Criminal Defense Lawyers

Iran OFAC Sanctions Program Explained

Hey there! I know sanctions programs can be super confusing, so I wanted to break down the Iran sanctions in a simple, easy-to-understand way. I’ll walk through what the sanctions are, why they exist, who they apply to, and what activities are prohibited or allowed. Sound good? Awesome, let’s get started!

What are the Iran sanctions?

The Iran sanctions are trade and economic sanctions imposed on Iran by the United States government. Their purpose is to put pressure on Iran to change its policies regarding things like nuclear technology development, missile development, human rights abuses, and support of terrorism [1].

The sanctions restrict Iran’s ability to trade and do business globally by blocking transactions and freezing assets. They also aim to isolate Iran from the international financial system. Basically, the sanctions make it really hard for Iran to make money or get access to stuff they need.

Why do we have sanctions on Iran?

The U.S. started imposing sanctions on Iran way back in 1979 after the Iranian Revolution and the Iran hostage crisis. Tensions between the two countries have gone up and down since then.

In recent years, the main reasons for sanctions have been:

• Iran’s nuclear program – The U.S. is concerned Iran is trying to develop nuclear weapons, so the sanctions aim to pressure Iran into stopping nuclear enrichment
• Iran’s missile program – The sanctions try to limit Iran’s ability to develop long-range missiles
• Human rights issues – The U.S. wants Iran to improve its human rights record
• Terrorism – The U.S. accuses Iran of supporting groups like Hezbollah that it considers terrorist organizations

Lots of other countries also have sanctions on Iran for similar reasons.

Who imposes and enforces the sanctions?

In the U.S., the sanctions are imposed by:

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2024-03-21

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2024-03-18

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2024-03-15

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2024-03-15

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2024-03-12

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2024-03-12

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2024-02-24

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• The President, through executive orders
• Congress, by passing laws like the Iran Sanctions Act

The Office of Foreign Assets Control (OFAC), which is part of the Department of the Treasury, then creates regulations to implement and enforce the sanctions. OFAC can impose penalties on people or companies that violate the regulations [3].

Who do the Iran sanctions apply to?

The sanctions apply to:

• U.S. citizens and permanent residents, no matter where they are in the world
• People and companies “subject to U.S. jurisdiction”, like those doing business in the U.S. or with U.S. persons
• People and companies that the sanctions regulations specifically mention, like the Government of Iran

So the sanctions have a really broad reach and impact a lot of players globally.

What activities are prohibited by the Iran sanctions?

There are lots and lots of prohibited transactions, but some of the main things you can’t do under the sanctions include:

• Import goods or services from Iran – This includes things like oil, petrochemicals, metals, and food
• Export or re-export goods, technology, or services to Iran – This covers everything from cars to software
• Invest in Iran’s oil and gas industries
• Provide financing or financial services for transactions with Iran
• Insure Iranian entities or activities
• Own, operate, control, or insure a vessel flagged by Iran

Transactions with the Government of Iran are prohibited broadly. The sanctions also block the property and interests of the Iranian government, as well as Iranian financial institutions like the Central Bank of Iran [3].

What activities are allowed under the Iran sanctions?

There are some exemptions and authorizations that allow certain activities, including:

• Sending or receiving personal remittances to Iran
• Providing humanitarian goods like food, medicine, and medical devices to Iran [1]
• Importing Iranian-origin carpets and food into the U.S., like pistachios or caviar
• Providing legal services to Iran

OFAC can also issue special licenses on a case-by-case basis allowing transactions that support U.S. foreign policy or national security interests.

How are the Iran sanctions enforced?

OFAC has a few options for enforcing the sanctions on those who violate them:

• Civil monetary penalties – OFAC can impose fines ranging from $250,000 to over $100 million depending on the violation [3]
• Criminal penalties – Willful violations can lead to up to 20 years in prison and $1 million in fines
• Denial of export privileges
• Seizure or blocking of property and funds

OFAC and other agencies closely monitor transactions for potential violations. But the reality is they can’t catch everything. So companies need strong compliance programs to make sure they don’t run afoul of the rules. Internal controls, training, auditing, and due diligence are key.

Large banks have paid hundreds of millions in fines for Iran sanctions violations over the years. In 2019, Standard Chartered paid over $639 million for processing transactions that violated the sanctions [1]. HSBC, BNP Paribas, Commerzbank, and others have also faced big penalties [7].

OFAC aggressively pursues enforcement against companies of all sizes as well as individuals. In recent years, they’ve really ramped up targeting of non-U.S. persons too. The European Union has also brought enforcement cases over Iran sanctions violations.

Bottom line – the risks of running afoul of OFAC are high. The sanctions have real teeth, so compliance is critical.

Companies need to take OFAC compliance very seriously and implement robust sanctions compliance programs. According to OFAC’s guidance[1], key elements of an effective compliance program include:

• Management commitment to compliance
• Risk assessment of potential sanctions exposure
• Internal controls like policies, procedures, training, and auditing[2]
• Testing and auditing to make sure the program is working[3]
• Due diligence on customers, partners, and transactions[4]
• Escalation process for potential issues
• Corrective action like terminating problematic relationships

OFAC evaluates the existence and effectiveness of compliance programs when considering enforcement actions[5]. Companies that voluntarily disclose potential violations can also get credit for having compliance programs in place[3].

Sanctions compliance should be integrated into day-to-day operations and M&A due diligence[6]. It takes ongoing effort and commitment from the top down. But it’s well worth it to avoid potentially massive penalties.

For more help building an OFAC sanctions compliance program, check out OFAC’s website[2] or consult with professionals who specialize in economic sanctions.