US sanctions Iranian shadow banking system, warns of Hormuz toll sanctions risk
The US Treasury Department has rolled out sanctions on 35 entities and individuals that oversee Iran’s shadow banking architecture and facilitate Iran’s oil and arms trade, and warned that paying tolls to pass through the Strait of Hormuz risks US sanctions.
“Iran’s shadow banking system serves as a critical financial lifeline for its armed forces, enabling activities that disrupt global trade and fuel violence across the Middle East,” Secretary of the Treasury Scott Bessent said in an April 28 statement.
“Financial institutions are on notice: Any institution that facilitates or engages with these networks is at risk of severe consequences,” Bessent said.
The sanctions aim to disrupt the Iranian government’s mechanism to get payment for oil and other commodities, reducing revenue for Iran’s destabilizing activities, the Treasury’s Office of Foreign Assets Control said in a statement.
Treasury also issued a separate frequently asked questions document saying that payments to the government of Iran or the Islamic Revolutionary Guard Corps for safe passage through the Strait of Hormuz would not be authorized for US persons.
Such transactions would also create significant sanctions exposure for non-US persons, OFAC said. “Specifically, foreign financial institutions and other non-U.S. persons risk exposure to sanctions for engaging in certain transactions or activities involving designated or otherwise blocked persons,” the FAQ said.
And Treasury issued a separate alert warning banks of the sanctions risk of doing business with independent refineries in China, particularly in Shandong Province, that may be importing and refining Iranian oil.
“China purchases approximately 90 percent of Iran’s oil exports, with teapot refineries accounting for the majority of these imports,” Treasury said in an April 28 statement. “This revenue ultimately benefits the Iranian regime, its weapons programs, and its military.”
OFAC has sanctioned five independent refineries in China, most recently issuing sanctions on April 24, requiring entities to wind down transactions with Hengli Petrochemical Refinery by May 24.
The Treasury alert urges financial institutions to implement risk-based controls to avoid facilitating transactions involving designated independent refineries or other refineries that may be importing Iranian oil.
Financial institutions should also conduct enhanced due diligence on transactions involving China-based refineries, particularly in Shandong Province, and clearly communicate sanctions compliance expectations to correspondent banks in China, the statement said.
Beyond refineries, financial institutions should also do enhanced due diligence with other Asia- and Middle East-based entities that may be involved in the Iranian oil supply chain, the alert said, including port terminal operators in Shandong Province and oil cargo inspection and logistics service providers.
“Additionally, financial institutions should be on notice that the department is leveraging the full range of available tools and authorities and is prepared to deploy secondary sanctions against foreign financial institutions that continue to support Iran’s activities,” Treasury said in the statement.
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