Last weekend, President Obama signed into law H.R. 1540, known as the National Defense Authorization Act for Fiscal Year of 2012 (“Act”). Since that time many people have been discussing the imposition of sanctions against Iran’s financial sector found at section 1245 of the Act. While there has been much discussion regarding what impact these sanctions will have on Iran’s financial sector there has not been much discussion on what the sanctions actually consist of. Below are three (3) things that anyone transacting with Iranian banks should know now that the Act has been signed into law:

1. Freezing of Assets of Iranian Financial Institutions: Section 1245(c) blocks all assets or interest in property of any Iranian financial institution which comes under the jurisdiction of the United States. What this means is that any transaction for funds that are destined to any Iranian financial institution would be properly blocked as opposed to rejected.

2. Sanctions on the Central Bank of Iran: Section 1245(d) of the Act imposes sanctions on foreign financial institutions who engage in significant transactions with the Central Bank of Iran. These sanctions prohibit U.S. depository institutions from maintaining correspondent or payable through accounts for those financial institutions engaged in such transactions with the Central Bank of Iran. This prohibition also extends to maintaining these types of accounts for foreign financial institutions which have been targeted for sanctions pursuant to the International Emergency Economic Powers Act (“IEEPA”) and its corresponding regulations. Furthermore, the Act provides the President authority to designate Central Bank of Iran for sanctions under IEEPA. This was included, presumably, to remove the requirement for the President to meet the mandates of the National Emergencies Act in order to assert his authority under IEEPA in regards to the Central Bank of Iran. In other words, the President does not have to fit the Central Bank of Iran’s activities under some current national emergency in order to sanction them under IEEPA.

3. Petroleum Sanctions: The prohibition discussed above concerning maintaining correspondent or payable through accounts for foreign financial institutions will also extend to those foreign financial institutions who facilitate a financial transactions for the purchase of petroleum or petroleum products from Iran, if the President determines that there is ample supply of such products from other countries to allow for a significant reduction in petroleum products purchased from 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@ferrari-legal.com.