Non-U.S. Financial Institutions Face Increased U.S. Sanctions Risks

With the U.S. entering a new phase of sanctions implementation with respect to Iran and Russia, financial institutions located outside of the United States (foreign financial institutions, or “FFIs”) face new U.S. sanctions risks. The risks stem from the U.S. government’s use of sanctions against transactions that have no nexus to the United States. The use of these measures, referred to as “secondary sanctions,” is on the rise.

Many FFIs long ago treated themselves as “U.S. persons” and tailored their compliance programs around U.S. “primary sanctions,” which apply to transactions that have a U.S. nexus. However, others adopted a risk-based approach, especially following the Iran nuclear deal (“JCPOA”) in 2016. The imminent re-imposition of the full suite of Iran-related U.S. secondary sanctions, and the Trump Administration’s recent steps toward implementation of Russia-related secondary sanctions in the Countering America’s Adversaries Through Sanctions Act (“CAATSA”), are now putting those risk-based models under increased strain.

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