The information in this article is current as of 2026-10-06. 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 5, 2026, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) issued a Notice to Foreign Financial Institutions Conducting Business with Iran. The document expressly warns that foreign financial institutions that continue to transact with sanctioned Iranian financial institutions may become subject to sanctions without prior notice and should immediately terminate the relevant activities and relationships. On the same day, OFAC revised Frequently Asked Question No. 156, explaining how, after the U.S. Department of the Treasury makes a determination, it may impose strict conditions on a foreign financial institution's correspondent account or payable-through account in the United States, or prohibit the opening or maintenance of such accounts.

This is not a blanket prohibition on all Iran-related business, nor will a single warning automatically cut off a bank's U.S. dollar clearing. What has changed is that banks must now assess not only whether a particular remittance hits a list, but also whether continuing to serve the relevant customers could jeopardize their own ability to access the U.S. financial system. For Chinese companies, a reduction in risk exposure by their account bank, the suspension of trade finance, or the termination of an account relationship may have a greater impact than the return of a single payment.

I. What the October 5 document changed

The OFAC notice lists recent cases in which banks in multiple jurisdictions outside Hong Kong were subject to measures due to Iran-related activities, and directs its warning at three types of situations: continuing to transact with sanctioned Iranian financial institutions; providing financial services to Iranian banks and their subsidiaries or branches located in third countries; and processing Iranian "shadow banking" funds through front companies, shell companies, and trusted intermediaries. The document also notes that if Iran-related transactions cause U.S. financial institutions or other U.S. persons to violate sanctions, the foreign financial institutions participating in the transactions may also face civil or criminal enforcement risk.

A distinction must be drawn here between a warning, a determination, and a sanctions outcome. Frequently Asked Question No. 155 explains that the U.S. Department of the Treasury must first determine that a foreign financial institution knowingly engaged in one or more sanctionable activities before it may prohibit or restrict the institution from opening or maintaining a correspondent account or payable-through account in the United States. Frequently Asked Question No. 156 further explains that if the Department of the Treasury decides to impose strict conditions, it will set out those conditions by order or regulation and publish them in the Federal Register; if it decides to prohibit the relevant accounts, it will add the foreign financial institution to the List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions, i.e., the CAPTA List.

Accordingly, the October 5 warning expresses enforcement priorities and advance notice of risk; it does not mean that any foreign bank not individually identified has already lost its U.S. accounts. Companies must not describe "may be subject to sanctions" as "has already been sanctioned," and banks must still make judgments based on the specific transaction, customer, and control relationships. However, the document's wording that action "may be taken at any time and without prior notice" will significantly heighten banks' sensitivity to the risk of Iran-related business.

II. Why a correspondent account turns a single transaction into a problem for an entire bank

Foreign banks handling U.S. dollar business generally need to open correspondent accounts with U.S. banks; payable-through accounts may also allow their customers to use the account, directly or indirectly, to complete payments. This is an important channel through which banks connect to U.S. dollar clearing and U.S. financial markets.

When the U.S. Department of the Treasury restricts a foreign bank's use of such accounts, the transactions that triggered the investigation are not the only ones affected. Strict conditions may increase review, reporting, and transaction restrictions; a prohibition on maintaining accounts may cut off an important U.S. dollar gateway. Other correspondent banks may also adjust their relationships. As a result, banks may apply standards more conservative than the legal minimum.

This also explains why companies may still encounter refusals even after switching to RMB, euros, or dirhams. Non-U.S. dollar settlement may reduce specific U.S. connection points, but it does not automatically eliminate the bank's own risk of secondary sanctions, of being alleged to support sanctioned industries, or of losing its U.S. correspondent account. Cross-currency, cross-jurisdictional banking groups will also consider unified policies, reputation, anti-money laundering obligations, and future financing capacity. Currency is only one variable in the payment path and cannot replace review of transaction legality and commercial background.

III. Companies and banks face two interconnected sets of risks

Enterprises must determine whether the counterparty and its ultimate beneficial owners are designated or caught by the 50% rule; whether the goods, services, end users and industry fall within the relevant authorizations; whether the transaction has any US nexus, such as US persons, processing within the United States or US-dollar clearing; and whether non-US entities face secondary sanctions risk for knowingly engaging in significant transactions.

Banks must also assess whether the customer repeatedly shows Iran-related connections, whether it uses third parties unrelated to the contract, whether funds pass through high-risk nodes, and whether continuing to provide services would affect correspondent banking relationships. What the bank faces is not an isolated order but the overall risk of a cross-border clearing network.

The two sets of determinations must not be conflated. A bank's refusal to pay does not automatically prove that the customer has violated the law; conversely, a legal opinion concluding that a transaction is not prohibited does not mean the bank is obliged to process it. When a dispute arises, the enterprise should first ascertain the status of the funds and the reason for refusal: whether the funds have been blocked pursuant to law or the payment instruction has been rejected; whether the bank is investigating or has already decided to exit the customer relationship; and whether what is missing is a sanctions license, end-user materials, beneficial ownership information, or an explanation for the inconsistency between the payer and the contracting party. The different statuses determine whether supplementary documents can be submitted, the instruction withdrawn, another bank used, or appeal proceedings initiated.

IV. Three Transmission Points That Chinese Enterprises Easily Overlook

The first transmission point is third-country banks. There may be no Iranian entity in the contract, yet the receiving bank may provide services to an overseas branch or subsidiary of an Iranian bank or to its funds network. The new OFAC notice has already incorporated "third-country branches or subsidiaries" into its risk description. Checking only the payee's name cannot cover the bank and beneficial funds relationships.

