US Treasury warns foreign financial institutions of sanctions risks linked to Iran and China

The US Treasury is drawing a line in the sand for foreign banks doing business with Iran, and two Chinese financial institutions are already feeling the heat.

Treasury Secretary Scott Bessent issued a formal warning on April 15 directed at countries engaging in commerce with Iran, making clear that their financial institutions could face secondary sanctions from the United States. Two Chinese banks have reportedly received direct notifications that sanctions will follow if Iranian financial transactions are identified flowing through their operations.

The enforcement mechanism

The legal muscle behind this move comes from Executive Order 14114, which expanded the Office of Foreign Assets Control’s (OFAC’s) secondary sanctions authority. Secondary sanctions don’t target the sanctioned country directly. They target everyone else who does business with that country.

If a bank in Beijing processes a payment connected to Iranian oil, the US can cut that bank off from the American financial system. It doesn’t matter that the transaction never touched US soil.

A chilling effect already underway

Banks across multiple regions are already adjusting their behavior in response to heightened enforcement signals. Financial institutions in Turkey, China, the UAE, and Central Asia have been delaying or outright refusing payments linked to sanctioned entities.

OFAC’s track record gives these warnings real teeth. The agency fined multiple non-US persons in 2024, including one settlement worth $1.1M specifically for Iran sanction violations.

The risk categories Treasury has identified include maintaining accounts for blocked persons and facilitating transfers of specific items designed to evade detection.

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