US agencies leave banks ‘paralysed with fear’ on Iran

Although JCPOA Implementation Day permitted dollar transactions with Iran, using the currency has often led to grief for bankers around the world, a seminar organised by Dubai-based law firm Fichte and Co. Legal Services heard on 2 March.

“US fines and penalties [against international banks] have been astronomical," said Matthew J. Thomas, partner at Blank Rome law firm in Washington DC, in Dubai to address the seminar.

Although many believe that sanctions on Iran involving non-US actors have been lifted, what Thomas called the “exceedingly complex” US sanctions regime on Iran and other countries left banks still in doubt about the advisability of dealing with them at all.

Non-US persons could be held liable for "causing" violations of primary US sanctions and these procedures were often aimed at overseas banks, especially in Europe, with severe penalties involved.

Iran has been subject to a primary US embargo since 1979. From 2009-13, the US implemented a series of escalating secondary sanctions against Iran, to dissuade non-US actors from dealing with it on energy, shipping, defence and finance.

“The JCPOA left the primary embargo largely intact, eliminating most (but not all) secondary sanctions,” Thomas said.

In 2015, BNP Paribas was hit with a settlement of $8.83bn from the US Justice Department over claims it violated sanctions on Sudan, Cuba and Iran from 2004-12.

Thomas said ING Bank NV paid $619m, HSBC $1.9bn, and Commerzbank AG $258m, to settle recent claims made against them from US government agencies.

“The banks are paralysed with fear they are going to make this sort of mistake [again],” he said.

The Office of Foreign Assets Control (OFAC) is one of the US Treasury Department’s main enforcers of trade sanctions against countries, terrorists, drug traffickers and WMD development.

It also tracks “Specially Designated Nationals” (SDNs), who may be barred from doing business with the US in countries where punitive measures have otherwise been lifted.

"Thousands of new compliance professionals have been hired [by banks] since 2010," he said, adding that they were in effect doing the work of OFAC, which has little more than 200 staff, by other means.

“Non-US persons can be liable for violating US sanctions,” Thomas said, speaking a day later at the 12^th Annual Marine Money Gulf Ship Finance Forum, before an equally rapt audience. Geographical proximity makes Dubai the business hub most likely to benefit from renewed business ties to Iran.

The focus was on eliminating indirect or commingled Iranian interests from transactions, in entities with pooled revenues like tanker pools, or agency businesses, he said.

“The UAE Central Bank has not approved UAE banks to do business with Iran yet,” said Asad Jafree, managing partner, Insignia Consulting, at the same time adding that with $20bn of GCC placements from Iran, many UAE banks were very eager to obtain exposure.

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