The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) recently designated as Specially Designated Nationals (“SDNs”) a number of entities linked to the Iranian steel, aluminum, and iron sectors that are likely to be of particular interest for companies doing trade in or with the Middle East or financial institutions financing trade and business in the region. This post highlights OFAC’s recent action and outlines some practical considerations.
On 25 June 2020, OFAC designated several companies involved in Iran’s metals sectors, namely steel, aluminum, copper, and iron companies, pursuant to Executive Order 13871. In addition to Iranian metals companies affiliated with the Islamic Revolutionary Guard Corps (“IRGC”), a number of trading companies based in Dubai, as well as entities in Germany and China, were designated as SDNs for being sales agents owned or controlled IRGC affiliates. Some of these trading companies are known to have marketed themselves as steel and metals suppliers for clients in the Middle East, Africa, and East Asia. US Persons (i.e., entities organized under US laws and their non-US branches; parties physically located in the United States; US citizens and permanent resident aliens wherever located or employed) are prohibited from dealing with these SDNs or their property/property interests. In addition, non-US parties may face US secondary sanctions risks (e.g., SDN designation) for dealing with these SDNs.
In terms of practical takeaways, other than conducting restricted-party screening, companies generally trading in the metals sectors or those financing metal sector trade (and by extension the graphite and coke sectors, which are critical in metals production) should be mindful of sanctions-related concerns. Iran is a major metals and minerals producer and exporter, and one of the designated entities – Mobarakeh Steel Company in Iran – is the single largest flat steel producer in the Middle East and North Africa. Accordingly, additional due diligence and risk profiling should be undertaken to mitigate the risk of falling foul of US sanctions. Financial institutions should also consider whether enhanced due diligence should be conducted from an anti-money laundering and counter-terrorism financing perspective. Due to its common law-based financial free zones of the Dubai International Financial Centre and the Abu Dhabi Global Market, the United Arab Emirates (“UAE”) has become a major global financial center. In light of the fact that the UAE is also a major logistics and trading hub and has become a gateway hub for those doing business with the wider Middle East, Asia, and Africa, companies operating out of the UAE (including financial institutions) should considered the heightened sanctions risk that the recent OFAC designations present. With the Financial Action Task Force (aka FATF) having issued its Mutual Evaluation Report (MER) for the UAE in April 2020, the relevant local authorities (including the financial regulators) will inevitably will be keen to ensure that financial institutions and “Designated Non-Financial Business and Professions” implement relevant risk profiling and due diligence exercises to ensure that illicit financing (and by extension illicit trade) is prevented.