j burke ppt sanctions

Sanctions and the financial sectorImplementation of financial sanctions on Iran

8 March 2013

Sanctions and the financial sector

Quotes on sanctions

Terrorism“We will starve terrorists of funding.”

Piracy“Explore ways to track and freeze pirate assets.”

Iran“[Sanctions have slowed] the Iranian nuclear program and virtually [grinded] the Iranian economy to a halt in 2011.”


Agenda

1 What are financial sanctions?

2 Types of sanctions

3 US authorities for financial sanctions on Iran

4 Financial institution compliance and implementation

5 Evolution of Iran sanctions

6 Financial sanctions and the Iranian economy


Disclaimer

► The views expressed by presenter(s) are not necessarily those of Ernst & Young LLP.

► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.


What are financial sanctions?


What are financial sanctions?

► Prohibitions or restrictions on access to the financial system

► Increasingly used by governments to serve foreign policy objectives and counter threats to national security

► Anti-money laundering vs. sanctions

► Money laundering: use of proceeds derived from criminal activity

► Sanctions: transactions by prohibited persons or for prohibited purposes with funds that would otherwise be legal

► Regulatory requirements, supervision and examination


Types of sanctions


Types of sanctions

► Broad country programs (i.e., embargoes: Cuba, Iran, Sudan)

► Targeted financial measures (“smart” sanctions)

► Based on conduct of the individual or entity targeted► Can impose an asset freeze and prohibition on any

dealings

► Secondary (extraterritorial) sanctions

► Only in the US► Can prohibit or restrict the access of a foreign financial

institution or other entity to the United States if it conducts certain business with sanctioned entities, even if a US person or the US financial system is not involved

There are 22 different sanctions programs administered by the Office of Foreign Assets Control (OFAC) within the Department of the Treasury.


US authorities for financial sanctions on Iran


Legislation

► International Emergency Economic Powers Act (IEEPA)

► Comprehensive Iran Sanctions Accountability and Divestment Act of 2010 (CISADA)

► National Defense Authorization Act for Fiscal Year 2012 (NDAA)

► Iran Threat Reduction and Syria Human Rights Act (TRA)

► Iran Freedom and Counter Proliferation Act of 2012 (IFCPA) — within NDAA for Fiscal Year 2013


Executive order (EO)EOs issued since 2009 related to Iran

► Authorizing additional sanctions: EO 13622► Blocking property and suspending entry into the US of certain persons with

respect to grave human rights abuses by the Governments of Iran and Syria via information technology: EO 13606

► Blocking property of certain persons with respect to serious human rights abuses by the Government of Iran: EO 13553

► Blocking property of the Government of Iran and Iranian financial institutions: EO 13599

► Implementation of certain sanctions set forth in the Iran Sanctions Act of 1996, as amended; authorization: EO 13574

► Implementation of certain sanctions set forth in the Iran Threat Reduction and Syria Human Rights Act of 2012 and additional sanctions with respect to Iran; authorization: EO 13628

► Petrochemical sectors, goods, services, technology or support; imposition of sanctions: EO 13590

► Prohibiting certain transactions with and suspending entry into the US of foreign sanctions evaders with respect to Iran and Syria: EO 13608

http://www.archives.gov/federal-register/executive-orders/2012.html









Secondary sanctions

► Comprehensive Iran Sanctions, Accountability and Divestment Act (CISADA)

► National Defense Authorization Act for Fiscal Year 2012 and 2013 (NDAA)

► Iran Threat Reduction and Syria Human Rights Act (TRA)

► Executive Order 13622 (Expands on of NDAA and TRA)

► Executive Order 13608 (Foreign Sanctions Evaders)

► Iran Freedom and Counter Proliferation Act of 2012 (IFCPA)


Secondary US sanctions on foreign financial institutions

Cut off access to the United States

CISADA

Foreign Sanctions Evaders Executive Order

NDAATRAEO 13622IFCPA

Knowingly conduct significant transactions with Iran-related US-designated or UN-designated entities

Attempt, conspire to, or actually cause a violation of Iran- and Syria-related EO’s, or facilitate deceptive transactions for or on behalf of any person subject to Iran- and Syria-related EOs

Knowingly conduct certain transactions:► With the Central Bank of Iran or GOI► Purchase of Iranian crude or

petrochemicals► Related to Iran’s acquisition of gold or

USD


International sanctions authoritiesInternational sanctions on Iran since 2010

► June 2010: UN Security Council Resolution 1929 (must be implemented by each member state)

► July 2010–November 2012: Four EU Council Decisions and nine EU Council Regulations or Implementing Regulations

► 2010–2012: Autonomous sanctions on Iran announced by Australia, Canada, Japan, Norway, South Korea and Switzerland closely following the EU model

► Switzerland and Norway typically align with the EU, but Switzerland has recently stopped short of implementing all EU measures against Iran’s central bank and oil sales.

