New US Guidelines Seek to Reassure Banks

New guidance from the Obama administration offers reassurance to foreign banks which have been skittish about doing US dollar transactions with Iran, lawyers and former sanctions officials in the US said.

The guidance comes after months of complaints from Tehran, which says that remaining US sanctions have frightened away trade partners and robbed Iran of the benefits it was promised under the nuclear deal it concluded with world powers last year.

The guidelines, issued by the US Treasury Department's Office of Foreign Assets Control on Friday, clarify that non-US banks can do dollar trades with Iran, provided those transactions don't pass through financial institutions in the United States. Many officials and analysts in Tehran have responded to the United State’s latest move, saying its positive outcome can and will emerge in the near future.

Although last year's deal technically allowed a raft of new international business deals with Iran, including US dollar transactions, in practice many banks have stayed away, fearing that they would inadvertently break remaining sanctions.

For instance, many executives believe that dollar transactions will at some point transit through a US bank, thus breaking sanctions, said Melvin Schwechter, a Washington-based sanctions attorney at Baker & Hostetler LLP.

"I've generally advised people to stay away from dollar transactions in Iran," Schwechter told Reuters. "But here they are giving banks a green light to go forward as long as they make sure the dollar-denominated transactions don't affect the US. It's a signal to blunt the criticism of the Iranian government that they aren't getting any benefit from the nuclear deal."

More Clarity

David Mortlock, a former White House sanctions official, said the guidelines were likely meant to clear up confusion that had arisen this year over whether dollar transactions with Iran were allowed at all under the terms of the nuclear deal.

"Do I think the administration wants to create as much clarity as possible to sustain the deal? Yes, absolutely," said Mortlock, now a partner at Willkie Farr & Gallagher LLP. "It is a signal from OFAC and the administration that they do want to be helpful."

A US Treasury spokeswoman said on Monday the changes were "intended to clarify the scope of sanctions lifting" under the nuclear deal, and do not amount to additional sanctions relief for Iran.

But Iran may not see the new guidance as enough to address the hurdles to doing business. Hussein Ghazavi, a deputy minister in Iran's Economy Ministry, said on Monday the changes still left doubts for banks.

"The problems that existed before are still there," Ghazavi said, according to the Iranian Students News Agency. "Previously ... non-American financial institutions could not have 100% confidence that while providing correspondent services, creating accounts or maintaining US dollars for Iranian banks and customers, they wouldn't face unpredictable risk. This ambiguity has still not been resolved."

Eric Lorber, a senior associate at the Financial Integrity Network, which advises banks on sanctions, said that despite the new guidance, major European banks are unlikely to enter Iran soon.

"Among the largest banks there's still a serious reluctance to do any of that business," Lorber said.

In accordance with Iran’s nuclear deal with world powers that came into effect in January, international sanctions were to be removed. The US, however, has continued to maintain sanctions on many Iranian companies and individuals, prompting complaints from Tehran that Washington has failed to implement its side of the deal.

However, the new Treasury policy says foreign transactions with non-sanctioned entities that are nonetheless “minority owned” or “controlled in whole or in part by an Iranian or Iran-related person on the SDN list” are “not necessarily sanctionable” under US regulations.

The SDN -- specially designated nationals -- list comprises of certain Iranian companies and people who are still subject to US sanctions for a variety of reasons, including Iran’s ballistic missile program, human rights record and support for groups the US claims to be terrorist organizations.