United States: New Business Opportunities In Iran! But Who Will Be Your Banker? Non-U.S. Banks Hesitant To Process Lawful Iran Transactions…And For Good Reason


  • Sanctions relief presents new business opportunities with Iran
  • Most U.S. companies are still prohibited from Iran business, but the U.S. government is encouraging lawful business by non-U.S. companies
  • The line between permitted and prohibited financial transactions by non-U.S. banks is not clear
  • Careful advice of counsel is critical

Opportunities for lawful business in Iran

As we reported here, sanctions relief under the Iran nuclear deal has opened up new business opportunities in Iran. Many restrictions remain in place, but whole industries, such as aviation, are seeing an influx of new Iran deals. U.S. banks are generally not permitted to partake in those deals, but the prohibitions on non-U.S. banks have largely been lifted. Nevertheless, those non-U.S. banks have been skittish, possibly in light of the recent string of massive enforcement cases against non-U.S. banks for violations of U.S. sanctions. To make matters worse, even after sanctions relief, there is still a vague general prohibition stating that banking transactions, even in connection with permitted business, "are prohibited from transiting the U.S. financial system."

The U.S. government has recently been on a road show to encourage European and Asian banks to take advantage of the lawful business in Iran. The reason is clear – if sanctions relief is to be a legitimate incentive for Iran to keep its obligations under the nuclear agreement, it must result in positive financial flows.

But the banks are all asking the same question: what types of transactions are considered to be "transiting" the U.S. financial system, and thus prohibited? The answer is not clear, but we have some suggestions. First, the knowns:

The Clear Lines

There are a few clear lines. First, no U.S. person may be involved in an Iran-related transaction unless authorized. The regulations provide that no U.S. person may engage in any transaction or dealing in or related to goods or services for exportation, reexportation, sale or supply, directly or indirectly to Iran.1 It is thus unlawful for U.S. persons, including U.S. banks, to play a role2 in transactions involving the supply of goods or services to Iran. There are narrow exceptions for certain humanitarian activities and for licensed transactions (for example, one may apply for a license to export U.S.-origin equipment relating to the safety of civil aviation).

Second,  it is prohibited for any person anywhere (not just U.S. persons) to "cause" a violation of the U.S. Iran sanctions.3 Therefore, if a non-U.S. bank engages in a transaction that causes a U.S. bank to be involved in an Iran-related transaction, the non-U.S. bank may itself face liability.  This clear line was crossed when banks intentionally sent Iran-related transactions through U.S. correspondent banks, but stripped out the information identifying the sanctioned-country involvement. Banks recall all too well that BNP Paribas and Commerzbank paid billions in fines and penalties for allegedly engaging in such transactions.

A Complex Question to a Simple Solution

The somewhat simplistic guidance given by the United States government is to ensure that Iran-related transactions do not "transit" the U.S. financial system.

But the question becomes more complex when we look at the real working of a major global bank. Consider the following hypothetical:

A French construction company wins a bid for a major infrastructure project in Iran. The Government of Iran plans to make payments for the project to the French company's account in a German bank. The payments will come from the Iranian Government's account in Dubai and will be made in Euros.

So far, the transaction does not involve U.S. persons or the U.S. financial system (we will also assume the transaction does not involve U.S.-origin goods so there is no risk of a U.S. export controls violation). But consider the next step:   

In an unrelated transaction, the French construction company wishes to pay for consulting services in U.S. dollars using money in its account at the German bank, at least some of which was funded via the Euro payments from Iran.   

In this transaction, the German bank will likely use a U.S. correspondent bank to make the U.S. dollar transfer. This is where the clear lines start to disappear, and where banks are hesitant to draw their own conclusions. The German bank has access to documentation showing that the money in the French construction company's account came from Iran. Thus the bank knows or has reason to know it is sending money from an Iran-related transaction into the U.S. financial system. Even though the account is denominated in Euros, the source of the funds was Iran.

We have heard U.S. enforcers take the position that any transaction with Iran on one side and U.S. dollars on the other, you have a sanctions violation. In our hypothetical, the bank's compliance officer may shudder to think what will happen when the U.S. government comes knocking to ask why he is sending money from the government Iran to be changed into dollars through his correspondent account at Bank of America New York.

Some Policy Options

The banks may have several options for dealing with funds originating in Iran, including the following:

  1. Tag the account as containing Iran-related funds and do not allow money from that account to enter the U.S. banking system

Since the money came to the French construction company's account from Iran, one might try to enforce a policy that money from that account cannot be sent through the U.S. financial system. It can be still be transferred in Euro or Yuan or Reals. That's a lot of options.

