On December 21, 2011, Congress sent to the President legislation to tighten sanctions against Iran. The new sanctions are part of the 2012 National Defense Authorization Act. The legislation, citing Iran’s nuclear technology development activities, targets the Central Bank of Iran (CBI) and other Iranian financial institutions as a way of increasing pressure on Iran’s petroleum sector. The President is expected to sign the bill.

The legislation requires the President to block and prohibit all transactions in property and interests in property of Iranian financial institutions that involve the United States, a US person, or a US financial institution. This requirement, currently applicable only to transactions involving certain designated Iranian banks, will now apply to transactions involving any Iranian bank. The new sanctions also prohibit a foreign financial institution from opening, and restrict the maintenance of, correspondent (or payable-through) bank accounts in the United States if the President determines that the institution has “knowingly conducted or facilitated any significant” transaction with the CBI or another designated Iranian bank.

The restrictions on correspondent (or payable-through) accounts are subject to several exceptions. One exception is that, for foreign central banks and financial institutions controlled by a foreign government, the restrictions will only apply if, on or after the date that is 180 days from the date of the enactment of the legislation, the central banks or institutions engage in transactions related to Iranian purchase or sale of petroleum or petroleum products. Another exception is that, for any foreign bank (whether government-controlled or not), the restrictions will only apply with respect to transactions related to the purchase of Iranian petroleum or petroleum products, and occurring on or after the date that is 180 days from the date of the enactment of the legislation, if the President has determined that world petroleum prices and supply allow foreign purchasers to reduce the volume of petroleum and petroleum product purchases from Iran. Yet another exception is that, if the President determines that the country with primary jurisdiction over the foreign bank has “significantly reduced” the volume of its purchases of Iranian crude oil, then no restrictions on the foreign bank’s correspondent (or payable-through) accounts shall apply. The President must renew these determinations regarding petroleum prices and supply and regarding a country’s purchases of Iranian crude oil every 180 days.

The sanctions also require the President to develop multilateral initiatives that target Iran’s petroleum sector, limit luxury-good sales to Iran from its petroleum customers, and restrict Iran’s access to military, dual-use, chemical weapons, and nuclear technology. The President must also encourage oil-producing countries other than Iran to increase crude oil output. Congress must receive semiannual reports on these initiatives from the President.

The legislation makes general humanitarian exceptions for medicine, food and medical equipment. The bill also allows the President to waive sanctions for renewable periods of up to 120 days if he finds that a waiver is in the interest of US national security, and provides a report to Congress justifying the waiver.

The sanctions build on the Obama Administration’s November 19, 2011 executive order, E.O. 13382, which expanded sanctions against Iran's petroleum sector. Implementing this order, on November 21, 2011, the Secretary of the Treasury identified Iran as a jurisdiction of primary money-laundering concern. Treasury identified the “entire Iranian financial sector; including Iran’s Central Bank, private Iranian banks, and branches and subsidiaries of Iranian banks operating outside of Iran as posing illicit finance risks for the global financial system.” Based on this finding, Treasury’s Financial Crimes Enforcement Network (FinCEN) also issued a Notice of Proposed Rule Making proposing special measures related to Iran.