Pursuant to the restrictions already in place under the National Defense Authorization Act (NDAA), foreign financial institutions (“FFIs”) face restrictions on, or loss of, correspondent and payable-through account access in the United States if they knowingly engage in significant financial transactions with the Central Bank of Iran (“CBI”) or a designated Iranian financial institution, unless an NDAA exception, such as the significant reduction exception, applies. The NDAA significant reduction exception applies if the Secretary of State, in consultation with the Secretary of the Treasury and other agencies, has determined that the country with primary jurisdiction over the FFI has significantly reduced its purchases of Iranian crude oil during a specified period of time.
Effective February 6, 2013, section 504 amends the NDAA in several ways. Most importantly, it narrows the NDAA’s significant reduction exception to (a) exempt from sanctions only transactions that conduct or facilitate bilateral trade in goods or services between the country granted the exception and Iran, and (b) require that funds owed to Iran as a result of the bilateral trade be credited to an account located in the country granted the exception and not be repatriated to Iran. In addition, it -
(i) eliminates the distinction between state-owned or -controlled FFIs (not including foreign central banks) and private FFIs, thereby expanding the scope of sanctionable transactions for state-owned or -controlled FFIs with the CBI or designated Iranian financial institutions; and
(ii) clarifies that countries that have reduced their Iranian crude oil purchases to zero may continue to receive the significant reduction exception.
The sale of agricultural commodities, food, medicine, or medical devices to Iran (the “Humanitarian Exception”) is not impacted by section 504 of the TRA.
The purchase or acquisition of petrochemicals from Iran remain sanctionable activities and are not subject to the significant reduction exception.