FinCEN Initiates Exchange Series to Counter Iranian “Shadow Banking” System

This month, the U.S. Department of the Treasury’s (Treasury Department) Financial Crimes Enforcement Network (FinCEN) kicked off a public-private partnership information exchange series aimed at thwarting Iran’s ability to lead and sponsor terrorism. The first meeting of the Iran Maximum Pressure and Counter Terrorism (IMPACT) Exchange series brought together 16 global financial institutions, regulatory agencies, and law enforcement to discuss Iran’s “shadow banking” system — a network of multi-jurisdictional illicit financial systems that facilitates revenue streams of sanctioned Iranian entities.

The IMPACT Exchange series builds upon the Trump administration’s renewed “Maximum Pressure Campaign” against Iran, as detailed in President Trump’s National Security Presidential Memorandum-2 (NSPM-2) issued in early February. While a robust and comprehensive sanctions program related to Iran was already in effect, NSPM-2 instructs the Treasury Secretary to adopt even more restrictive measures designed to deny Iran any access to the U.S. financial system, including, for example: immediately imposing sanctions or enforcement remedies on all persons for which the Treasury Department has evidence of activity in violation of one or more Iran-related sanctions; implementing a robust and continual sanctions enforcement campaign related to Iran and its proxies; and reviewing for modification or rescission any general license, frequently asked question, or other guidance that provides Iran and its proxies any degree of economic or financial relief.

In the two months since President Trump issued NSPM-2, the Treasury Department’s Office of Foreign Assets Control (OFAC) increasingly has targeted persons and entities for purchasing Iranian oil or otherwise facilitating Iran’s oil trade. A particular focus has been on “teapot” refineries — privately-owned Chinese oil companies that are the largest purchasers of Iranian oil — and the companies and vessels that transport Iranian oil to these refineries, labeled as Iran’s “shadow fleet.” Treasury Secretary Scott Bessent has referred to teapot refineries as the “primary economic lifeline for the Iranian regime.” Just this week, OFAC designated a Chinese teapot refinery for its purchase of more than $1 billion worth of Iranian crude oil, along with several companies and vessels that are part of Iran’s shadow fleet. OFAC’s press release noted that the designation was OFAC’s sixth round of sanctions targeting Iranian oil sales since President Trump issued the NSPM-2. OFAC also released updated guidance for shipping and maritime stakeholders to assist them in identifying sanctions evasion related to the shipment of Iranian oil. The updated guidance identifies certain “red flags” associated with Iranian oil shipments and provides guidance on identifying and mitigating sanctions risk related to Iranian oil.

Speaking at the recent IMPACT Exchange event, Treasury Secretary Bessent offered the following “unequivocal” message to financial institutions on these issues: “safeguard your institutions from being exploited by this malign network.” Secretary Bessent also committed “to using every available tool to prevent Iran and its terrorist proxies from gaining access to the U.S. dollar and the broader international financial system” and applying “economic pressure to the maximum extent possible.”

The Trump administration’s intense focus on Iran-related sanctions poses significant legal and regulatory risks to U.S. financial institutions. To ensure compliance, financial institutions should invest considerable time and resources in the development and maintenance of robust anti-money laundering and sanctions compliance programs.

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For questions about this topic, contact the authors or any of their colleagues in Arnold & Porter’s Financial Services, White Collar Defense & Investigations, or Export Control & Sanctions practice groups.

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