Too Big To Sanction? OFAC And FinCEN Risks For Foreign Financial Institutions

Highlights

• The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) has again designated VTB Bank Public Joint Stock Company (VTB), one of Russia's largest financial institutions, this time for its involvement in Iranian sanctions evasion under Executive Order 13902.
• Although designating a bank to the OFAC Specially Designated Nationals (SDN) and Blocked Persons List will effectively cut off its access to the global financial system, it can also threaten depositor access, disrupt innocent businesses and necessitate immediate government intervention to stem the economic damage to a country or region.
• Short of an SDN designation, there are numerous other tools in the U.S. regulatory toolbox to stop foreign financial institutions from engaging in sanctions evasion, including sectoral sanctions, limited restrictions, secondary sanctions, special measures imposed by the Treasury Department's Financial Crimes Enforcement Network (FinCEN) and civil enforcement.
• These OFAC and FinCEN tools are powerful mechanisms to deter illicit conduct, and sometimes the mere threat of sanctions can drive behavior change. The Treasury Department noted that it was meeting with global financial institutions to provide information to help them identify and close relevant revenue and procurement networks tied to the Iranian regime, and on September 16, 2026, FinCEN led an exchange with global financial institutions to advance Operation Economic Outcast, the administration's broad initiative to sever the remaining economic lifelines sustaining the Iranian regime.

The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) on September 14, 2026, again designated VTB Bank Public Joint Stock Co. (VTB), one of Russia's largest financial institutions, this time for its involvement in Iranian sanctions evasion. VTB was already on OFAC Specially Designated Nationals (SDN) and Blocked Persons List, having been previously designated in February 2022 under OFAC's Russia sanctions.

The action was taken under the Treasury Department's Operation Economic Outcast, the administration's broad initiative to sever the remaining economic lifelines sustaining the Iranian regime. Although initially dubbed as "Economic D-Day," the sanctions implemented thus far are more limited in scope than the maximum pressure campaign initiated by the Trump Administration in 2025.

Redesignating VTB raised immediate questions about the tools that may be used to target other large foreign financial institutions (FFIs) responsible for sustaining the Iranian regime's ties to the global financial system and whether the U.S. has reached a critical moment in which such efforts may backfire, ultimately diverting more traffic to channels for illicit activity that exist beyond the reach of U.S. regulators.

Targeting Options

The U.S. can exert an extraordinary amount of economic pressure on a target or jurisdiction, typically by prohibiting U.S. persons from engaging in any transaction or dealing with a specified jurisdiction or designated actor pursuant to dozens of OFAC sanctions authorities. Designating a bank to OFAC's SDN List can have swift and severe consequences for the institution, as well as its customers and counterparties, as any account held or transaction processed by that institution must also be "blocked" by U.S. persons unless authorized by OFAC.

Although designating a bank will effectively cut off its access to the global financial system, it can also threaten depositor access, disrupt innocent businesses and necessitate immediate government intervention to stem the economic damage to a country or region. In recent years, most of the financial institutions designated by OFAC have already been severed from the broader global economy – typically as a result of geopolitical events and gradually increasing sanctions pressure designed to maximize impact and minimize collateral damage.

However, not all sanctions are created the same. Beyond the standard imposition of blocking sanctions associated with an SDN designation, there are several types of overlapping measures that the Treasury Department may impose to combat illicit activities by an FFI:

