On Thursday, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) identified a number of Iranian nationals, Iranian entities, foreign entities, Iranian Government agencies, and Iranian financial institutions for designation on the OFAC Specially Designated Nationals and Blocked Persons List (SDN List). These designations mean that the targets now U.S. economic sanctions imposed on them….or does it? Well, in some cases yes, in some cases no. In the case of the Iranian financial institutions, the majority if not all being privately owned, their designation had no real legal significance. Despite inaccurate reports being floated around in Iran to the contrary, these private Iranian financial institutions already had sanctions placed on them.

First, it should be understood that Section 1245(c) of the National Defense Authorization Act of 2012 passed by the U.S. Congress at the end of 2011, called upon the President to apply sanctions to all Iranian financial institutions. President Obama acted upon this law by issuing Executive Order 13599 on February 5, 2012, which blocked all Iranian financial institutions. Essentially, the Iranian financial institutions identified by OFAC on Thursday have been blocked since that time.

The same day that Executive Order 13599 was issued, OFAC issued General License A to Executive Order 13599 which stated that if an Iranian financial institution had been blocked pursuant to only Executive Order 13599, that all of the general licenses existing in the Iranian Transactions Regulations and all specific licenses issued pursuant to the Iranian Transactions Regulations were still valid. In addition, General License A stated that going forward those general licenses would continue to be valid and OFAC would continue to issue specific licenses for dealings with those financial institutions designated only pursuant to Executive Order 13599. OFAC has since issued further guidance on the above point on its website which states all of the general licenses are still valid.

The designations that took place on Thursday are noted as [IRAN] on the OFAC SDN List. This signifying code merely means that those designated are down so under the Iranian Transactions Regulations as being an Iranian financial institution designated pursuant to Executive Order 13599. If an Iranian financial institution has not been designated under any other OFAC administered sanctions program then they fall under General License A referenced above and almost all general licenses contained in the Iranian Transactions Regulations or specific license authorized to deal with these entities are still applicable. The fact that the Iranian financial institutions designated on Thursday were only designated pursuant to Executive Order 13599 was also highlighted by OFAC in the fact sheet it released on Thursday’s designations.

So if these financial institutions already had sanctions imposed upon them, why didn’t their designation come out earlier and what is significant about the designation now? To answer the first question, you merely have to go back to guidance that OFAC put out around the time that Executive Order 13599 was issued. That guidance stated while the prohibitions set forth in the executive order are in place, not all of the entities subject to those prohibitions had yet been identified on the OFAC SDN List and that OFAC would be updating the list in the future to account for these entities. This is something that I have referred in previous postings and presentations for bank compliance personnel as “the invisible hit.”

The answer to the second question is also fairly straightforward: politics. It should surprise no one that these designations and their timing usually correspond to contemporary developments in U.S. foreign relations. Therefore, as the talks between Iran and the West have broken down over the past several months, it makes sense that the U.S. would make an announcement such as the one made by OFAC on Thursday to show political constituencies in this country and abroad that they are continuing to “get tough on Iran.”

In closing, I should note that the title of this posting is a little bit misleading. While the identifications made on Thursday have not led to any substantial legal changes, this move by the Obama administration may cause foreign financial institutions to fear dealing with the Iranian financial institutions identified on Thursday. If this does occur, it will be the result of their misunderstanding of the law and U.S. sanctions by the foreign financial institutions and not because of any newly presented actual risk.

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.