Yesterday, I wrote on what U.S. banks should do in regards to servicing accounts for parties located in Iran. Today, I would like to address the topic of U.S. persons maintaining bank accounts in Iran. First, it should be stated that no U.S. person–defined as U.S. citizens, U.S. permanent legal residents, and those physically present in the United States–can open and maintain a bank account at any Iranian financial institution without a specific license from the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC). There has been some misinformation disseminated publicly that accounts could be held at non-designated banks (those only blocked pursuant to Executive Order 13599), however, this is simply not true.
However, its not just sanctions violations that holders of bank accounts in Iran should concern themselves with. There are also potential tax consequences for those who do not report their interests in those accounts. What I am referring to here is the Report of Foreign Bank and Financial Accounts (FBAR) requirement that mandates those with interests in or signature authority over, foreign financial accounts exceeding $10,000 to report the account yearly to the Internal Revenue Service. This $10,000 threshold is the aggregate amount held at any one time in all foreign accounts. The penalties for these types of violations can be either civil or criminal in nature, and can include heavy fines and up to five (5) years imprisonment.
As such, it might not only be a violation of the International Emergency Economic Powers Act (IEEPA) and the Iranian Transactions and Sanctions Regulations (ITSR) for U.S. persons to have a bank account in Iran, it may also be an FBAR violation. Federal prosecutors have taken notice of this across the country as well and are seeking indictments against parties holding Iranian accounts under both IEEPA and the FBAR. The benefit for them is that it is much more difficult to prove willfulness for the IEEPA violation than for the FBAR violation. The reason for this is not necessarily legal, but rather factual, since all parties filing a tax return are explicitly asked to indicate whether or not they hold foreign accounts in an aggregate amount over $10,000. As a result, when these charges are coupled together, defendants tend to want plea deals where they plea to the FBAR counts with a dismissal of the IEEPA charges, since the FBAR counts are easier to prove and carry with them a lower criminal penalty. That’s not to say that the Government couldn’t carry the burden on both charges if put to trial, but certainly when considering whether or not to take a plea deal, it becomes much more attractive to take the FBAR plea in exchange for a dismissal of any IEEPA charges. The point here, however, is that you don’t want to deal with any indictment for those maintaining unreported, unlicensed bank accounts in Iran, you may want to consider self disclosing and remediating any such violations before the IRS and OFAC, or worse, the Department of Justice hits you with the FBAR-IEEPA one-two punch.
The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or firstname.lastname@example.org.