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On the 8 May 2018, President Trump announced that the US would no longer participate in the Joint Comprehensive Plan of Action (JCPOA). The FAQs published on the day of the announcement make it clear that, as it stands, the US intends to re-impose Iran-related sanctions on activity in connection to Iranian sovereign debt, the automotive sector and specified materials on 6 August, 2018 and Iran’s financial, energy and shipping sectors on 4 November 2018.
Implementation Day, 16 January 2016, had a profound effect on both the Iranian and global economy following the relaxation of Iran-related secondary sanctions, which had historically impacted the ability of non-US persons to engage in business with certain SDNs, through fear of exclusion from the US financial system. The US lifted secondary sanctions and removed over 400 entities (including vessels) and individuals which met the US definition of the ‘Government of Iran’ and/or ‘Iranian financial institution’ from the SDN, Foreign Sanctions Evaders and the Non-SDN Iran Sanctions Act lists. The entries removed were added to what’s known as the Executive Order 13599 List, which following the wind down period, will be re-added to the aforementioned lists, leaving firms facing a pre-JCPOA US sanctions landscape.
While some firms have continued to view business activity with Iran to sit outside of their risk appetite following the JCPOA, a number of institutions have taken the opportunity to increase their exposure to Iran. These firms in particular will need to be nimble and work out quickly how to best navigate this changing landscape so not to fall foul of US sanctions.
As a result of the US withdrawing from the JCPOA, non-US institutions located throughout Europe and Asia could face secondary sanctions from the US as a result of exposure to the Iranian financial sector, as confirmed by White House national security adviser John Bolton only a few days ago. The US also proposes to reinstate primary sanctions by revoking General Licence H on 4 November 2018.
The geopolitical landscape remains far from stable, as the White House alludes that it may be open to renegotiating the nuclear deal and EU leaders strategise as to how their interests in Iran can be protected following the implementation of secondary sanctions. Considering recent history has demonstrated the current US Administration’s aggressive stance to Iran-related sanctions, as evidenced through the enforcement of the non-US, non-financial tech firm CSE Global Ltd in August 2017, we advise firms to consider the following:
- Engage in discussions with your customer and payment screening vendor(s) to confirm screening is being conducted against the E.O. 13599 List. In addition, consider whether any other customers or connected parties meet the US definition of ‘Government of Iran’ and/or ‘Iranian financial institution’ which are not listed on the E.O. 13599 List
- Ensure the business is generating sufficient and reliable MI to assess its Iranian sanctions exposure across its customer and connected party population
- The FAQs make it clear that when considering potential enforcement OFAC will evaluate efforts taken to wind down activities and assess new business which has been entered into. With this in mind firms may wish to seek advice on the practical steps to winding down their Iran-related business
- The announcement by the US should constitute a trigger event for firms to review its sanctions risk assessment and subsequently its sanctions risk appetite statement
- Following any update to your firm’s risk assessment and risk appetite, ensure the necessary changes are made to your sanctions, CDD and transaction monitoring procedures to appropriately manage your inherent risk
- Ensure sufficient training is provided on the above to key staff and senior management
- Implement a tactical solution to ensure Senior Managers are aware and able to manage the impending changes to the industry.
If you would like an independent assessment of the maturity of your sanctions control framework or more information on recent changes to the sanctions landscape, please get in touch.
