August 24, 2010
On August 16, 2010, the United States Department of the Treasury issued the Iranian Financial Sanctions Regulations (“the IFSR”), 75 Fed. Reg. 49,836, to implement subsections 104(c) and 104(d) of the recent Comprehensive Iran Sanctions Accountability and Divestment Act of 2010 (“CISADA”). Treasury issued the IFSR well ahead of its September 29, 2010 deadline under the statute, noting that it was doing so “[c]onsistent with the President’s commitment to rigorous implementation” of the new Iran sanctions. “Under these regulations, Treasury will close down or severely restrict the access of foreign financial institutions to the United States if they engage in any of a range of activities involving designated Iranian proliferation or terrorist entities,” said Office of Foreign Assets Control Director Adam J. Szubin. August 16, 2010 Press Release at https://www.treasury.gov/press-center/press-releases/Pages/tg829.aspx.
CISADA was signed on July 1, 2010 by President Obama after the United Nations Security Council voted on June 9, 2010 to impose sanctions on Iran for its ongoing violation of the Nuclear Non-Proliferation Treaty (UN Security Council Resolution 1929). CISADA amends and extends sanctions imposed under the Iran Refined Petroleum Sanctions Act of 2009 and the Iran Sanctions Act of 1996 (formerly the Iran and Libya Sanctions Act of 1996).
Congress implemented 104(c) and 104(d) to prohibit, or to impose strict conditions on, the opening or maintenance in the United States of a correspondent or payable-through account by a foreign financial institution that the Treasury Department finds “knowingly” engages in facilitating any of the following (hereinafter “prohibited activities”):
The Regulations define “knowingly” to mean actual or constructive knowledge. 31 C.F.R. § 561.314. A foreign institution can be found to have knowledge if it “[knew] or should have known” of the conduct, circumstance or result of engaging in one of the prohibited activities.
To determine whether financial transactions or services are “significant,” the IFSR provide for the consideration of a number of enumerated factors, including, but not limited to:
31 C.F.R. § 561.404.
Per CISADA, the Secretary of the Treasury may impose “strict conditions” on the opening or maintaining of U.S. correspondent accounts or payable-through accounts for a foreign financial institution that knowingly engages in any of the prohibited activities. The IFSR list the following as examples of strict conditions that could be imposed:
31 C.F.R. § 561.201(b).
Additionally, instead of imposing strict conditions, or after imposing strict conditions, the Secretary of the Treasury may issue a flat prohibition precluding the opening or maintaining of U.S. correspondent accounts or payable-through accounts for a foreign institution that is found to knowingly engage in the prohibited activities. 31 C.F.R. § 561.201(c).
Pursuant to CISADA, the IFSR provide for civil and criminal penalties for violating the new requirements or prohibitions. Any person who violates the strict conditions or a prohibition may be subject to civil penalties up to $250,000 or twice the transaction value, and criminal penalties of up to 20 years in prison and $1,000,000 for willful violations of the law. 31 C.F.R. § 561.701.
Gibson, Dunn & Crutcher’s lawyers are available to assist with any questions you may have regarding these issues. For further information please contact the Gibson Dunn lawyer with whom you work or any of the following lawyers in the firm’s Washington, D.C. office:
Judith A. Lee (202-887-3591, [email protected])
Amy G. Rudnick (202-955-8210, [email protected])
Daniel J. Plaine (202-955-8286, [email protected])
John J. Sullivan (202-955-8565, [email protected])
Jim Slear (202-955-8578, [email protected])
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