The United States Department of the Treasury Office of Foreign Assets Control (“OFAC”) has promulgated a new sanctions program to reflect the mandates of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”). The name of this program is the Iranian Financial Sanctions Regulations (“IFSR”) and it seeks to prevent foreign financial institutions who facilitate Iran’s nuclear weapon proliferation activities or provide services to blocked Iranian parties who are engaged in such activities and/or the support of terrorism. Foreign financial institutions will be cut off or restricted in accessing the U.S. financial system if found to be engaged in the aforementioned activities. This includes prohibiting such institutions from opening and maintaining correspondent accounts.

Furthermore, the IFSR extends liability to a U.S. financial institution for engaging in transactions with parties designated as Specially Designated Nationals (“SDNs”) under the program. Although aimed at foreign subsidiaries or affiliates, a U.S. financial institution is potentially subject to civil or criminal penalties under IEEPA if the parent company knew or should have known that its controlled subsidiary or affiliate attempted, conspired, or caused a violation of the regulations.

In addition, U.S. financial institutions should be mindful that OFAC will be promulgating regulations to implement the audit and “due diligence” requirements of the CISADA. These requirements call for U.S. financial institutions maintaining foreign financial institution correspondent accounts to engage in certain auditing and reporting activities to ensure that the foreign financial institution is not engaging in any of the activities prohibited by the IFSR.

While the IFSR only reflects one aspect of the CISADA’s mandates it is significant and U.S. financial institutions need to remain aware of it. In sum, by implementing these regulations, the U.S. government is giving an option to foreign financial institutions: you’re either with us or against us.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC litigation. If you have any questions please contact him at 202-280-6370 at 202-351-6161 or ferrari@ferrari-legal.com.