingly:

(1)      Facilitates a significant transaction or transactions for Hizballah;

(2)      Facilitates a significant transaction or transactions of a person identified on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List), the property and interests in property of which are blocked pursuant to [IEEPA]…for acting on behalf of or at the direction of, or being owned or controlled by, Hizballah;

(3)      Engages in money laundering to carry out an activity described [above]; or

(4)      Facilitates a significant transaction or transactions or provides significant financial services to carry out an activity described [in the aforementioned paragraphs].

OFAC has adopted signifiers within its SDN listings to help compliance personnel identify whether a given designated entity or individual is one linked to Hizballah and thus subject to secondary sanctions pursuant to the HFSR. For instance, OFAC’s Note to Paragraph (a)(2) states that designated parties who:

…are blocked pursuant to IEEPA for acting on behalf of or at the direction of or being owned or controlled by Hizballah are identified by a special reference to Hizballah at the end of their entries on the SDN List, in addition to the reference to the regulatory part of this chapter to which their property and interests in property are blocked.

Meanwhile, foreign financial institutions who do run afoul of the applicable law and are prohibited from opening or maintaining a correspondent account in the U.S. or have strict conditions imposed on their ability to do so will be added to the HFSR List. This HFSR List will be found at OFAC’s Counter-Terrorism Sanctions webpage.  (No such foreign banks have been so designated as of yet, so don’t go looking for this list anytime soon.)

The obvious model for the HFSR, though, is the Iranian Financial Sanctions Regulation (“IFSR”) located at 31 C.F.R. Part 561. Side-by-side comparison of the provisions of the two sanctions programs is enough to demonstrate their likeness. As an example, the Secretary of the Treasury is authorized to impose certain conditions on the opening or maintaining by a U.S. financial institution of a correspondent account or a payable-through account in the United States for a foreign financial institution – provided that the Secretary of the Treasury determines that the foreign financial institution has engaged in one or more of the prohibited activities outlined at 31 C.F.R. § 566.201(a). The illustrative conditions identified in 31 C.F.R. § 566.201(b) and thus available to the Secretary of the Treasury find their earlier iteration at 31 C.F.R. § 561.201(b) of the IFSR. Such continuity between the U.S. sanctions programs like this is useful for practitioners and for the general public in ensuring full compliance with U.S. sanctions prohibitions.