The Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a long-awaited final rule prohibiting the opening or maintaining of correspondent accounts in the United States for, or on behalf of, Iranian financial institutions, and the use of foreign financial institutions’ correspondent accounts at covered U.S. financial institutions to process transactions involving Iranian financial institutions. On October 26, 2001, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (USA PATRIOT Act) was signed into law. Section 311 of the USA PATRIOT Act grants FinCEN the authority, upon finding that reasonable grounds exist, for concluding that a jurisdiction outside of the United States and/or one or more financial institutions operating outside of the United States is/are of a primary money laundering concern. Upon such a conclusion, FinCEN can require domestic financial institutions and domestic financial agencies to take certain “special measures” to prevent money laundering and to cut off the foreign financial institution from the U.S. financial system.
Section 311 sets forth five special measures as preventative safeguards to defend the U.S. financial system from money laundering and terrorist financing. With this final rule, FinCEN has found that Iran is a jurisdiction of primary money laundering concern. In addition to other actions toward Iran – economic sanctions and U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) — the Department of the Treasury, in coordination with the Department of State, found that Iran has continued to evade sanctions and to fund terrorist activities. For all these reasons, FinCEN has now formally concluded that Iran is a jurisdiction of primary money laundering concern. This determination is based on the following findings:
- Iran abuses the international financial system, developing covert methods for accessing the international financial system and pursuing its malign activities, including misusing banks and exchange houses, operating procurement networks that utilize front or shell companies, exploiting commercial shipping, and masking illicit transactions using senior officials, including those at the Central Bank of Iran (CBI).
- Iran has used precious metals to evade sanctions and gain access to the financial system, and may in the future seek to exploit virtual currencies.
- Iran’s evasive efforts serve to fund the Islamic Revolutionary Guard Corps (IRGC), its Islamic Revolutionary Guard Corps Qods Force (IRGC-QF), Lebanese Hizballah (Hizballah), Hamas, the Taliban and other terrorist groups.
FinCEN also determined that there is systemic and high levels of official and institutional corruption with various Iranian financial institutions that involve the IRGC. Further, FinCEN found that Iran lacks transparency and accountability under a comprehensive “anti-money laundering/countering the financing of terrorism” (AML/CFT) program and that public statements from Iranian officials indicate that Iran has no intention of adhering to international norms in this area of financing. Given this finding, covered financial institutions are now prohibited from opening or maintaining in the United States correspondent accounts for, or on behalf of, Iranian financial institutions, unless such an account is authorized by OFAC. OFAC will expect financial institutions to apply special due diligence and the implementation of risk-based procedures to guard against their foreign correspondent accounts from being used to process prohibited transactions involving Iranian financial institutions.