Last week, the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) published a final rule in the Federal Register adopting the Iranian Financial Sanctions Regulations as required by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”). A major focus of CISADA was to extend U.S. sanctions to foreign banks that engaged in transactions that assisted the nuclear proliferation efforts of the Iranian Government.

In particular, section 104(c) of the Act required OFAC to issue regulations within 90 days of the passage of CISADA imposing conditions on the opening of correspondent accounts with U.S. financial institutions by any foreign bank that provided such assistance to Iran. These regulations satisfy that requirement. Section 561.201(c) provides that no U.S. financial institution shall open or maintain a correspondent account for foreign banks providing such assistance. OFAC plans to list all such foreign banks subject to this condition in Appendix A to the new regulations. No bank is currently listed on Appendix A.

Compliance with section 561.201(c) should not cause any particular heartburn for U.S. financial institutions, because it is simply another list that banks must check when opening new accounts and when scrubbing existing accounts for compliance. Another portion of CISADA, however, was the subject of much speculation and concern that it would pose complex and laborious due diligence obligations on U.S. financial institutions doing business with foreign financial institutions. Section 104(e) of CISADA requires OFAC to promulgate regulations requiring U.S. financial institutions with foreign bank correspondent accounts to undertake one or more of four activities designed to determine whether the foreign banks are providing services to Iran in aid of its proliferation goals. These include audits and “due diligence” on the foreign banks.

However, section 104(e) imposes no time limit on when OFAC must promulgate such regulations, and they were not included in the new Iranian Financial Sanctions Regulations. This comes as a relief — perhaps only a temporary one — because few financial institutions are keen on engaging in these extra activities with respect to foreign correspondent accounts.

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