In a definite sign that complaints regarding U.S. sanctions blocking the flow of medicine to Iran are beginning to pick up steam in Washington, the main agency tasked with administering U.S. economic sanctions, the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), has issued a six (6) page document providing guidance on the ability of domestic and foreign financial institutions to process certain transactions authorized under the Iran sanctions programs. The reason why this guidance was needed is because there have been reports that foreign financial institutions have shied away from dealings with Iran due to their perceived belief that they will face consequences from OFAC for processing any transactions between the U.S. and Iran. While that belief is somewhat unfounded, it has been cited as one of the reasons why Iran is currently facing medical shortages.

OFAC did not say anything new in their guidance. However, they did state the law in plain language in order to avoid any confusion as to what they meant. OFAC mentioned that “in such instances, where U.S. persons are either specifically or generally authorized to engage in humanitarian exports to Iran, financial institutions here and abroad are generally permitted under U.S. law to process all financial transactions necessary to facilitate the trade.” OFAC went on to more specifically address what this statement meant for foreign financial institutions, stating that, “U.S. policy does not prohibit the involvement of third-country financial institutions in the processing of funds transfers to or from Iran pertaining to authorized or exempt transactions, subject to certain exceptions.” Those certain exceptions arise when parties designated pursuant to Executive Order 13224 or Executive Order 13382 are involved. In sum, OFAC has stated the obvious, if U.S. sanctions do not prohibit the activity, then neither U.S. nor foreign financial institutions are at risk of facing consequences from OFAC for facilitating payments for that activity.

So does this guidance mean that foreign financial institutions will now be willing to process payments from Iran to the U.S. when humanitarian and other licensed exports are involved? Probably not. It should be kept in mind that the financial sanctions have already caused most foreign banks to cut off ties with Iranian banks. As such, the compliance costs of reestablishing ties with those banks and performing due diligence to ensure absolute compliance with OFAC administered sanctions might be too burdensome for financial institutions consider, particularly given the limited scope and volume of what transactions with Iran they are actually permitted to process. As such, while OFAC’s guidance does clarify the law, I doubt it will go far in actually causing foreign financial institutions to process payments related to exports of humanitarian goods from the U.S. to Iran.

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.