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Back-to-Back Letters of Credit Facilitate Trade with Sanctioned Nations
By Colby Adams
printBusinesses and individuals seeking to evade sanctions that target Iran and other nations may be utilizing back-to-back letters of credit to disguise their roles in transactions, say trade analysts. The letters, which are issued by banks to facilitate international trade, differ from standard letters of credit in that they make use of two bank vouchers, with one letter from a bank serving as collateral for another financial institution in the transaction chain. Deal brokers use the letters to keep the identities of buyers and sellers secret from each other so as to demand larger fees for brokering sales. Because the...
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A $400 million settlement with an Israeli bank accused of facilitating tax evasion and an ongoing probe into loan fraud and AML violations at a Citigroup affiliate seemingly have little in common, but they share at least one trait: the exploitation of a typically low-risk, trade-finance instrument.
A Web site that purports to list the foreign correspondent relationships of many of Iran's financial institutions could cause U.S. institutions to rethink their ties to well-known international banks.
Lawmakers passed a tough new sanctions measure against Iran Thursday that would require U.S. banks to determine whether the foreign financial institutions they have correspondent relationships with bank certain Iranians.
The U.S. Treasury Department Wednesday added another Iranian bank to its list of 16 Iran-controlled financial institutions that U.S. companies are prohibited from doing business with.
The U.S. government Wednesday blacklisted a fifth Iranian bank for allegedly helping the country build nuclear weapons, the latest move in escalating efforts to hem in Iran and convince Europe to follow suit.
The Paris-based Financial Action Task Force (FATF) said Thursday that the global financial community should regard transactions involving Iran, Uzbekistan, Pakistan, Turkmenistan, Northern Cyprus and São Tomé and Príncipe as high risks for money laundering.
The sanctions are part of a "comprehensive" drive by the U.S. to increase pressure on Iran, said Secretary of State Condoleeza Rice. That effort has been frustrated by the hesitation of the United Nations and international community in following the U.S.
The designation would officially block all or part of Iran's 125,000-strong Revolutionary Guard Corps, the country's elite military unit, from dealing with U.S. financial institutions.
Marc Hambach, an assistant director of the Dubai Financial Services Authority and head of its AML department, spoke with reporter Brian Orsak about the process of developing regulations for one of the fast growing financial hubs in the world.
Two of the most stringent of several federal bills meant to increase pressure on Iran would forbid banks from processing transactions indirectly tied to Iranian entities. The bills, H.R.1400 and S.970, jointly called the Iran Counter-Proliferation Act of 2007, would prohibit u-turn transactions.
Bank consultants say they are concerned that the cost of complying with Bank Secrecy Act (BSA) regulations for trade finance transactions could force some banks out of that line of business.
The measure, which names Bank Sepah a financial supporter of illicit weapons proliferation, has the added force of following a U.N. resolution against Iran. That elevates the pressure U.S. allies to follow suit.
The sanctions put pressure on U.S. banks to conduct greater due diligence on correspondent accounts to determine if they are linked to the Middle Eastern nation. That will likely continue a trend of foreign institutions dropping business dealings with the country.