But then presume the French construction company buys Brazilian equipment by sending payment in Brazilian Real. No U.S. financial system connection. But ultimately it presents a further question that the U.S. government has not definitively answered: Does the Brazilian bank now have money that it cannot send into the U.S. system?

If the U.S. government answers "Yes": If the answer is that the money is still Iran-related and cannot enter the U.S. system, then all banks would be responsible for tracing all money that ever came from Iran to ensure it does not enter the U.S. system. That sort of tracking would be virtually impossible. It would also ignore the fact that any customer could take Iran-origin Euros out of its German account, in cash, and deposit that money across the street, neat and clean and not Iran-related, to be changed into U.S. dollars for use as needed.

That solution also does not take into account the possibility that the customer takes money into its account from sources other than Iran, creating a question of how to determine what payments from the account are Iran-origin and what payments are not.

If the U.S. Government Answers "No": The U.S. government may take the position that once the Euros paid by Iran to a French company are spent in Brazilian Real, they are no longer Iran-related and can enter the U.S. financial system. That position would not only be arbitrary, but would invite companies to simply interpose an extra step in their business model to clean money of its Iranian origin. A company could simply move money from one account to another – presumably at another bank – maybe changing the currency or maybe not. The market would find the most efficient way to place an extra transaction (or two or three or wherever the U.S. government drew the line) between the Iran transaction and the entry of funds into the U.S. financial system.

Because the question has not yet been definitively answered, the banks are taking another option.

2. Refuse to support businesses entering into Iran

This is the option we have seen many banks taking. We see European companies ready to enter a newly opened market of 77 million people but unable to get financing or open accounts to receive payments. We have seen Chinese banks refusing to exchange Korean Wan (KRW) into Chinese Yuan (RMB) where a Korean company has sold Chinese products in Iran. Many banks decline this business even where there is no immediate involvement of the U.S. financial system.

A Modest Proposal: A Single Clear Line

It is our position that when a legitimate, lawful Iran transaction is completed by a non-U.S. company, the proceeds of that transaction are the property of that company and can freely enter the U.S. financial system. U.S. dollars could not be used for any transaction related to the Iranian business (e.g., to buy supplies to fulfill an Iranian order), but so long as the Iranian transaction is complete, the proceeds from that transaction should be permitted to transit the U.S. financial system.

There are three main benefits to our position:

1) It promotes transparency, reducing the incentive for companies or banks themselves to create transactions or move cash in order to hide its Iranian origin.

2) It gives the Iran nuclear agreement the effect it was intended to have – a means for non-U.S. companies to conduct business with Iran outside of the U.S. financial system – without locking the companies and their banks out of the U.S. financial system; and

3) Adequate safeguards are still available. Banks would still be responsible for taking reasonable due diligence steps to ensure that their clients are conducting legitimate business and not acting as illicit conduits of U.S. dollars to Iran. Such due diligence would be required in the normal course under existing sanctions and anti-money laundering regulations. Companies engaging in fraud on the bank to provide U.S. financial services or access to the U.S. financial system to Iran would still be subject to penalties for conspiring to violate or causing violations of U.S. sanctions.

Seek Competent Advice

While we believe our proposal represents the most reasonable resolution of the question facing the U.S. government, clear regulatory guidance has not yet been issued on this question. Until this critical question is answered, non-U.S. companies and their banks will continue to hesitate to enter the newly-opened Iranian market. Anyone planning to be involved in substantial Iranian business under the new regulations should seek legal advice from careful U.S. sanctions counsel to avoid running afoul of these complex rules.


1 Iran Transactions and Sanctions Regulations 31 C.F.R. § 560.206(a)(2).

2 The term "transaction or dealing" is defined broadly and "includes but is not limited to purchasing, selling, transporting, swapping, brokering, approving, financing, facilitating or guaranteeing."  31 C.F.R. § 560.206(b).  A U.S. bank serving as a correspondent bank through which dollars pass would trigger involvement for purposes of Section 206.

3 See U.S. International Economic Emergency Powers Act, 50 U.S.C. § 1705.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
26 Sep 2018, Seminar, San Francisco, United States

Please join us for Sheppard Mullin's Labor & Employment Law Update & Happy Hour Seminar Series.

28 Sep 2018, Other, Los Angeles, United States

Leaders today don't just have to worry about nefarious cybercriminals getting "inside" their firewalls; there's an entire ecosystem of SAAS partners, third party vendors and suppliers, and all the hardware from switches to POS terminals that need to be monitored.

9 Oct 2018, Other, Los Angeles, United States

Sheppard, Mullin, Richter & Hampton LLP has opened for business in Dallas to proudly serve the Texas business community.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions