In today’s Federal Register, OFAC announced new restrictions it is imposing on Iran’s Bank Saderat. The bank, which is state-owned, is one of the largest banks in Iran. Under the new rules, effective retroactively to September 8, 2006, exceptions in the Iranian Transaction Regulations (“ITR”) which permit certain Iran-related transactions will no longer be applicable to Bank Saderat. Iran responded by calling the U.S. actions “childish.”
Under the new rules, Bank Saderat will no longer be eligible for the exception in Section 560.516(a)(1) of the ITR which permits “U-Turn” transactions. These are transactions which involve transfers between a U.S. branch of a foreign bank and an overseas branch of a foreign bank. For example, Bank Melli Iran can send funds from its account at a German bank through the German bank’s correspondent in New York to an Italian bank. This is called a “U-turn” transaction because the instructions from Bank Melli do a “U-turn” in New York and route the funds immediately back outside the United States.
In addition to such “U-turn” transactions, the new rules eliminate Bank Saderat’s eligibility for the exceptions in sections 560.516(a)(2)-(4). These exceptions permit U.S. financial institutions to handle certain other transfers, including transfers relating to licensed transactions, family remittances and humanitarian donations, between U.S. financial institution and foreign banks (including Iranian banks). These are permissible as long as no U.S.-based accounts of Iranian residents or the Government of Iran are credited or debited.
Effective September 8, 2006 (but with certain exceptions for transactions already in process by that date), none of the above exceptions will any longer apply to Bank Saderat. OFAC premised this action on its finding that Bank Saderat had been a “significant facilitator” of the financial activities of Hizballah and had been a conduit between the Government of Tehran and various terrorist organizations including Hizballah and Hamas. Other Iranian financial institutions are not covered by the amendment, so that licensed transactions, family remittances and humanitarian donations will not be affected; they will simply have to be handled by other Iranian banks.