The lifting of sanctions on Iran is making progress, but it will be some time before normal banking and trading links are restored.

Adoption Day on 18 October was an important milestone, with Iran signing the Joint Comprehensive Plan of Action (JCPOA) with the US, UK, France, China, Russia and Germany, but there is some way to go before the sanctions are lifted.

OFAC statement

In a statement, OFAC reminded stakeholders that, “all US sanctions against Iran remain in effect” and “entering into contracts involving Iran or its government before Implementation Day may be sanctionable.”

The reminder may have been prompted by reports that a leading provider of sanctions screening data for financial institutions had removed over 300 Iranian names from its screening lists.

Implementation Day

The date of Implementation Day meanwhile has not yet been established. It must follow verification by the International Atomic Energy Agency that Iran has complied with its obligations in respect of its nuclear programme.

Once sanctions are lifted, then SWIFT can start messaging once more and correspondent banking relationships between Iranian and international banks can be re-established subject to banks’ own due diligence and know-your-customer (KYC) procedures.

Risk assessment

But satisfying due diligence and KYC requirements may be difficult even after sanctions are lifted based on the Financial Action Task Force’s (FATF’s) view of the Iranian banking sector.

Iran, along with North Korea, is in the highest category of FATF-assessed risk. At its October plenary meeting Paris, FATF said Iran “remains particularly and exceptionally concerned about Iran’s failure to address the risk of terrorist financing and the serious threat this poses to the integrity of the international financial system.”

FATF advice

Moreover, FATF advises its members “to advise their financial institutions to give special attention to business relationships and transactions with Iran” and “protect against correspondent relationships being used to bypass or evade counter-measures and risk mitigation practices and to take into account AML/CFT risks when considering requests by Iranian financial institutions to open branches and subsidiaries in their jurisdiction.”

Essentially, FATF is advising against financial relations with Iran for the time being at least, which may deter international banks from the Iranian market until the task force changes its view.

Categories: Trade Based Financial crimes News