Treasury Expands Operation Economic Outcast Toolbox With Focus On Foreign Financial Institutions

What to Know

• Treasury’s Operation Economic Outcast now targets foreign banks, digital-asset platforms and shadow-banking networks that help Iran reach the financial system.
• OFAC’s October 5 alert warns that foreign financial institutions dealing with sanctioned Iranian banks can be targeted at any time without notice.
• Companies must screen every party in a transaction, since FinCEN actions can cut off US correspondent banking access without an SDN designation.

Six weeks into Operation Economic Outcast, the Treasury Department is showing that its threat to apply secondary sanctions to foreign financial institutions (FFIs) that continue to do business with Iran or its financial sector was not an empty one. On October 5, Treasury’s Office of Foreign Assets Control (OFAC) issued an alert warning that FFIs continuing to transact with sanctioned Iranian financial institutions could be targeted at any time without advance notification and should take immediate action to terminate such activity and relationships. And we have already seen a significant number of these designations, or similar measures taken under Operation Economic Outcast, targeting FFIs, the shadow-banking network, and other financial infrastructure entities.

Together, these actions demonstrate the administration’s willingness to employ a variety of punitive measures in its effort to isolate the Iranian economy, combining actions by both OFAC and the Financial Crimes Enforcement Network (FinCEN) and use of blocking sanctions, FinCEN prohibitions, and criminal designations. The below survey of punitive actions to date against financial sector entities reveals areas of risk to which any company operating in international financial markets must be attuned. Broadly, the actions fall into three categories:

1. OFAC secondary sanctions on foreign banks and digital-asset platforms for providing financial services to Iranian institutions.
2. FinCEN prohibitions on US financial institutions maintaining correspondent accounts for certain foreign banks.
3. Combinations of criminal or other OFAC sanctions programs with Iranian sanctions under Executive Order 13902.

Below we discuss the significance of each of these types of actions, and list all actions in chart form at the end of the alert for ease of reference. We also explain what actually happens when one of these actions is taken, which companies should factor into their diligence protocols.

Category 1: OFAC Secondary Sanctions on Foreign Banks and Digital-Asset Platforms

OFAC has continued to use sanctions conventionally as demonstrated in a series of nine financial-sector designations across Turkey, the UAE, Lebanon, Russia, and Iran. These designations illustrate that Treasury is not just looking at banks, but also exchange houses, digital-asset platforms, and other intermediaries that facilitate illicit transactions. For these types of entities outside the United States, Iran-risk cannot be assessed simply by screening for direct dealings with Iranian SDNs; companies must conduct a thorough review of every party in the transaction.

Category 2: FinCEN Section 311 Action

As Bracewell reported in our last update in this space, FinCEN proposed action under Section 311 of the USA PATRIOT Act against Banque Misr UAE, one of the largest banks in Egypt, that would revoke its correspondent banking access to US institutions based on allegations that the bank is a critical node for the Iranian regime’s access to US dollars.

This involvement of FinCEN and use of Section 311 demonstrates that Operation Economic Outcast is not confined solely to sanctions authority. Rather, Treasury can open its arsenal and use financial-access restrictions to isolate institutions it believes are providing support to Iran. It also demonstrates that an institution need not necessarily become an SDN for Iran-related activity to jeopardize its ability to maintain correspondent relationships or transact through the US financial system.

Category 3: Combinations of Criminal and Iran Sanctions – Treasury Moves Into Iran’s Shadow-Banking Infrastructure

The third category reaches beyond traditional financial institutions altogether and into the infrastructure used to disguise and move illicit funds through the international financial system. On October 1, Treasury took what it described as “unprecedented action” against the A7 Network, a Russian-linked shadow-banking network used by Iran to evade sanctions. OFAC designated A7 as a “significant” transnational criminal organization (TCO), while FinCEN proposed a rule that would prohibit certain transmittals of funds involving A7’s network of Sub-Agents.

Treasury described the Sub-Agents as a constellation of companies based in third-country jurisdictions that form a core layer of the network’s operational architecture and are designed to receive and remit payments while making sanctioned or illicit transactions appear to be ordinary commercial activity. According to Treasury, the network has used falsified trade documents, import-export records, and misleading goods descriptions to obscure the true nature of payments.

Importantly, while the proposed rulemaking was issued pursuant to section 9714(a) of the Combating Russian Money Laundering Act, the true targets are the pathways created for the Central Bank of Iran, the Islamic Revolutionary Guard Corps, and Iran-backed terrorist organizations. FinCEN identified more than $17 billion in transactions processed by A7 Sub-Agents between January 2025 and June 2026.

For financial institutions, this makes the compliance challenge broader than screening names alone: institutions must identify the structures and intermediaries that allow sanctioned funds to move under the appearance of legitimate trade.

What Happens When Treasury Takes Measures Against an FFI?

If Treasury finds that an FFI knowingly engages in one or more sanctioned activities, as described in FAQ 155, and decides to impose strict condition(s), it will issue an order or a regulation that sets out the strict condition(s) to be imposed on the US correspondent accounts or US payable-through accounts of the relevant FFI, and will publish the order or regulation in the Federal Register. If Treasury decides to prohibit the opening or maintaining of US correspondent accounts or US payable-through accounts for an FFI, it will add the FFI to the List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (CAPTA List). Entities should ensure that existing and potential counterparties are not on these lists before engaging in financial transactions. Failing to do so could create secondary sanctions risk.

Takeaways

While Treasury is by no means abandoning traditional sanctions against conventional financial institutions, its expansion to a broader campaign combining blocking sanctions, restrictions on access to US correspondent banking, and designations aimed at the shadow financial infrastructure demonstrates its intent to pursue its goal of economic isolation in a variety of ways.

For banks and other financial intermediaries, the emerging lesson is far broader than “do not transact with designated Iranian banks.” Institutions must instead be asking whether they are providing the correspondent access, exchange services, digital-asset infrastructure, or other financial facilitation through which Iran, or the networks acting for it, continues to reach the global financial system.

Bracewell is ready to assist clients in navigating this rapidly evolving sanctions landscape.