By Samuel Rubenfeld 

U.S. sanctions intended to squeeze an Iranian paramilitary force may have unintended consequences for humanitarian efforts in the country because of its targeting of a bank, lawyers and analysts say.

They also could signal a harder-line approach toward Iran as the U.S. prepares to restore the final tranche of its sanctions lifted following the 2015 nuclear accord that target key economic engines, such as oil and petrochemicals. President Donald Trump said in May when exiting the nuclear deal that the sanctions would phase back in over a 180-day period.

The measures announced this week by the U.S. Treasury Department target companies and financial institutions allegedly supporting the Basij militia, a force subordinate to Iran's Islamic Revolutionary Guard Corps, and which the U.S. says recruits child soldiers.

The restrictions, imposed under the Treasury's counterterrorism authority, also were meant to send a warning to companies and governments considering continued dealings with Iran after the restoration of sanctions, senior administration officials told reporters.

But one of the institutions blacklisted this week, Iran's Parsian Bank, is seen as a key conduit for international humanitarian trade with Iran. Observers don't consider it as closely linked to the country's illicit activities as other Iranian financial institutions, and they suggested the sanctions could chill funding for otherwise legal exports to Iran, such as medicine and food.

"This will make it more difficult to get financing for humanitarian projects," said Adam M. Smith, a partner at law firm Gibson Dunn & Crutcher LLP, who previously served as a senior adviser to the director of the Treasury Department's sanctions office. "That makes me very nervous."

Unique to this case is the justification for the sanctions. The companies weren't targeted for their own actions, according to the Treasury's announcement. The decision instead came as a result of an investment firm that profited from investments in Parsian and two other entities. The proceeds from those investments flowed up to the network supporting the Basij, the Treasury said.

"There are eight degrees of derivation between Parsian Bank and the [intended sanctions target], the IRGC," said Erich Ferrari, founder of Ferrari & Associates PC, a boutique law firm focused on representing targets of U.S. sanctions.

The sanctions freeze U.S. assets and bar Americans from conducting transactions with those targeted. A spokesman for the Treasury declined to comment beyond the press release announcing the sanctions.

Parsian Bank didn't respond to an email seeking comment. During the era of heightened sanctions on Iran, Parsian covered "a substantial volume of the humanitarian trade" in goods and services, and imports of food and medicine, the bank says on its website.

Parsian also says it has an established an anti-money-laundering compliance program and that it follows national and international standards. The company has held compliance training for its staff, as well as for other Iranian lenders, "in an effort to promote the proficiency of the personnel within the Iranian banking system," Alireza Alaei, the bank's manager of its international operations, is quoted as saying on the bank's website.

The sanctions this week come ahead of the restoration of restrictions on the Iranian shipping sector, the oil sector and the central bank, scheduled for Nov. 5.

Javad Zarif, Iran's foreign minister, condemned this week's sanctions on Twitter, saying they violate an international court order not to impede humanitarian trade.

"Utter disregard for rule of law & human rights of an entire people," he said, calling the U.S. an "outlaw regime" with an "addiction to sanctions."

One of the likely intended audiences for the sanctions on Parsian Bank was the European signatories to the nuclear deal, according to a note issued by the Eurasia Group, a political risk consultancy firm. The European Union considers Iran's access to humanitarian goods a priority, and European officials likely are outraged by the step against the bank, the note said.

It could motivate European officials further to implement a planned special-purpose vehicle to bypass U.S. sanctions. The mechanism may only be effective for the humanitarian transactions, however, and not for oil or other exports as Tehran hopes, the note said.

Sanctions experts said last month that the vehicle, based on early sketches of its structure, was unlikely to work.

Write to Samuel Rubenfeld at samuel.rubenfeld@wsj.com

(END) Dow Jones Newswires

October 19, 2018 05:44 ET (09:44 GMT)

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