• Sectoral Sanctions. The U.S. government has authorized the imposition of sanctions on the financial or financial services sector of several countries, including Russia, Iran and Venezuela. These sanctions are not automatic but rather authorize OFAC to impose sanctions on entities subsequently determined to be a part of the sector without the need for evidence establishing that they engaged in any specified conduct or activity. These types of sectoral measures provide a nimbler targeting tool that can be scaled up quickly in response to a particular foreign policy or national security challenge. VTB Bank was designated pursuant to Executive Order (EO) 13902 for operating in the financial sector of the Iranian economy.
• Limited Restrictions. Short of a full blocking, OFAC may also impose more limited restrictions designed to reduce funding or resources for foreign banks. Following Russia's initial invasion into Crimea in 2014, the U.S. imposed limited restrictions on U.S. persons dealing in or financing new debt over a certain tenor for identified institutions. These restrictions were eclipsed by blocking measures imposed on Russia's financial services sector after its invasion of Ukraine in 2022.
• CAPTA Sanctions. Correspondent Account or Payable Through Account (CAPTA) sanctions are a distinct category of measures targeting FFIs by restricting their access to the U.S. banking system. A correspondent account is an account maintained by a U.S. financial institution for an FFI to receive deposits, make payments or handle other financial transactions. A payable-through account is a correspondent account through which an FFI permits its own customers to engage, either directly or through a subaccount, in banking activities connected to their activities in the U.S. By cutting off this access, CAPTA sanctions effectively prevent an FFI from clearing dollar-denominated transactions and accessing the U.S. financial system.
• Secondary Sanctions. The U.S. government may use secondary sanctions to target non-U.S. persons for engaging in specified activities with sanctioned parties, even when those activities have no direct ties to the U.S. Such measures may range from CAPTA restrictions to the imposition of blocking measures. FFIs that deal with any SDNs designated pursuant to OFAC's Russia sanctions or Iran-related EO 13902 may face secondary sanctions exposure, including designation to the SDN List.
• FinCEN 311 Measures. OFAC's sibling agency, the Financial Crimes Enforcement Network (FinCEN), has continued to make aggressive use of its authority under Section 311 of the USA PATRIOT Act to designate foreign jurisdictions, financial institutions, classes of transactions or types of accounts as being a "primary money laundering concern." FinCEN also may impose "special measures," including prohibiting U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for or on behalf of a designated entity. On August 28, 2026, FinCEN issued a Notice of Proposed Rulemaking, finding that five United Arab Emirates (UAE)-based branches of Banque Misr (collectively, Banque Misr UAE) are a primary money laundering concern due to their alleged role in facilitating sanctions evasion and proposing special measures that prohibit U.S. financial institutions from opening or maintaining correspondent accounts for or on their behalf.

These nuanced tools are critical, as they give U.S. policymakers the opportunity to increase or decrease sanctions pressure in response to changing behavior. U.S. pressure campaigns can deter sanctionable conduct, but the most robust prohibitions can also create channels for illicit activity that take place entirely outside of U.S. jurisdiction. As the number of sanctioned parties and banks increases, so too does their ability to transact independent of the U.S. financial system.

Enforcement Risks

FFIs may also be liable for violating sanctions. OFAC's regulations generally prohibit all transactions by U.S. persons or within (or transiting) the U.S. that involve any property or interests in property of blocked persons, and all property and interests in property of blocked persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. Non-U.S. persons, including banks, may violate OFAC sanctions by causing a U.S. person, such as a financial institution, to process violative transactions. Sanctions violations can result in criminal or civil liability, and OFAC may impose civil penalties of up to $377,700 per violation or twice the amount of the transaction for most sanctions violations. OFAC's 10-year statute of limitations and strict liability standard increases the risk for FFIs, and multiple FFIs have paid significant penalties to OFAC. 

The U.S. is still the dominant player in global financial markets, and its tools of economic pressure can change behavior at a global scale. U.S. regulators often attempt to share information regarding typologies and examples of sanctions violations to help FFIs ensure compliance and avoid potential penalties. On September 16, 2026, FinCEN led an exchange with global financial institutions to advance Operation Economic Outcast, sharing information that FFIs will need to shut down revenue streams and procurement networks tied to the Iranian regime.

FinCEN has also reminded financial institutions that they may face potential exposure to whistleblower claims centered on alleged sanctions violations. As part of Operation Economic Outcast, FinCEN recently issued a bulletin with numerous examples of illicit finance schemes pertaining to Iranian sanctions violations, welcoming tips from both U.S. and non-U.S. whistleblowers regarding violations of U.S. anti-money laundering laws or OFAC sanctions.

Potential whistleblowers – and financial institutions seeking to enhance their transaction monitoring and Suspicious Activity Report investigations – also have plentiful additional guidance regarding red flags for Iranian sanctions violations. Since May 2025, FinCEN has issued three related advisories on Iranian Procurement Efforts for its Commercial Aviation Industry; Oil Smuggling, Shadow Banking and Weapons Procurement by the Iranian regime; and Front Companies, Financial Facilitators and Digital Assets Infrastructure connected to Iran's Islamic Revolutionary Guard Corps.

Financial institutions and other businesses must have procedures in place to swiftly investigate and remediate when appropriate any internal reports of possible sanctions violations, including potential self-reporting to the government.