The Office of Foreign Assets Control (“OFAC”) today applied sanctions under the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 against the Bank of Kunlun in China and the Elaf Islamic Bank in Iraq. Under these sanctions, U.S. financial institutions are “prohibited from opening or maintaining a correspondent account or a payable-through account” for the two banks, effectively cutting them off from foreign exchange and the U.S. financial system. This is the first time these sanctions have been applied. OFAC does not supply details on the basis for these actions other than to state that they were imposed under 561.201 of its Iranian Financial Sanctions Regulations.

Back in April, the Wall Street Journal identified Kunlun as significant player in providing financial services to Iran. Kunlun, which is controlled by state owned China National Petroleum Corp., on its website identifies the petroleum and petrochemical industries as its main customer base. Sanctions under section 561.201 are aimed at financial institutions that assist the Government of Iran to acquire WMD or support terrorist organizations, unlike 561.203 which is directed at foreign persons that facilitate transactions with blocked Iranian financial institutions such as the Central Bank of Iran or Bank Tejerat. Therefore, it seems reasonable to surmise that OFAC is taking the broad position that banks that help Iran sell petroleum products are, at least indirectly, furthering Iran’s nuclear program.

ABOVE: Zachary Sanders

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A long time ago in a galaxy far, far away, a young American teaching English in Mexico decided to take a trip to Cuba. Today, after fourteen years of legal maneuvering with the Department of Treasury’s Office of Foreign Assets Control (“OFAC”), the young American, now a middle-aged lawyer, threw in the towel and agreed to give OFAC $6,500 to atone for his sins.

We reported on the travels and travails of Zachary Sanders, harmless tourist and OFAC target, back in 2009, and you can get more of the details of what originally happened in that post. The shorter version is that by the time OFAC got around to filing anything against Sanders, the five-year statute of limitations on his travel to Cuba had passed so they went after him for not answering a letter demanding incriminating details of his jaunt to the most dangerous country ever on the face of the earth. (Apparently OFAC’s copy of the Bill of Rights had the Fifth Amendment excised somewhere along the way.)

OFAC won here not because it was right but because it was persistent, not because it was fair but because it had an unlimited amount of the taxpayers’ money and Sanders had his salary as a public interest lawyer, not because it was defending the country against terrorists but because it bore a grudge against a little guy who wanted to drink a daiquiri at El Floridita.

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