There are a number of things confusing about the sanctions regulations administered by the United States Department of the Treasury Office of Foreign Assets Control (“OFAC”). After all it is the complex and unclear nature of the regulations and OFAC’s penchant for leaving things open ended that have lead to the phrase, “regulation through ambiguity.” However, there are just some requirements that OFAC imposes that truly boggle the mind. In particular is the requirement to use a non-U.S. bank located outside of the United States to transfer money directly from Iran to the U.S. when such transaction is authorized under the Iranian Transactions Regulations (“ITR”).

As you may or may not know the ITR prohibits most transactions between U.S. persons and individuals and entities in Iran. However, there are some exceptions. For example, if you are an Iranian attempting to bring in money that has been bequeathed to you as part of an inheritance, then a U.S. depository institution (i.e., a bank) is allowed to process that transaction under 31 C.F.R. 560.516(a)(2). However, the funds have to be sent to a non-U.S. bank outside of the United States. The reason for this is that U.S. banks can not be account holders in Iran and therefore, cannot process these transactions. Make sense? Probably does.

However, OFAC also constantly warns individuals and entities not to use banks in third party countries to try to evade the regulations. For example, they have consistently warned U.S. persons not to try to send money for a transaction to Iran by first sending it through the National Bank of Dubai. This to them is clearly a violation, because the underlying transaction would be a violation.

This in my opinion has sent the wrong message to individuals trying to understand the regulations. I have gotten some phone calls on this recently and people are telling me they are confused as to why OFAC warns that sending or receving funds through a third party bank is not allowed, while at the same time the same sort of process is required for authorized transactions. I tend to agree with them it is confusing. One must remember that the underlying transaction will always determine whether or not the transfer of funds is authorized or not. In my humble opinion, OFAC should release some sort of flow chart which describes instances when it is ok to use third country banks, when it is not ok to do so, and when doing so is required.

As always, if you plan on engaging in transactions involving or potentially involving Iran, contact an OFAC attorney who knows the regulations and is experienced in dealing with OFAC.

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.