The information in this article is current as of 2026-10-02. The rules involved (tariffs, CRS, foreign exchange, customs, tax, etc.) may all be adjusted; when citing or making decisions, please rely on the latest official sources and qualified professional judgment.

On October 1, 2026, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) issued a new determination under Executive Order 13902, bringing the automotive and railway sectors of the Iranian economy within the scope of sanctionable activity, effective that same day. OFAC updated FAQ No. 831 on the same day and added several Iranian and third-country entities to the Specially Designated Nationals and Blocked Persons List (SDN List). The public list includes entities registered in mainland China and Hong Kong.

This change does not mean that every Chinese company transacting with Iran's automotive or railway sectors will automatically become a sanctions target, nor does it mean that banks within China must mechanically apply U.S. law. However, it expands the sectoral boundaries within which OFAC may take designation measures, and it will also change the risk assessments of international banks, insurers, freight forwarders and counterparties. Even where neither the payer nor the payee directly matches the list, a transaction may still be suspended, returned or required to be supplemented with additional materials because of its sector, ownership, end user or intermediary path.

I. What changes have been confirmed

The formal determination issued by OFAC states that Section 1(a)(i) of Executive Order 13902 applies to the automotive and railway sectors of the Iranian economy; any person determined to operate in these sectors may be subject to sanctions under that section. What is used here is an authorization structure of "may be designated," rather than automatically treating all entities in the relevant sectors as SDNs.

The sanctions list update on the same day, by contrast, consists of individual designations that have already taken legal effect. OFAC listed Iranian automobile manufacturers, railway operating entities and their overseas suppliers or affiliates, including entities registered in Shanghai, Beijing and Hong Kong. For these already-listed entities, transactions involving U.S. persons, property within the United States or passing through the United States require identification of blocking obligations under the applicable rules; an entity directly or indirectly owned 50% or more in the aggregate by one or more blocked persons may be treated as blocked under OFAC's "50% rule" even if it does not separately appear on the list.

OFAC also revised FAQ No. 831, reiterating that Iranian and non-Iranian entities may be subject to sanctions if they operate in sectors covered by Executive Order 13902. The FAQ also notes that knowingly engaging in significant transactions involving goods or services related to the relevant sectors may expose a person to blocking sanctions risk; and that a foreign financial institution that knowingly conducts or facilitates a significant financial transaction involving a relevant designated entity may face U.S. correspondent account or payable-through account measures.

Accordingly, companies need to answer three separate categories of questions: whether the transaction touches a person already blocked or an entity in which such persons hold 50% or more; whether the transaction constitutes sectoral activity that may trigger a secondary sanctions assessment; and, even if there is a legally arguable position, whether the participating bank is willing to take on the transaction.

II. Why "no list match" does not mean payment may be made

Traditional list screening compares company names, natural person names, vessels and banks against sanctions databases. This step remains necessary, but it can only identify explicit relationships.

The first category of implicit relationship arises from equity ownership. A counterparty is not listed, but if one or more blocked persons directly or indirectly hold 50% or more of the equity in the aggregate, it may still be treated as blocked. Conversely, the mere holding of a directorship, commercial control or a minority equity interest does not automatically trigger OFAC's 50% rule, but may constitute a risk signal warranting further investigation or designation. Companies should distinguish between "currently blocked" and "may be designated in the future," and must not conflate the two.

The second category of relationship arises from the substance of the business. Components, equipment, software, maintenance, logistics and financing may change hands through Hong Kong, the UAE, Türkiye or other trade nodes, while the contract on its face shows only a third-country buyer. If the end user, the end use of the goods or the beneficiary of the funds is in a sanctioned sector, merely changing the trading entity or the place of settlement does not eliminate the risk. In assessing "significant," OFAC generally considers factors such as the amount and frequency, the nature of the goods or services, management's knowledge, whether designated entities are involved and whether deceptive practices exist, rather than setting a single uniform monetary threshold.

