Banking and Finance Law Daily New restrictions placed on humanitarian trade to Iran
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Monday, October 28, 2019

New restrictions placed on humanitarian trade to Iran

By Stephanie K. Mann, J.D.

In an effort to increase transparency, the Treasury and State Department have created a new mechanism to provide transparency to humanitarian trade with Iran while FinCEN issued a new final rule identifying Iran a jurisdiction of primary money laundering concern.

The Treasury and State Departments have announced a new mechanism to provide transparency to humanitarian trade with Iran. The mechanism is intended to help the international community perform enhanced due diligence on humanitarian trade to ensure that funds associated with permissible trade in support of the Iranian people are not diverted by the Iranian regime to develop ballistic missiles, support terrorism, or finance other malign activities. Concurrently, the Financial Crimes Enforcement Network identified Iran as a jurisdiction of primary money laundering concern under the USA PATRIOT Act and issued a new rulemaking to protect the U.S. financial system from malign Iranian financial activities. The final rule takes effect 10 days after publication in the Federal Register.

"This administration remains committed to the unfettered flow of humanitarian aid to the Iranian people, who have suffered for forty years under the mismanagement of this corrupt regime. This new humanitarian mechanism will help international companies that seek to engage in permissible humanitarian trade with Iran to ensure that they do not run afoul of sanctions," said Treasury Secretary Steven T. Mnuchin. "Iran is a jurisdiction of primary money laundering concern that deliberately ensures that there is no transparency in their economy so they can export terrorism around the world. FinCEN’s action further exposes the characteristics of Iran’s deceptive financial conduct to the international community as part of our maximum pressure campaign to shut off the Iranian regime’s illicit sources of revenue."

Process. The Treasury and State Departments have pledged to establish a process to help ensure that participating governments and financial institutions commit to conducting enhanced due diligence to mitigate the higher risks associated with Iran-related transactions. Foreign governments and financial institutions that choose to participate will be required to conduct enhanced due diligence and provide Treasury with a "substantial and unprecedent amount of information" on a monthly basis.

Once potential abuse is detected, foreign governments or financial institutions must immediately restrict any suspicious transactions and provide the relevant information to Treasury. Assuming full compliance with the new due diligence and reporting requirements, the humanitarian mechanism will allow financial institutions to seek written confirmation from Treasury and State regarding sanctions compliance.

FinCEN rule. Under the USA PATRIOT Act, FinCEN issued a final rule prohibiting the opening or maintaining of a correspondent account in the United States for or on behalf of an Iranian financial institution after determining that Iran is a foreign jurisdiction of primary money laundering concern. The rule also prohibits foreign financial institutions’ correspondent accounts at covered U.S. financial institutions from processing transactions involving Iranian financial institutions.

While U.S. financial institutions are generally prohibited from facilitating transactions by Iranian financial institutions, the new rule requires U.S. financial institutions to apply special due diligence to their correspondent accounts to further guard against their improper indirect use by Iranian banking institutions. It also subjects U.S. financial institutions to penalties under the Bank Secrecy Act if they violate provisions of the final rule.

FinCEN issued the final rule after it found evidence that international terrorist groups, including Hizballah and HAMAS, have transacted business in or with Iran and rely on Iranian financial support. Estimates indicate that the Iranian government has historically provided approximately $700 million of Hizballah’s estimated $1 billion annual budget. Iran’s support to HAMAS is estimated to be in the tens of millions of dollars per year and as high as $300 million per year.

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