The Implications of the EU Delisting Bank Saderat Iran

By Lisa Daniels
Friday, December 2, 2016, 12:04 PM

In late October, the EU lifted sanctions on Bank Saderat Iran and its London subsidiary, Bank Saderat PLC. It did so despite the fact that Bank Saderat was one of three Iranian banks that remained under EU sanctions following the implementation of the nuclear deal with Iran, known as the Joint Comprehensive Plan of Action (JCPOA), and was not slated for delisting until “Transition Day” in October 2023. In the United States, Bank Saderat remains subject to several sanctions regimes and is listed by the Treasury Department as a Specially Designated National (SDN) for providing financial support to terrorism. With the lifting of EU sanctions, Bank Saderat’s assets are no longer subject to a freeze in the EU, and European banks are free to start doing business with the Iranian bank, including by setting up correspondent banking relationships (essentially serving as the bank’s bank) with Bank Saderat.

The Wall Street Journal reported that Greece is responsible for Bank Saderat’s early delisting. The Greek government apparently blocked renewal of EU sanctions on the Iranian bank in order for Greece to “rebuild close economic ties with Iran, a key source of cheap energy for the country in the past.” This is not the first time that a single EU nation has derailed an EU-level designation: each EU nation has an effective veto over any collective sanctions decision due a unanimity requirement for EU common foreign and security policy decisions. But this is the first time post-JCPOA that an EU country has done so with respect to Iranian sanctions.

Some commentators who advocate for continued sanctions against Iran have described the event as “the beginning of a broader decay” in the European sanctions regime, and fear that the EU will no longer be able to play a role in supporting sanctions regimes alongside the U.S. due to disagreement among member states. But the alarm bells may be premature. This post analyzes the consequences of the delisting from the U.S. perspective under U.S. law.

U.S. Financial Sanctions on Bank Saderat

In 2007, the U.S. Treasury Department designated Bank Saderat as a SDN under E.O. 13224. (For more on E.O. 13224, click here). In a press release at the time, the Treasury Department explained that the designation stemmed from the bank’s activity “channel[ing] funds to terrorist organizations, including Hizballah and EU-designated terrorist groups Hamas, PFLP-GC, and Palestinian Islamic Jihad.” Under U.S. law, the designation immediately froze all of the bank’s assets under U.S. jurisdiction, and prohibited U.S. persons from engaging in any transactions involving the bank.

The bank’s SDN status also acts on an international level to restrict its access to the global financial system. The status triggers U.S. secondary sanctions under the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA), which authorizes the U.S. Department of the Treasury to penalize non-sanctioned foreign financial institutions for aiding certain sanctioned Iranian entities. A foreign financial institution that violates these sanctions runs the risk that the U.S. government will freeze its assets and property or close its correspondent or payable-through account in the United States. (These accounts allow foreign institutions to provide their customers with access to the U.S. banking system).

From the perspective of a U.S. financial institution, Bank Saderat is really no different than any other Iranian bank without SDN status. Most primary sanctions, including the U.S. embargo and prohibition on U.S. financial institutions clearing dollar payments that involve Iranian parties, remain in effect post-JCPOA. These sanctions are separate and apart from the E.O. 13224 sanctions and operate as a blanket prohibition on transactional relationships between U.S. and Iranian financial institutions.

But in a post-JCPOA world, the bank is differently situated from its non-SDN peers in the eyes of foreign financial institutions. This is because under the terms of the Iran deal, the United States agreed to remove many Iranian nuclear-related entities, government-controlled entities, and financial institutions from the SDN list—not including Bank Saderat. As a result, the newly-delisted entities are now outside the scope of secondary sanctions, allowing foreign financial institutions to conduct business with these entities without fear of consequences from the United States. The upshot for Iranian banks is that Iran now has easier access to the global financial system, provided that Iranian banks are not transacting in USD (with some exceptions) and are not themselves SDNs or providing financial services to SDNs.

Can EU Banks Transact with Bank Saderat Under U.S. Law?

The short answer is no—not if they want to continue to have access to the U.S. financial system.

Following the bank’s delisting in the EU, Bank Saderat theoretically has access to the global financial system through European counterparts. EU law permits banks to open correspondent accounts for Bank Saderat and transact with the bank. But due to Saderat’s SDN status, any Greek or other European bank that does so will be subject to secondary sanctions and risk losing access to the U.S. financial system. Because the secondary sanctions for Bank Saderat are still in place on top of the general prohibition on dollar clearing, European banks cannot service an account for or do any business with the bank without threat of U.S. retaliatory action, regardless of the currency.

It appears that the SDN designation may be able to effectively maintain the global status quo in a case like that of Bank Saderat and offset the potential weakening of the EU sanctions regime due to internal disagreement among EU members. Soft law anti-money laundering norms may also play a role in disincentivizing EU institutions from doing business with Iranian banks, despite such transactions being lawful under EU law. Going forward, however, a splintering of views on security policy and clashing individual state interests within the EU may put more pressure on the SDN designation. In order for sanctions programs that have historically relied on international coordination to remain effective in the absence of cooperation or consensus within the EU, the SDN designation may have to do more of the work supporting and maintaining the U.S. sanctions apparatus.