Several times over the past few years I have written about the impact that the United States Department of the Treasury’s Office of Foreign Assets Control’s (OFAC) outreach efforts to foreign financial institutions have had on foreign financial institutions refraining from facilitating any transactions with Iran. This includes facilitating funds transfers for transactions between the United States and Iran which have been licensed by OFAC. These efforts have created an interesting dichotomy. On one hand, you have OFAC licensing transactions between Iran and the U.S. which sends a clear signal that those transactions are in line with U.S. foreign policy objectives. On the other hand, due to the lack of a direct bank to bank relationship between Iran and the United States, and OFAC’s efforts to persuade foreign banks from conducting any business with Iran, there is no way to facilitate the transfer of funds related to those licenses they are issuing. In short, they are authoring trade and then stripping away the manner in which that trade can be carried out.

Indeed, OFAC has openly admitted that since the Comprehensive Iran Sanctions Accountability and Divestment Act of 2010 (CISADA) that Treasury has reached out to approximately 120 foreign financial institutions in 50 countries. Their efforts have led foreign financial institutions to cut off or significantly reduce their Iran-related business, have curtailed Iran’s access to the international financial system, and caused foreign financial institutions to fear losing their access to the U.S. financial institution if doing business with Iran.

Those of us practicing in this field can relate that its becoming nearly impossible for funds transfers for licensed transactions between Iran and the U.S. to take place. Even when U.S. persons and exporters can find a foreign financial institution to facilitate licensed transactions with Iran, many U.S. banks are now taking zero-risk tolerance policy towards dealings with Iran and rejecting funds transfers even if they are authorized pursuant to valid OFAC licenses, and/or in some cases closing down the accounts of those who have sought to engage in transactions with Iran licensed or otherwise.

This begs the question: why get an OFAC license if you can’t use it for the purpose for which you obtained it. This is increasingly turning many U.S. persons off from dealing with Iran, which may be what some policy makers in Washington want, but which renders OFAC’s licensing of transactions with Iran pointless.

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.