There has been a lot of talk over the past week about a new amendment to pending legislation that will impose new sanctions on Iran. A lot of the discussion has revolved around the Obama administration’s opposition to this latest round of sanctions. Essentially, the administration believes that imposing these sanctions at this time would lead to Iran experiencing an economic boon due to spiking oil prices. Lost in all this conversation is what the actual measures to be imposed consist of. What follows is a breakdown of the key provisions to this much discussed amendment:

1. Freezing of Assets of Iranian Financial Institutions. Under this new amendment any property or interest in property of an Iranian financial institution that comes under U.S. jurisdiction is to be blocked. This is already the case for a number of Iranian banks who have been designated under the Weapons of Mass Destruction Proliferation Sanctions or the Global Terrorism Sanctions Regulations. However, with this new amendment the property or interests in property of ANY Iranian financial institution would be blocked.

2. Sanctions Against Foreign Financial Institutions Doing Business with Central Bank of Iran. The amendment would also prohibit U.S. depository institutions from maintaining correspondent accounts with foreign financial institutions which have engaged in significant financial transactions with the Central Bank of Iran. This amendment also allows the President to impose sanctions on Central Bank of Iran under the International Emergency Economic Powers Act (IEEPA). Presumably, this allowance was offered so that the President wouldn’t have to satisfy the mandates of the National Emergencies Act to invoke his IEEPA authority.

3. Exemption for Sales of Food, Medicine, and Medical Devices. The aforementioned prohibitions would not apply to any person conducting or facilitating a transaction for the sale of food, medicine, or medical devices. As readers of this blog may be aware these types of sales are either authorized by general license (in the case of food) or eligible for specific license authorization under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA).

These new sanctions are undoubtedly restrictive and will have more than just their direct effect. Once passed into law these sanctions will have a massive chilling effect upon any Iranian financial institution’s ability to engage in transactions with any foreign banks. Effectively, Congress is throwing down the gauntlet and saying that any bank that does business with Iran cannot do business with the United States. This is not necessarily the best course of action. In addition, to the arguments already put forward by the Obama administration, there will also be the propping up of an increasingly powerful black market economy as those who deal with Iran, both legally and illegally, will be forced to turn to hawala brokers, cash smugglers, and underground money exchangers to transfer funds into and out of Iran. This will lead to tens, if not hundreds, of millions of dollars flowing through a black market economy which cannot be traced and which could potentially fall into the wrong hands. If this amendment is passed into law, we could be looking at a very precarious situation for those seeking to legally divest or trade with 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.