Parsian Bank CEO: US Treasury Made ‘Mistake’ in Iran Sanctions Designation

The CEO of Iran’s Parsian Bank, which was sanctioned last week by the US Treasury, has described the designation of the bank as a Specially Designated Global Terrorist (SDGT) a “mistake.” The unprecedented move against one of Iran’s leading private sector banks by US authorities has many in Iran’s banking sector worried, especially with regards to the ongoing viability of humanitarian trade.

On October 16, the US Treasury Office of Foreign Assets Control (OFAC) designated twenty Iranian entities as SDGTs for allegedly providing support to Bonyad Taavon Basij, a holding company associated with Iran’s Basij paramilitary force. Several banks and financial institutions were among the targeted entities—the most prominent among them was Parsian Bank, a private sector financial institution.

Parsian was designated "for assisting, sponsoring, or providing financial, material, or technological support for, or financial or other services to or in support of, Andisheh Mehvaran Investment Company", itself one of several intermediaries ultimately linked back to Bonyad Taavon Basij.

The designation of Parsian seemed to confirm growing concerns that the Trump administration intends to target Iranian banks previously exempt from secondary sanctions as part of its “maximum pressure” policy on Iran.

According to Parsian Bank’s CEO, Kourosh Parvizian, US authorities have exaggerated a financial link in order to designate the bank. "Parsian was sanctioned because one company, Andisheh Mevaran, bought and sold less than 0.3 percent of the total shares of the bank in the stock market," Parvizian told Bourse & Bazaar, adding that such a small shareholder would have no influence over the management or operations of the bank, meaning that any financial link fell well below OFAC’s typical concern with the “control” of Iranian companies by sanctioned entities.

The number of shares purchased by Andisheh Mehvaran even falls below the normal threshold for regulatory oversight by the Central Bank of Iran. The markets regulator only requires approval for share purchases when real or legal persons are seeking to purchase more than 5 or 10 percent of the firm's total outstanding shares respectively. Parsian Bank has 23.7 billion shares currently outstanding on the Tehran Stock Exchange and counts over 70,000 shareholders.

By either deliberately or negligently misconstruing the bank as beholden to Andisheh Mehvaran, US treasury officials made a “mistake at the expense of over 70,000 shareholders and 6.5 million customers of a bank that handles the transactions behind the majority of imports of foodstuffs, medicine and other humanitarian trade items for the Iranian people," Parvizian said.

The belief that Parsian Bank’s designation is a result of a "mistake" runs counter to the views of many sanctions attorneys, who believe that the Trump administration is trying to send signal of zero-tolerance to Iranians banks and their international partners.

Adam Smith, of law firm Gibson Dunn & Crutcher, told the Wall Street Journal’s Samuel Rubenfeld that the designation of Parsian Bank “will make it more difficult to get financing for humanitarian projects.” Smith, a former Treasury Department official, is “very nervous” about how a more hardline sanctions policy from the Trump administration could impact humanitarian trade.  

Iran's Foreign Minister Javad Zarif seemingly agrees that the designation of Parsian Bank was intended to send a signal, slamming the Trump administration’s “addiction to sanctions” in a tweet. Zarif specifically pointed to the eight degrees of separation between Parsian Bank and Bonyad Taavon Basij, the primary target of the sanctions action.

Iran’s foreign minister also decried the disregard for the ruling earlier this month from the International Court of Justice (ICJ) which called on the US to lift restrictions on humanitarian trade. Likewise, Parvizian stated, “The designation [of Parsian] runs counter to remarks made by senior US officials that foodstuffs and medicines will not be targeted by sanctions.”

In the aftermath of the designation, Parsian Bank has sought to reassure its customers and shareholders. Shortly after Parsian was added to the SDGTs list, the bank released statements both for the general public and for its shareholders declaring that operations will not be significantly impacted since the bank had already halted all dollar-denominated transactions years ago due to sanctions. Parvizian added, "I cannot say the sanctions won't have any effects, but those effects won't be what the US wants.”

But in some respects, the damage has already been done. Parvizian is understandably upset that his customers and shareholders will bear the brunt of the designation. They had put their trust in the bank being spared from the full extent of sanctions since Parsian was among the Iranian banks that enjoyed a favorable position relative to the wider Iranian financial system prior to the JCPOA nuclear deal. "On top of everything, the designation has considerably increased our reputational risk," he said.

Over the years, the bank’s reputation has benefited from its investments in raising managerial standards, including improving anti-money laundering (AML) and combating financing of terrorism (CFT) compliance procedures as well as know your customer (KYC) due diligence. Parvizian believes that US authorities are fully aware of Parsian’s efforts in these areas.

"For instance, during our non-dollar dealings with Iraq, even the Central Bank of Iraq made an inquiry with US authorities about Parsian and they had answered positively," he said.  

That Parsian serves as an example for other banks in compliance standards is especially important given the intense debate that has surrounded Iran’s progress on instituting the reforms required by the Financial Action Task Force (FATF) action plan.

Last Friday, the global standard-setting body extended Iran's deadline to complete its action plan until February, a victory over US and several of its allies have long sought to blacklist the Islamic Republic. The push for financial reforms will be harder to justify if banks like Parsian, which are among the closest to meeting FATF standards in their international operations, will nonetheless be targeted with new US sanctions.   

