Know Your Customer: What Your Bank Needs to Know

One of the most prominent issues that has emerged from the US’ broad sanctions on Iran is US (and other) banks’ increasing reluctance to deal with anything having a connection to Iran.  Why?  For one, the US Department of Treasury has avidly gone about discouraging foreign banks from dealing with Iran. Further, several years back, it removed the previous exception for “U-Turn” transactions, whereby certain Iranian transactions could be processes through US banks. To this day, certain transfers (even somewhat direct) are permitted between the two states but they have become nearly impossible.

What is message here? Presumably fearful of having something illicit fall through the cracks and facing hefty OFAC penalties the way certain major international institutions have in recent years, banks have increasingly turned their backs towards even permitted transactions.  BHFA Law Group regularly sees cases where Iranian origin from third countries are rejected by US banks or even situations where U.S. banks close down depositors’ accounts.

Although each case is different, the pattern seems to be that banks are increasingly weary of average individuals engaging in what may appear as awkward behavior.  Having faced the wrath of sanctions for the past 30+ years, many Iranian-Americans in large part have in large part become “immune” to strange activities that others in their community go through to receive funds or even the nature of these transactions.  For example, many of us know that Iranian-origin funds generally need to arrive in the US from a third country.  However, few seem to notice that to the eyes of the outside world, the idea of average people with average incomes receiving large funds from banks in Kuwait or Dubai is not, well, an average issue. Further, inheritance and family monetary gifts, as I have often stated, tend to be large in the Iranian-American community.  This is in part related to cultural matters, but also events in Iran, such as high inflation (including real estate), and the increasing concentration of wealth. Therefore, many Iranian-Americans who receive funds in the US, be it their own money or gifts, may be receiving money in much larger quantities or from arguably more unusual sources than other individuals.  This may give their US banks pause, causing them to send the money back, close accounts, and in some cases, even freeze funds. Imagine if you worked in a bank compliance department and suddenly saw a customer with a $70,000 income receiving a $2 million inheritance or a $500,000 gift that came in through a wire from Turkey?  Happens in our community all the time, but could be quite strange to others.

What’s the take home message here? On top of ensuring that your transaction is legal, you should also take proactive steps.  Educate your bank as to who you are and what you do.  If you have an OFAC license, share it with your bank. File transfer affidavits with appropriate language before your money comes in.  The minute a wire is rejected, the US bank has to notify OFAC, and that can lead to an Administrative Subpoena being sent to you – a hefty request that can take a lot of your time, and if you hire a lawyer, a fair bit of money. If a bank has certain assurances that the transaction is authorized and legitimate, then it will very likely be less averse towards it.

Remember, the staff members at your bank branch likely want to help you, but they generally have limited authority. Playing golf with your branch manager every day will not guarantee that your funds arrive or that your account won’t be closed.  More broadly, banks have to deal with numerous compliance issues, from anti-money laundering to various OFAC regulations and sanctions that have nothing to do with Iran. They do not spend all their time on Iran and it’s not common for a bank compliance officer to know all the ins and outs of US sanctions on Iran  Therefore it is exceptionally helpful to have the necessary conversations and provide the necessary paperwork (referencing applicable laws and regulations, providing correct narratives, etc.) to your bank to demystify legitimate transactions that unfortunately often seem to bear illegitimate appearances. It goes without saying I’ve had a number of very productive calls with bank personnel who seem relieved and happy when I tell them I’m going to be sending them documents (such as letters and/or affidavits) regarding the clients’ upcoming transactions.   Do yourself and your bank a favor – make sure you are doing everything in a compliant way and make sure your bank knows that you are!

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