5th August 2021

US prepares expanded sanctions program against Iran

Iran’s new president Ebrahim Raisi took office this week pledging to end US sanctions imposed on his country. Simultaneously, The Wall Street Journal reported that the Biden administration is considering additional measures targeting Iran’s drone and guided missile programs.

These seemingly contradictory events reflect the complex, fast-moving and multifaceted nature of the US Iran sanctions program and geopolitical tensions between the two countries. The widening of sanctions on Iran’s missile program to include procurement networks is regarded by the Biden administration as a separate issue to stalled talks on restoring the Joint Comprehensive Plan of Action (JCPOA). 

Meanwhile, President Raisi has focused on the impact of sanctions on the Iranian economy, pledging to take steps to lift the “tyrannical” measures imposed by the US. Raisi himself was subject to US sanctions after being appointed by Iran’s Supreme Leader to run the country’s judiciary in 2019. 

The latest back and forth between the US and Iran reflects how, for both sides, sanctions are a critical tool for achieving political leverage domestically and in sensitive nuclear negotiations. In the space of a few weeks, the US government has shown a willingness to use sanctions both as an incentive and a threat. In June, the US dropped some sanctions on Iran’s energy sector as a show of ‘good faith’ in the negotiations. Then in July, Iran’s outgoing foreign minister stated that the US had agreed to lift almost all US sanctions to secure a return to the JCPOA.

However, it was also reported last week that the Biden administration has threatened new sanctions on Iran’s oil sales to China if the nuclear talks fail. The arrival of the new hardline president, and a fatal drone attack on a Gulf oil tanker attributed to Iran, have raised tensions further.

Historically, US sanctions on Iran have focused on the economic ‘pain points’ Raisi is keen to alleviate. It remains unclear if a program more narrowly focused on specific military capabilities can succeed alongside attempts to lift measures impacting the Iranian economy. For now,  key measures imposed during the Trump administration remain in place. In an interview last week, Iran’s ambassador to the International Atomic Energy Agency (IAEA) claimed the US has rejected annulling the Countering American Adversaries Through Sanction Act (CAATSA) which imposed sanctions on Iran, Russia, and North Korea. A Trump-era executive order aimed at preventing Iran from buying or selling weapons also remains in place. 

For international businesses, when it comes to sanctions on Iran the only certainty is further uncertainty. It’s impossible to speculate on what a revised JCPOA could look like at this early stage. Even if an outline emerged, contingencies would need to be made in the event that sanctions are reimposed, or measures on weapon and missile programs remained. It remains important to ensure that sanctions policies and screening tool settings are optimized for rapid adjustments, as individuals and entities may be added and removed at short notice.

 

Two companies set aside over $1m for Iran sanctions violations

Demonstrating the complexity of maintaining a robust sanctions compliance program, this week food safety, and veterinary products company Neogen said it had received a subpoena from OFAC, the US Treasury’s sanctions enforcement body for possible sanctions violations. An internal investigation discovered that the company had provided genomic-testing services to another US company that was working with an Iranian organization. The company has set aside $600,000 for potential fines and pledged to invest in additional compliance measures.

The Neogen revelations come just weeks after two subsidiaries of Swedish company Alfa Laval agreed to pay a total of just over $432,000 for apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR). OFAC concluded that the company’s Middle East operation conspired with Iran-based companies to export goods from the US to Iran. 

OFAC has used high-profile cases like these to highlight the importance of effective training measures to ensure sanctions compliance. This includes an awareness that sanctions compliance requires the refusal of both direct business opportunities and any referrals. US companies operating in a supply chain with companies based overseas should also be aware of compliance issues that could arise indirectly through this work.

To explore how geopolitics and sanctions impact financial crime compliance in more detail, download our 2021 state of financial crime report.