International Law Advisory - Future Bank B.S.C. Designated for Iranian Proliferation Activities via Bank Melli’s Control

On March 12, 2008, the US Department of the Treasury, Office of Foreign Assets Control (“OFAC”) designated Future Bank B.S.C. for being controlled by Iran 's Bank Melli, which was previously designated by OFAC for facilitating Iran 's nuclear proliferation and weapons of mass destruction (“NPWMD”) activities.  Consequently, US persons may not procure goods, services, or technology from, or engage in transactions with, Future Bank or Bank Melli (including through a third-party intermediary).

Future Bank has now been listed on OFAC’s Specially Designated Nationals list pursuant to Executive Order (“E.O.”) 13382, which seeks to block the assets of designated NPWMD proliferators and their supporters, as well as to deny them access to the US financial system.  OFAC specifically designated Bank Melli on October 25, 2007 under the same authority for providing, or attempting to provide, financial support for entities involved in Iran 's nuclear and missile programs.  As justification for Future Bank’s designation, OFAC cited publicly available information that Bank Melli controls Future Bank, even though Bank Melli does not hold a majority share.  Future Bank purportedly was established in 2004 as a joint venture between two Iranian banks, Bank Melli and Bank Saderat, and a private bank based in Bahrain .  According to OFAC, Bank Melli and Bank Saderat each hold 33.3 percent of Future Bank's outstanding shares, and at the time of designation, Bank Melli and Future Bank publicly identify the same individual as chairman of both institutions. (OFAC has also previously designated Bank Saderat pursuant to E.O. 13224 for providing support to designated terrorist organizations Hizballah and Hamas.)

Interestingly, this designation appears to flow from OFAC’s recent guidance on February 14, 2008 regarding entities owned by persons whose property and interests in property are blocked.  This guidance stated that a “blocked person” is considered to have an interest in all property and interests in property of an entity in which it owns, directly or indirectly, a 50 percent or greater interest.  In other words, if a person knows that a designated entity owns or controls 50 percent or more of an interest in a third entity, that third entity should also be considered a blocked person.  Additionally, this guidance provided that US persons should exercise caution when considering a transaction with a non-blocked entity in which a blocked person has a significant ownership interest that is less than 50 percent or which a blocked person may control by means other than a majority ownership interest.  It therefore appears that OFAC has designated Future Bank in accordance with this lower ownership threshold held by Bank Melli based upon a theory of joint management control by the same chairman.  Consequently, all U.S. persons need to be careful dealing with similar types of minority-controlled entities like Future Bank because they could be subject to future designations by OFAC.

Furthermore, OFAC stated that this designation was consistent with United Nations Security Council Resolution (“UNSCR”) 1803 of March 3, 2008, which calls upon Member States to "exercise vigilance" with regard to activities between financial institutions in their countries and all banks domiciled in Iran, including Bank Melli and Bank Saderat.  UNSCR 1803 specifically requests Member States to take such action in order to avoid these activities contributing to either proliferation sensitive nuclear activities or the development of nuclear weapons systems, as referred to in UNSCR 1737.  Therefore, OFAC’s transaction prohibitions imposed on Future Bank also could be viewed as flowing from a mandate promulgated by multilateral sanctions.

The identifying information for Future Bank B.S.C. is as follows:  Addresses: P.O. Box 785, City Centre Building, Government Avenue, Manama, Bahrain Block 304, City Centre Building, Building 199, Government Avenue, Road 383, Manama, Bahrain All branches worldwide.

Should you have any questions about this development, please contact Jack Hayes at 202.429.6491 or Ed Krauland at 202.429.8083 in Washington , DC .