The second transmission point is third-party payment on behalf of the buyer. Where the contractual buyer is unable to remit funds, payment by an affiliate, agent or another trader is not uncommon commercially. However, a mismatch between payer and buyer, vague payment references, split amounts and short-term multi-layer transfers are also typical signals by which banks identify shadow banking networks. Payment by a third party is not inherently unlawful; however, absent coherent evidence of the agency relationship, the underlying debt, the source of funds and the accounting treatment, normal trade becomes difficult to distinguish from circumvention arrangements.

The third transmission point is existing credit facilities. Enterprises often focus on the current payment for goods, whereas banks may focus on letters of credit, guarantees, trade finance, cash management and group credit facilities. If a high-risk transaction triggers a customer reassessment, the consequences may extend to credit renewal, utilization of limits or maintenance of accounts. If the contract only provides that "the account shall be changed if remittance fails," it cannot address withdrawal of financing, suspension of shipment and disposal of existing goods.

V. What Evidence Should Payment Reviews Retain

Enterprises can convert bank inquiries into a transaction file. Entity materials should cover shareholders, ultimate beneficial owners, control arrangements and authorized signatories, and record the date of list screening, database version, aliases and identifying information. For complex equity structures, the calculation process under the 50% rule should also be retained.

Business materials should describe the goods or services, the delivery recipient and the place of use. Orders, invoices, bills of lading, customs declaration materials, end-user statements and product specifications should all point to the same transaction. If an intermediary cannot disclose the end user, the reasons, alternative verification and the basis for continuing the transaction should be recorded.

Funds materials should map the relationships among the payer, contractual buyer, issuing bank, advising bank, intermediary bank, receiving bank and ultimate payee. In the case of third-party payment or a change of account, written authorization, the affiliate relationship, the original debt, the source of funds and refund arrangements should be obtained before payment, and the bank should confirm its documentation requirements. Do not successively change accounts, currencies or amounts after a payment is blocked; doing so may cause an otherwise explainable transaction to exhibit circumvention characteristics.

Decision-making materials are equally important. Who identified the Iran connection, who decided to conduct supplementary investigation, which facts the external opinion was based on, and what conditions must be met before funds may be released or goods shipped should all be documented. The significance lies not only in responding to regulatory or bank inquiries, but also in demonstrating, in the event of returned remittances, delayed delivery or contract termination, whether a party disclosed promptly and reasonably mitigated losses.

VI. How Contracts Should Address Bank Relationship Risks

Sanctions clauses cannot simply state that "both parties shall comply with applicable laws." For transactions involving Iran, high-risk financial institutions, or the possibility of third-party payment, the parties may separately agree on information, suspension, substitute performance, and exit mechanisms.

Information clauses should require the counterparty to continuously disclose material changes in beneficial owners, end users, end uses, payers, and bank routing, and should authorize the other party to reasonably provide transaction materials for bank compliance purposes. Disclosure obligations should match the information actually controlled by the parties, avoiding requiring one party to provide an unlimited warranty regarding global sanctions.

Suspension clauses should set verifiable trigger conditions, such as additions to lists, written bank inquiries, restrictions on correspondent accounts, or ownership doubts with factual basis, and should provide for deadlines for supplementary documents, custody of goods, allocation of costs, and procedures for resuming performance. Merely allowing one party to suspend indefinitely on the grounds of "sanctions risk" can easily turn a compliance clause into a tool for refusing payment.

Substitute payment cannot become the default answer. Before changing the currency, bank, or payer, the parties should re-examine the applicable law and bank routing and ensure that the contract, invoices, payment instructions, and accounting records remain consistent. If performance is impossible through any compliance-acceptable channel, the contract needs to address termination, refund of advance payments, delivered goods, retention of title, release of guarantees, and exchange-rate and cost losses.

VII. How This New Warning Differs from the Previous Industry Sanctions Article

The article published on October 2 discussed transaction review after the Iranian automotive and railway industries were included in Executive Order 13902, focusing on lists, the 50% rule, end users, cargo flows, and industry activities. The new document of October 5 shifts the observation point to foreign financial institutions: why a bank may face correspondent account or payable-through account measures for providing services to sanctioned Iranian banks and their third-country networks.

The previous article assessed whether a transaction supports a sanctioned entity or industry; this article assesses whether a bank is willing to bear institution-level consequences. Even if an enterprise has a defensible conclusion on the former layer, the latter layer may still determine whether payment, financing, and accounts can continue. Practical review should place goods, contracts, entities, and clearing channels in the same transaction map.

Conclusion

OFAC's October 5 notice does not yet classify all Iran-related banking business as prohibited, nor does it replace legal analysis of specific transactions and specific institutions. The enforcement signal it sends is nonetheless clear: measures against foreign financial institutions can fall on their channels for accessing the U.S. financial system, and banks will therefore shift from reviewing a single payment to reviewing the entire customer relationship and correspondent network.

What Chinese enterprises need to guard against is not only payments being returned in transit. What needs to be addressed in advance is whether transaction materials can prove genuine trade, whether third-party payments can be explained, whether bank routing involves sanctioned institutions, and whether contracts can withstand account exit and financing interruption. Only by resolving these issues before signing, shipping, and payment is there an opportunity to prevent single-transaction risks from being transmitted to the enterprise's accounts and credit lines.

Main Reference Materials

The information in this article was verified as of October 6, 2026. This article is provided for general information sharing only and does not constitute PRC law, U.S. sanctions, export control, anti-money laundering, tax or banking compliance advice on any specific matter. Statements in OFAC documents concerning particular institutions and conduct are public determinations or allegations of U.S. regulatory authorities, and this article does not make any independent factual findings. Specific transactions should be reviewed in light of the parties, ultimate beneficial owners, goods and services, fund flows, jurisdictional nexuses, and the licenses, exceptions and bank policies in effect at the relevant time.