On Friday, the United States announced that it had extended sanctions waivers to ten (10) European Nations and Japan due to their decreasing oil imports from Iran. Of those receiving such waivers, Japan is the only country still importing oil from Iran. As a result of these waivers, foreign financial institutions in those countries will not face secondary sanctions for their dealings with Iranian financial institutions for the next six (6) months. The secondary sanctions that they could face would include losing their ability to open and maintain correspondent banking relationships with the U.S. Since July 1, 2012, the entire European Union has refrained from purchasing Iranian oil as a result, Belgium, the Czech Republic, France, Germany, Greece, Italy, Netherlands, Poland, Spain and Britain have all qualified for the waiver. These countries join other countries, twenty (20) in total, which currently hold waivers including China, India and South Korea.

While these particular secondary sanctions targeting Iran-related activity have been in place for over a year now, Iran remains one of the world’s largest oil producers, despite the fact that senior U.S. officials have been quoted as saying that Iranian oil exports have dropped by 58% since late 2011. It is believed that funds derived from such exports are collecting in overseas accounts held in the name of the Central Bank of Iran due to the difficulties in transferring funds out of those countries.

The authority implicated here is Section 1245 of the National Defense Authorization Act of 2012 (NDAA 1245). The NDAA 1245 authorizes the imposition of sanctions on private financial institutions and all other foreign financial institutions – including central banks or foreign state-owned or -controlled banks – that knowingly conduct or facilitate significant financial transactions for the purchase of Iranian petroleum or petroleum products with a U.S.-designated Iranian financial institution or with the Central Bank of Iran. As a result of the waivers, those banks in those countries will not be designated during the validity of those waivers.

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@ferrariassociatespc.com.