OFAC Cracks Down on U-Turns
Posted by Clif Burns at 10:00 pm on November 6, 2008
The Office of Foreign Assets Control (“OFAC”) announced today that it was eliminating the general license for so-called U-turn transactions involving Iran. A U-Turn transaction, formerly permitted under section 560.516(a)(1) of the Iranian Transaction Regulations, is one which starts and ends with an offshore, non-US, non-Iranian bank.
For example, an Iranian entity could direct Deutsche Bank in Berlin to transfer funds from the Iranian entity’s Deutsche Bank account in Berlin to Banque National de Paris in Paris. This might be done, for example, to pay for goods purchased by the Iranian entity in France. If the transaction was in dollars, it would likely transit Deutsche Bank’s U.S. correspondent bank or some other bank in the United States, and the U-Turn exception would permit that to occur. Now that U-turn transactions are no longer permitted, the U.S. bank will reject the transaction.
Prior to this action, OFAC had blocked U-turn transactions involving two Iranian banks — Bank Saderat and Bank Sepah. The current action eliminates all U-Turn transactions involving all persons and entities in Iran. The most likely effect of the new rule is to encourage Iran to seek to settle its transactions in Euros or currencies other than the U.S. dollar.
From announcement: This action will take effect when the amendment to the regulations is published in the Federal Register on November 10, 2008.
Acton is not yet on Recent Actions page nor in the IRAN Sanctions Program Overview.
This is simply to note that OFAC had designated more than Banks Saderat and Sepah under sanctions other than the Iran program, making them ineligible for the U-turn license (that only authorized transactions under the Iran program). Virtually all the major Iranian banks (Tejarat excepted) are now blocked, and virtually all U.S. banks had stopped handling U-turn transactions for any Iranian banks for reputational reasons. Thus, while of some impact, the OFAC revocation of this license has less importance on the ground than in the PR sphere.
Ex-OFAC, it should probably also be noted that for blocked Iranian entities, U-Turn transactions won’t be simply rejected; they will be blocked by the U.S. bank processing them.
For once, OFAC has imposed a sanction that makes sense, will hurt the target somewhat, is consistent with their statutory delegation of power, and doesn’t shoot ourselves in the foot. Are those guys feeling OK? Did somebody put something in their tea?
Mike, you’ve said something nice about OFAC. Are you feeling okay?
As another alumnus from Treasury Annex, I take exception to Mike’s “tea” comment. They only serve Kool-Aid over there, so get your facts straight….
Seriously, though, Mike’s points are well taken.