The Office of Foreign Asset Control ("OFAC") has
recently updated its explanatory document known as 'Frequently
Asked Questions Relating to the Lifting of Certain U.S Sanctions
under the Joint Comprehensive Plan of Action (JCPOA) on
Implementation Day' (the "FAQ"). Among other things,
the amended FAQ provides additional guidance to non-US persons
seeking to carry out due diligence on a potential Iranian
counterparty. It also brings some very welcome clarity to non-US
financial institutions looking to enter into USDdenominated
transactions with Iranian entities who are not on the (Specially
Designated National) SDN List.
Prior to the update in October 2016, OFAC recommended that a
non-US person wishing to trade with an Iranian entity should carry
out sufficient due diligence so as to ensure that such a person is
not knowingly engaging in transactions with persons on the SDN
List, such as the IRGC. It was also recommended that such persons
document the steps taken to carry out the due diligence. However,
little guidance was provided to help entities understand what
amounts to sufficient due diligence and whether it is necessary to
establish that the proposed Iranian counterparty is not itself
owned by an entity on the SDN List.
OFAC has now confirmed that when conducting due diligence,
checking whether the potential Iranian counterparty is on the SDN
List is a good first step, although it may not, in itself, be
sufficient. Non-US persons should be mindful of their internal
risk-assessment and compliance procedures which would be based on
the best practices of the industry in which they operate. It is
also recommended that non-US persons ensure compliance with any
guidance that has been issued by a domestic regulator. In the UK
context, this would include any EU sanctions that are in place and
in particular, the EU guidance on "ownership and
control". Again, the need to maintain records of due diligence
efforts has been emphasised in the recent update.
However, quite usefully, the amended FAQ now clarifies that a
non-US person will not necessarily be sanctioned where it transacts
with an Iranian entity that is minority owned or controlled (in
whole or in part) by an entity on the SDN List. Still, non-US
persons should remain cautious to ensure that such transactions do
not involve Iranian or Iran-related persons on the SDN List which
may trigger US secondary sanctions.
Summary of recommended practical steps to take:
Check the US and EU lists;
Check World Check or similar (most law firms have access and
this will often reference a US or EU listing but also reference
links with a listed person or entity);
Request counterpart evidences its directors and shareholders,
including ultimate shareholders;
Include a clause in your contract in which counterpart confirms
the contract will not involve any person or entity subject to US or
EU sanctions and that the counterpart is not owned or controlled by
a listed person;
If any director or shareholder is listed on the US or EU lists
consider further due diligence;
Under the amended FAQ, non-US financial institutions (including
foreign-incorporated subsidiaries of US financial institutions) are
allowed to process USD-denominated transactions or maintain
USD-denominated accounts that involve, among others, Iran or
persons ordinarily resident in Iran. This is subject to the proviso
that such transactions or account activities do not (either
directly or indirectly) involve the US financial system or any US
person, and does not involve any person on the SDN List.
However, non-US financial institutions are still required to
ensure that they do not process USDdenominated transactions that
involve Iran through the US financial system or otherwise involve
US financial institutions.
Many non-US banks have been seeking clarification from US
enforcement agencies and the amended FAQ represents a very helpful
and welcome step. However, clarification on other issues may be
required by some banks before they become involved in
Iranian-related business in a meaningful way.
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.
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