The third type of relationship arises from the payment system. US-dollar payments most readily create a US nexus, but switching to RMB, euros or dirhams does not guarantee that a transaction can be completed. Receiving banks, intermediary banks, clearing arrangements, banking group policies and trade finance institutions may all apply risk standards higher than the legal minimum. A bank may return a payment sometimes because of an explicit prohibition, sometimes because it cannot rule out the risk within a limited time, and sometimes simply because the bank is unwilling to bear the reputational and correspondent banking risks associated with Iran-related business. These situations require different follow-up handling.

III. Applicable law and bank risk management must not be conflated

When analyzing US sanctions, Chinese companies must at a minimum distinguish among US primary sanctions, secondary sanctions and financial institutions' own risk management.

Primary sanctions principally bind US persons, conduct within the United States and transactions with a US nexus. If payment is processed by a US bank, or if a transaction involves US persons, US goods or other elements subject to US jurisdiction, direct compliance obligations become more prominent. Non-US persons must also not cause US persons to violate sanctions or participate in arrangements to evade US sanctions.

Secondary sanctions focus on whether certain non-US persons, even without a traditional US nexus, knowingly engage in specific transactions that US rules deem significant. Under Executive Order 13902, the risk may manifest as being designated oneself, or as restrictions on a foreign financial institution's US correspondent account or payable-through account. Whether standards such as "knowingly" and "significant" are met requires assessment against the complete facts and cannot be concluded merely on the basis of country, currency or product name.

Bank risk management is another layer of judgment within the contractual and account relationship. Financial institutions need to consider applicable law, sanctions lists, anti-money-laundering obligations, group policies and correspondent bank requirements. Even if legal analysis concludes that a transaction does not fall within a prohibited scope, the bank may still require information on end users, equity structure, logistics documents and source of funds, or may even refuse to process it based on internal policy. When communicating with banks, companies should first ascertain whether the bank is verifying a list hit, ownership, industry affiliation, end use of goods, or a lack of transaction evidence, and avoid answering all questions with a single generic "compliance statement."

IV. The fund chain, flow of goods and relationships of control must be placed on a single map

This list update includes entities in multiple jurisdictions, including mainland China, Hong Kong, the UAE, Indonesia, Turkey and Germany. Regardless of whether one accepts the US Department of the Treasury's characterization of the specific facts, this enforcement structure already shows that regulatory investigations will examine manufacturers, overseas suppliers, trading companies, shareholders, bank accounts and ultimate buyers in a connected manner.

Companies cannot retain only the registration certificates of direct customers. A relatively complete transaction review should cover five lines:

  1. Entity and control line: direct shareholders, ultimate beneficial owners, actual control arrangements, directors and authorized signatories, and whether a listed entity holds, directly or indirectly through intermediary companies, 50% or more.
  2. Goods and services line: Product technical parameters, HS codes, country of origin, end use, end users, transshipment arrangements, and their relationship to sectors of concern such as automobiles, railways, manufacturing, and steel.
  3. Funds flow: Whether the payer, payee, issuing bank, advising bank, intermediary bank, factor, and insurer are consistent, and whether there are third-party payments unrelated to the contract, multi-layer transfers, or unusual currency switches.
  4. Documentary flow: Whether the contract, order, invoice, packing list, bill of lading, customs declaration materials, payment remarks, and accounting records provide a consistent description of the same transaction.
  5. Decision-making flow: What verification the enterprise conducted after discovering an Iran connection, a change in end user, or a bank inquiry; who approved continuing the transaction; and what the basis and limiting conditions were.

If payment freezes, returned remittances, suspension of delivery, or contract disputes subsequently arise, these five flows are also important evidence for proving whether the enterprise exercised reasonable review, whether the counterparty breached its representations and warranties, and who should bear the loss.

V. Contract terms must be able to address "risk changes after signing"

A mere statement that "the parties shall comply with applicable sanctions laws" is often insufficient. For transactions that may involve Iran, sectors of concern, or multi-layer transshipment, the contract should at a minimum address the following matters.

First, representations and disclosures. The counterparty should disclose the ultimate beneficial owner, end user, end use, and transshipment route, and undertake not to change the destination of funds or goods through undisclosed third parties. The scope of representations should match the information the enterprise can actually verify, avoiding requiring one party to warrant that all global sanctions are absolutely inapplicable.

