Just a hint of Iran sanctions risk stalls bank transactions

The Wall Street Journal

By Joel Schectman

As negotiations over Tehran’s nuclear program continue, the U.S. is encouraging some companies to go to Iran to give its leaders an incentive to stay at the bargaining table.

But it could be a tough sell. Billions of dollars in fines have conditioned banks to see any Iran deal as toxic, sanctions experts say. Even the appearance of a connection to Iran could delay bank transactions for months or years, Risk & Compliance Journal found in a review of U.S. sanction licensing records obtained through a Freedom of Information Act request. And the holdups may make the deal not worth it. “For the bank, the cost of doing due diligence and processing the licenses means it doesn’t make economic sense,” said Erich Ferrari, a sanctions compliance attorney.

In 2012, Standard Chartered fronted the money for a deal between a Canadian manufacturer of steel billets and Sri Lanka-based buyers, a banks spokesman said. But months after the billets were sent, the U.S. designated a shipping company, which delivered the materials, a sanctioned Iranian entity. Despite the fact that Standard Chartered financing didn’t go to paying the shipper, the discovery forced the bank to block the repayment it was owed from the Sri Lankan buyer.

Before the money could be released, Standard Chartered needed to apply for and receive a license from the U.S. Treasury Department’s Office of Foreign Assets Control. The funds remained frozen until February 2014, according to the records.

“Standard Chartered London was the only party adversely affected by the freezing of funds,” said the bank spokesman. “This is not an uncommon procedure in the industry…This was about our continued and vigorous enforcement of OFAC sanctions.”

Just having a similar name to an Iranian bank was enough to delay a Barclays wire transfer for months. A Barclays client was trying to wire money to the Jordanian government. But when the money passed through a Citigroup bank, which acted as a middleman for the transaction, the funds were frozen, a Barclays spokesman said. The problem: Jordan’s central bank, where the money was being routed had a similar spelling to Iran’s Bank Markazi, and Citi’s compliance program mistakenly confused the two. The situation illustrated “how cautious” bank personnel are now on sanctions issues, said the Barclays spokesman. A spokesman for Citigroup declined to comment.

Even though the mistake was clerical, and had no connection to Iran, it took two months for the U.S. Treasury Department’s Office of Foreign Asset Control to allow the funds to be released, in March 2014, according to government records.

The time and expense of dealing with Iran issues will make banks hesitant to engage, until there’s a broader loosening in sanctions, said Serena Moe, a former deputy chief counsel at OFAC, now an attorney at Wiley Rein LLP. “It’s just a lot easier for them to say ‘we’re not going to do Iran transactions,’” Ms. Moe said.