Treasury Announces Mechanism to Ensure Compliance of Humanitarian Exports to Iran

The Treasury Department announced a mechanism to help companies ensure their humanitarian exports to Iran will not be diverted to the government and other sanctioned Iranian entities, Treasury said in an Oct. 25 press release. The mechanism will require participating foreign governments and financial institutions to “conduct enhanced due diligence” -- including the reporting of “a substantial and unprecedented amount of information” -- on a monthly basis. Treasury’s Office of Foreign Assets Control also issued a guidance outlining the requirements.

The mechanism includes a “safeguard” to prevent transactions with people on OFAC’s Specially Designated Nationals and Blocked Persons List, Treasury said. The agency also called on foreign governments or entities to restrict any “suspicious transactions” that may be used to abuse the mechanism and report the transactions to the U.S. “Provided that financial institutions commit to implement these stringent requirements, the humanitarian mechanism will enable them to seek written confirmation from Treasury and State regarding sanctions compliance,” Treasury said.

In its guidance, OFAC said the mechanism can only be used for “commercial exports of agricultural commodities, food, medicine, and medical devices.” Participating foreign nations will be required to “collect, maintain, and report … a great deal of information on a monthly basis,” Treasury said, which will be evaluated by Treasury before the transaction is approved. The agency said it will “seek to protect” submitted information.

OFAC provided a list of documents it may require, including identifying information on the Iranian customers receiving the exports, information to understand the “business relationship” between the exporter and the customer, monthly statement balances of the Iranian account being used for the transactions and a list of sanctioned Iranian individuals with which the customer has business relationships. The mechanism will also require “detailed information” about the “commercial elements and logistics” of the transaction, a “written commitment” from any Iranian distributors involved in the transaction that the goods will not be sold to a U.S.-sanctioned person or entity, and “additional information” throughout the business relationship.

The mechanism can be used by foreign entities as well as U.S. people and U.S.-controlled companies, Treasury said, stressing the exports must still comply with U.S. sanctions. The agency said “interested parties” should reach out to OFAC for “detailed consultations.”

“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,” Treasury Secretary Steven Mnuchin said in a statement.

Treasury also announced the Financial Crimes Enforcement Network issued a final rule that prohibits the “opening or maintaining of a correspondent account” in the U.S. by an Iranian financial entity. The rule also prohibits “foreign financial institutions’ correspondent accounts at covered U.S. financial institutions from processing transactions involving Iranian financial institutions,” Treasury said.

The action requires U.S. financial entities “to apply special due diligence to their correspondent accounts” to guard against Iranian banks. It also introduces penalties for possible violations under the Bank Secrecy Act, Treasury said.