Second, ongoing notification and review. Upon changes in lists, equity, control, end users, or bank routes, notice should be given within an agreed period; where a party has reasonable grounds to believe that performance may trigger sanctions or a bank refusal, it may suspend performance and require supplementary materials. The suspension right should be subject to objective trigger conditions and processing periods to prevent abuse as arbitrary refusal to pay.

Third, the allocation of payment failures. It is necessary to agree on who selects the settlement bank and currency, whether delays caused by sanctions screening constitute a breach, whether substitute accounts must undergo re-verification, and how return fees and exchange-rate losses are to be borne. Switching to a third-party account must not be written as the default solution, because an unverified alternative path may increase circumvention risk.

Fourth, exit and disposal of existing positions. If a new designation makes continued performance unlawful or creates unacceptable risk, provisions should be made for suspension, termination, goods already delivered, refund of advance payments, retention of title, and document cooperation mechanisms. Whether licenses, exceptions or humanitarian trade arrangements exist should be determined under the specific rules; contractual sanctions clauses must not be treated as licenses.

VI. What Chinese Enterprises Can Do Now

Enterprises currently conducting Iran-related business, or whose customers, logistics and payment-collection paths involve Middle East trade nodes, can first carry out a targeted review.

At the transaction level, re-screen direct counterparties, end users, beneficial owners and key intermediaries, and verify aliases, registered addresses and registration numbers against the latest lists. For auto parts, rail transit equipment, construction machinery, steel, software and maintenance services, industry classification should not be determined solely by the contract product name; actual end use and the recipient's business should be taken into account.

At the funding level, identify the currency, paying bank, intermediary bank, receiving bank and third-party payment on a transaction-by-transaction basis. For transactions not yet paid, first confirm the information required by the bank; for transactions that have already been suspended or returned, obtain a clear statement of status and distinguish between blocked funds, rejected payments, ongoing compliance review and ordinary operational failure. Without bank confirmation, it is inadvisable to repeatedly change accounts or split payments.

At the governance level, incorporate approval standards for high-risk transactions into internal policies: when enhanced due diligence is required, when external legal advice is required, which red flags must be escalated to management, and how often review conclusions are updated. Only by retaining screening times, database versions, query results and the reasons for judgments can an enterprise prove the information it possessed and the measures it took at the time.

VII. Differences from the Website's Existing Article on the Payment Evidence Chain

A previous article on the website discussed why banks require supplementary materials for cross-border payments, focusing on the consistency of evidence among contracts, tax, foreign exchange and customer due diligence. This article addresses a narrower and deeper scope: how new industry sanctions link lists, equity ownership, end users, secondary sanctions and bank risk appetite, and how contracts should allocate sanctions changes occurring after signing.

Both share subject, transaction, performance and funding materials, but sanctions review must also answer "who ultimately controls, where the goods are ultimately used, whether the transaction supports a sanctioned industry, and whether payment benefits a blocked person." This part cannot be replaced by general authenticity materials.

Conclusion

The industry determination and individual designations made by OFAC on October 1 have taken effect, but enterprise risk cannot be directly inferred from "trading with Iran" as "necessarily unlawful," nor can "the name is not on the list" be used to infer that "payment and receipt are safe." The accurate approach is to assess legal jurisdiction, lists and ownership, industry activity, funding paths and bank policies separately, and then incorporate them into the transaction decision.

For Chinese companies, what truly affects performance is often not an abstract prohibition, but an intermediary bank's refusal to process, an end user that cannot be verified, third-party payment on behalf of another party that lacks explanation, or a contract that leaves no mechanism for suspension and exit when risks change. Addressing these issues before shipment and payment costs far less than supplementing evidence after funds are already stuck in transit.

Main reference materials

The information in this article was verified as of October 2, 2026. This article is provided for general information sharing only and does not constitute Chinese law, U.S. sanctions, export control, tax or bank compliance advice on any specific matter. Statements in U.S. Department of the Treasury press releases concerning specific entities and conduct are public determinations or allegations of U.S. regulatory authorities, and this article does not make independent factual findings. Specific transactions should be reviewed in light of the parties, goods, end use, fund paths, jurisdictional nexuses and the license or exception rules in effect at the relevant time.