► November 2011: UK Financial Restrictions on Iran under the Counter-Terrorism Act


Financial institution compliance and implementation


OFAC responsibilities and expectations of financial institutions► US financial institutions cannot open an account or process a

transaction for a person blocked or named on the SDN list. ► Licenses (General and Specific)► Blocking property► Rejecting transaction► Reporting to OFAC

► Within 10 days of blocking or rejecting transactions► Annual report

► Scan existing client population whenever OFAC updates the SDN list (expectation)

► Monitor financial transactions performed by or through them to detect any that involve an entity subject to OFAC sanctions (expectation)


OFAC and sanctions screening

► Software used to facilitate compliance with sanctions requirements► Interdiction filter► “Fuzzy” logic► Method and frequency of updates

► Data capture and screening► New account holders and other parties (e.g.,

beneficiaries, signatories)► Established accounts► “Exclude” lists (e.g., safe lists)

► Investigation of potential matches► Escalation and reporting


Snapshot of OFAC penalties (2004–2012)

2004 2005 2006 2007 2008 2009 2010 2011 2012 $-

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

Total dollar amount of institutional fines by year

Total dollar amount of fines by industryAirlines Chemical/Pharmaceutical/MedicalEnergyFinancial ServicesInsuranceManufacturingRetailShipping and LogisticsTechnologyTravel


Evolution of Iran sanctions


ITR – import ban

Key Iran sanctions and impact on financial institution compliance

Import embargo on Iranian-origin goods

October 1987

Jan ’07EO 13382 – Bank Sepah

Dec ‘11NDAA

Sept ‘06Revocation of u-turn license for Bank Saderat

All trade and investment activities by US persons with Iran prohibited

Aug ‘97EO 13059 – full embargo

January 2013

Mar ‘07UNSCR 1747 Bank Sepah

Oct ’07EO 13382 – Bank Melli Nov ‘08

Revocation of U-turn license for all Iranian Banks

Jul/Aug ‘12TRA and EO 13622

July ‘10CISADA and UNSCR 1929

Mar ’08UNSCR 1803

Jan ‘13 IFCPA (NDAA ‘13)

Jul ‘12 CISADA action — Kunlun and Elaf

May ‘12Foreign Sanctions Evaders EO

Feb ‘12EO 13599 – blocking GOI

US banks prohibited from processing “u-turn” transactions for Bank Saderat

Bank Sepah assets and transactions must be blocked (first US then worldwide)

Bank Melli assets and transactions blocked in the US

All Iranian banks lose indirect access to the US

“Secondary sanctions” - foreign banks can lose access to the US if they conduct certain transactions with Iran.

“Secondary sanctions” targeting Iranian oil sales

Assets and transactions for all GOI entities “blocked”

“Secondary sanctions” targeting deception

Banks within the US cannot open or maintain correspondent accounts for Kunlun or Elaf

“Secondary sanctions” expanding

CISADA and NDAA; US

sanctions apply to foreign

subsidiaries

“Secondary sanctions”

targeting shipping/energy/tran

sactions with GOI (certain

exceptions)

Impact on banks

Actions


Financial sanctions and the Iranian economy


Economic impact

► Sanctions result in loss of access to financial services

► Direct impacts:► Trade finance terms► Higher transaction costs► Capital constraints► Disruption of funds transfer► Foreign exchange restrictions

► Indirect impacts► Import costs rise► Currency instability► Pressure on GDP and inflation


Contacts

Brian GrantAML/Regulatory

Compliance +1 202 327 [email protected]

Brian FerrellAML/Regulatory Compliance

+1 860 218 8335

[email protected]

Jonathan Burke

AML/Regulatory Compliance

+1 703 747 0571

[email protected]


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