As relayed by Parvizian, the history of private sector banking in Iran is a story of overcoming adversity. This episode is no different. The bank, which had not been contacted or otherwise informed by the OFAC prior to its designation, is now working through "defined channels" to explore whether it can appeal to have the designation reversed.

Photo Credit: Ibena.ir

New Sanctions on Iran’s Parsian Bank Threaten Humanitarian Trade

On Tuesday, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) applied new sanctions on “at least 20 corporations and financial institutions” associated with the Bonyad Taavon Basij, encompassing activities in “Iran’s automotive, mining, metals, and banking industries.”

While the designation of bonyads, which are best understood as holding companies, has been a common feature of US sanctions policy for over a decade, yesterday’s action actually reflects a significant break with sanctions policy under the Obama administration. Included among the targeted entities is Parsian Bank, one of Iran’s leading private sector banks and a vital conduit for trade with Europe, especially humanitarian trade.

In the previous sanctions period, Parsian had been among the Iranian banks that were not subject to secondary sanctions despite being designated along with the rest of the Iranian financial system. This was due to the fact that the Treasury Department had no derogatory information at the time to suggest the bank was engaged or linked to terrorist financing. Indeed, Parsian, established in 2001, has a reputation as among the most trustworthy and well-managed Iranian banks.

Now, US authorities consider Parsian a Specially Designated Global Terrorist (SDGT), a kind of designation shared with the Qods Force of the Islamic Revolutionary Guard Corps (IRGC) among other state and quasi-state groups. The bank is now subject to secondary sanctions, meaning that non-US persons which conduct business with the bank are open to the risk of being sanctioned themselves.

In this way, the new sanctions designation has substantiated fears that had been rising among senior bankers in Iran. There was growing concern that the Trump administration would go beyond the designations of the previous US administration when placing Iran’s banks under secondary sanctions once again. Concerns first rose when OFAC issued its first guidance document following President Trump’s withdraw from the Iran nuclear deal on May 8. The guidance left it ambiguous as to how banks such as Parsian, previously exempt from secondary sanctions, would be treated.

Iranian bankers will also be dismayed that the new designation has come after Iran has made notable progress in passing legislation in accordance to the FATF action plan, which seeks to improve the integrity of Iran’s financial system. A crucial FATF plenary meeting takes place this week in Paris during which Iran’s progress will be evaluated. Further efforts on FATF reform will be hard to justify for domestic stakeholders if banks like Parsian are to be blacklisted by the US Treasury.

Alongside Pasargad Bank, Middle East Bank, and Saman Bank, Parsian was among the few Iranian financial institutions with standards reflective of FATF requirements for anti-money laundering and combatting terrorist financing procedures. These banks were therefore those entrusted by multinational companies to handle local banking needs. Even compliant trade would be impossible for these companies if all Iranian financial institutions are off-limit. A local bank is necessary for basic commercial operations.

According to Tyler Cullis, a sanctions lawyer with the Washington firm Ferrari & Associates, “Today’s designation action had everything to do with sending a signal to the world that all business with Iran is potentially sanctionable.”

In Cullis’ assessment, the links between Parsian and the entity at the heart of the new designations are unusually distant, suggesting a political motive “to inform the private sector that no amount of due diligence” is adequate—a departure from the more practical stance taken by OFAC in the past.

“Treasury designated Bank Parsian for providing material support to an Iranian entity that was seven layers removed from the Basij. It is unlikely that any reasonable amount of due diligence would have apprised Bank Parsian of the fact that it may have been engaged in sanctionable conduct under U.S. law,” Cullis notes.  

The day before the new designation was issued, Special Envoy for Iran Brian Hook was in Luxembourg, meeting with European foreign ministers. On his agenda was a structured dialogue about humanitarian trade. Cognizant of the risks posed by returning US sanctions to their effort to keep Iran in the nuclear deal, European leaders have been seeking clarity on humanitarian trade since June. No concrete assurances have been issued to date. The issue has also caught the attention of the International Court of Justice, which recently ruled that unless the United States lifts restrictions on humanitarian trade with Iran, it will find itself in violation of international law.

While the State Department has given lip service to the issue of humanitarian trade, with Secretary of State Pompeo offering assurances that “sanctions and economic pressure are directed at the regime and its malign proxies, not at the Iranian people,” the designation of Parsian suggests that the Treasury Department is not on the same page. Not only is the Parsian designation peripheral to the action against Bonyad Taavon Basij, but eliminating the ability of the bank to engage in humanitarian trade surely outweighs the value of its designation from the standpoint of minimizing terrorist finance threats. Iranians are already suffering in the face of shortages of medicine, an area of trade in which Parsian was highly active.

Treasury Secretary Steven Mnuchin’s statement, issued alongside the new designations, does make reference to “real world humanitarian consequences” but only insofar as “business entanglements with the Bonyad Taavon Basij network… fuel the Iranian regime’s violent ambitions across the Middle East.”

All too aware of their own government’s malign activities, the Iranian people await the Trump administration’s reckoning with the true humanitarian consequences of its own policies.

Photo Credit: Parsian Bank