October 21, 2015 | Policy Brief

Iran Sanctions Relief A Nightmare for Financial Compliance

October 21, 2015 | Policy Brief

Iran Sanctions Relief A Nightmare for Financial Compliance

The Obama administration issued waivers on Sunday, suspending “nuclear-related” sanctions on Iran, to take effect on Implementation Day when the International Atomic Energy Agency (IAEA) verifies that Iran has fulfilled specific commitments pursuant to July’s nuclear deal. The EU has similarly “adopted the legislative framework” to lift sanctions simultaneously with the IAEA verification. However, there will be more than one hundred entities that will be “de-listed” by the U.S. but not the EU, or vice versa.

The discrepancies will create a nightmare for compliance officers, financial professionals who are charged with keeping banks, brokerages, and other financial institutions around the world on the right side of the law. Consider some of the challenges they—and all those in the public and private sector concerned with due diligence and financial integrity—will face:

While sanctions against most major Iranian banks will be lifted on Implementation Day, EU nuclear and ballistic missile sanctions on Ansar Bank and Mehr Bank will remain in place for another eight years. But, even after being removed from EU sanctions lists, they will remain under U.S. sanctions indefinitely. The two banks were created by the Islamic Revolutionary Guard Corps (IRGC) to provide services to its personnel and to its paramilitary Basij force, according to both the U.S. Treasury and the EU.

There will also be confusion after the U.S. lifts sanctions on Bank Sepah on Implementation Day, because it will remain under EU (and U.N.) sanctions for another eight years. Bank Sepah was originally designated in 2007 by the U.S., EU, and United Nations because it was the “financial linchpin of Iran’s missile procurement network,” according to the U.S. Treasury.

Bank Saderat is yet another such case. The EU designated Saderat in July 2010 for providing “financial services for entities procuring on behalf of Iran’s nuclear and ballistic missile” programs. The U.S. designated the bank in 2007 because Iran used it to “channel funds to terrorist organizations” and because Hezbollah used the bank to “send money to other terrorist groups.” The EU will lift sanctions on the bank in eight years, but U.S. sanctions will remain in place.

The inconsistent standards adopted by the U.S. and the EU for delisting these Iranian banks are a good indication of the risks they pose. Indeed, it is a sign that their illicit financial conduct has not likely changed. Companies concerned about both business and reputational risk may therefore avoid most, if not all, Iranian banks until Iran’s entire financial sector receives some sort of good housekeeping seal of approval through financial channels not influenced by the nuclear deal.

Annie Fixler is a policy analyst at the Foundation for Defense of Democracies’ Center on Sanctions and Illicit Finance (CSIF). Find her on Twitter: @AFixler 

Issues:

Iran Iran Sanctions