Worldwide: OFAC Guidance On U.S. Dollar Transactions Involving Iran

On October 7, 2016, the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC) published new guidance clarifying (a) circumstances under which non-U.S. financial institutions (FFIs) may engage in U.S. dollar transactions involving Iran; (b) when residual “secondary” U.S. sanctions on Iran can affect transactions involving affiliates of Iranian Specially Designated National (SDNs); and (c) U.S. government expectations for conduct of compliance screening and due diligence in Iran-related transactions otherwise permissible under U.S. sanctions relief implemented pursuant to the Joint Comprehensive Plan of Action (JCPOA or “the Agreement”) in January 2016.

Together, these clarifications provide guidance of particular relevance to non-U.S. financial services institutions, which, to date, have proven reluctant to support or participate in Iran-related transactions, notwithstanding sanctions relief measures under the JCPOA implemented by the United States and the European Union. The OFAC guidance follows substantial outreach and meetings of senior Obama Administration officials with major institutional lenders and financial institutions in Europe and elsewhere in recent months encouraging greater participation and support for transactions permitted under JCPOA sanctions relief. Those efforts are consistent with apparent U.S. diplomatic and strategic interests in seeing the JCPOA yield tangible benefits within Iran that validate the value of Iran’s commitments under the Agreement espoused by the country’s current government. It remains to be seen in the weeks ahead to what extent this latest guidance will prove effective in providing a level of comfort necessary to overcome legal, business and reputational risk concerns that appear to have deterred foreign financial institutions from participating in Iran-related transactions.

Limited U.S. Dollar Transactions Permissible

The new OFAC guidance provides that FFIs, including non-U.S. subsidiaries of U.S. financial institutions, can process U.S. dollar-denominated transactions and maintain U.S. dollar-denominated accounts outside of the United States on behalf of Iranian parties, including the government of Iran, the Central Bank of Iran and Iranian financial institutions, provided that the transactions or account activities do not directly or indirectly involve:

  • U.S. persons (including the U.S. financial system)
  • any SDN
  • sanctionable conduct, including support for terrorism, Iran’s human rights abuses, proliferation of weapons of mass destruction and their means of delivery (including ballistic missiles), and support for persons involved in human rights abuses in Syria or for the Government of Syria.

Notwithstanding sanctions relief under the JCPOA, many FFIs, especially European financial institutions, have been reluctant to resume business involving Iran because of risk that they may unwittingly violate residual U.S. secondary sanctions on Iran or damage established relationships with U.S. banks or institutional investors. Additionally, a substantial number of major European banks have paid large fines—in some cases amounting to billions of dollars in penalties—in recent years for violations of U.S. sanctions and are reasonably weary of exposure to future sanctions liability. While many non-U.S. companies appear eager to engage in authorized transactions with Iran, the reluctance of major FFIs to participate in such transactions has arguably limited the level of Iran-related economic activity that was envisioned following the JCPOA.

While this clarification appears to open the door to FFIs maintaining U.S. dollar accounts on behalf of Iranian parties, the potential transfer of funds to or from such accounts continues to be severely constrained. Specifically, FFIs will need to ensure that U.S. dollar transfers to or from such accounts are not processed through the U.S. financial system, including U.S.-located branches or correspondent accounts, or otherwise involve U.S. financial institutions (including their non-U.S. branches, but not their non-U.S. subsidiaries) or other U.S. persons.

Among other open questions, it remains unclear how U.S. dollar-denominated transactions could be processed without transiting such U.S. touch points in practice, given that these transactions generally are processed through correspondent banking relationships that FFIs maintain with U.S. financial institutions. Moreover, even if the transactions do not involve the U.S. financial system, FFIs will need to ensure that the underlying account activities do not implicate any of the continuing restrictions noted in the new guidance, as described above.

Accordingly, while this is the first time that OFAC has articulated circumstances under which processing U.S. dollar transactions or maintaining U.S. dollar accounts on behalf of Iranian parties is permissible, it is important to recognize that OFAC and other agencies of the Treasury Department have not otherwise amended or eased the transaction monitoring and other compliance obligations and restrictions with which FFIs must comply in the conduct of their activities within U.S. jurisdiction.

Secondary Sanctions

In the new guidance, OFAC also provides clarification that non-U.S. persons will not be subject to U.S. secondary sanctions for engaging in transactions with non-SDNs that are minority owned, or partially or wholly controlled, by an SDN. Remaining U.S. secondary sanctions provide a basis for the United States to sanction any party (including non-U.S. persons) for providing material support to, or engaging in a significant transaction with, entities blocked pursuant to certain U.S. executive orders and included on the OFAC SDN List. In this clarification, OFAC “recommends exercising caution” when engaged in transactions involving entities that are minority owned, or partially or wholly controlled, by SDNs “to ensure that such transactions do not involve Iranian or Iran-related persons on the SDN List.”

Due Diligence Guidance

The guidance also clarifies that, for non-U.S. persons conducting due diligence on a potential Iranian counterparty, screening the name of the Iranian counterparty against the SDN List is a minimum standard that should be met, but is not necessarily sufficient on its own to address potential risks of involvement of U.S.-sanctioned Iranian parties in a transaction. The guidance indicates that non-U.S. persons should engage in additional due diligence procedures, consistent with their internal risk assessment processes and industry best practices. . Further, the guidance reflects OFAC’s expectations that non-U.S. persons will consult with local regulators in the markets where they operate regarding further due diligence expectations. The guidance also includes recommendations for non-U.S. entities to maintain records documenting the due diligence efforts in conjunction with participation in such transactions.

The guidance further specifies OFAC’s expectations that FFIs will perform due diligence on their own customers, but not necessarily on their customer’s Iranian customers. This clarification provides useful and practical guidance to FFIs on OFAC’s expectations regarding the extent to which so-called “KYCC” (know your customer’s customer) practices are required in the context of Iran-related transactions.


While OFAC has taken steps to address practical concerns that have been expressed by non-U.S. FFIs, nonetheless, important questions and uncertainties remain. Accordingly, until OFAC affirmatively authorizes activities necessary for Iran-related transactions outside the United States, such as by reauthorizing “U-Turn” financial transactions that transit the U.S. financial system, it remains to be seen to what extent FFIs will engage in such activities, particularly in consideration of broader legal, business and reputational risk concerns.

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

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

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
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 (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

To Use 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