The U.S. Secondary Sanctions System

Secondary Sanctions Program in the U.S.

Impact on European Banks and Companies

The American sanctions system against the Islamic Republic of Iran found its origins some years after the outbreak of the Iranian Revolution of 1979, becoming more restrictive in 1995 when President Clinton (see right) prohibited U.S. persons and entities from engaging in most transactions with Iran.[1] These restrictions concerned both the importation into the United States of any goods or services of Iranian origin and their exportation from the United States to Iran, even if through a third country.

Since at least 2010 this sanctions system has been able to target non-U.S. companies and financial institutions that directly or indirectly engage in transactions with Iran or with the Iranian government. The expression “secondary sanctions” in the Iran context describes the parallel system of sanctions that can target non-U.S. persons or entities located outside of the United States that deal with Iran.

The secondary sanctions system exposes many European entities to the possibility of being sanctioned, as Iran’s greatest commercial partners are mainly located in Europe; indeed since the last 15 years the trade in goods between Iran and the European Union has been increasing and currently amounts to around 5 billion Euro per year. At the same time, a large portion of the financial flow to and from Iran goes through European depository institutions.

This secondary sanctions system was first implemented by specific measures regarding exclusively to foreign financial institutions, in order to stem the efforts made by the Iranian Government to carry out some financial activities considered hostile by the American administration. These regulations concern foreign banks, savings banks, money service businesses, trust companies, securities brokers and dealers, commodities exchanges, clearing corporations, investment companies, employee benefit plans, and holding companies, affiliates, or subsidiaries of any of these entities.

In this sense the CISADA Act of 2010 (Comprehensive Iran Sanctions, Accountability, Divestment Act), prohibited U.S. financial institutions from opening or maintaining a correspondent account or a payable-through account in the United States for foreign institutions that engage in Iran-related transactions dealing with the military or terrorist purposes.[2]

For Part 2 Click Here

Disclaimer: Blog posts should not be relied upon as legal advice and are only provided for informational purposes.  Information contained in blog posts may also become outdated with the passage of time as laws change and U.S. foreign policy and national security objectives evolve.

_______________________________________________________________________________________

[1] Executive Order 12959 of May 6, 1995.
[2] The Iranian Financial Sanctions Regulations (31 C.F.R. Part 561) refers to the foreign institutions that facilitate the efforts of the Government of Iran to acquire or develop weapons of mass destruction or delivery systems for weapons of mass destruction; provide support for organizations designated as foreign terrorist organizations or support for acts of international terrorism, facilitate the activities of a person subject to financial sanctions pursuant to United Nations Security Council Resolutions, facilitate a significant transaction or transactions or provides significant financial services for Iran’s Islamic Revolutionary Guard Corps or any of its agents or affiliates whose property and interests in property are blocked.