What Are Secondary Sanctions on Iran? Operation Economic Outcast and the EU Blocking Statute

What are secondary sanctions on Iran? They are US measures aimed not at Americans but at foreign companies and banks that keep doing business with Iran, and they punish those outsiders by cutting them off from the US market and the US dollar rather than by fining them. On 24 August 2026 the US Treasury made them the centrepiece of Operation Economic Outcast, designating nearly 60 companies, individuals and vessels across more than a dozen jurisdictions and extending sanctions exposure into five new sectors of Iran's economy. Four days later FinCEN proposed to cut Banque Misr UAE out of the American correspondent banking system altogether. For European and British businesses the problem is sharper still, because EU and UK law forbids them, in principle, from complying with the very US rules now being tightened. This analysis explains how secondary sanctions work, what changed in the last ten days of August, how the US enforces them, and how the EU and UK blocking rules collide with them.

What are secondary sanctions on Iran, and how do they differ from primary sanctions?

Secondary sanctions on Iran are penalties the United States threatens against non-US persons for dealings with Iran that have no US connection at all. Primary sanctions, by contrast, bind US persons, US territory and US-origin goods, and a breach is a violation of US law that can be fined or prosecuted. Secondary sanctions do not make the foreign company's conduct illegal in any court; they make it expensive, because Washington can respond by adding the company to the Specially Designated Nationals list, freezing whatever it holds within US reach, or telling US banks to close its accounts.

The clearest statutory example is the financial sector provision in 22 U.S.C. 8513a, which requires the President to prohibit, or impose strict conditions on, the US correspondent or payable-through account of any foreign financial institution that has knowingly conducted or facilitated a significant financial transaction with the Central Bank of Iran or another designated Iranian bank. For an international bank that clears dollars, losing that account is close to losing the ability to operate. That is why advisers describe secondary sanctions as a choice imposed on the rest of the world: the US market or Iran, not both. Firms weighing that choice usually start with specialist OFAC sanctions advisers.

Feature	Primary sanctions	Secondary sanctions
Who is bound	US persons, anyone in the US, US-origin goods and dollar transfers through the US	Non-US persons with no US nexus
Legal character	A prohibition; breach is a violation of US law	A threat of consequences; the conduct itself is not a US offence
Typical consequence	Civil penalties, criminal prosecution	Designation, asset blocking, loss of US correspondent accounts
Main Iran authorities	IEEPA and the Iranian Transactions and Sanctions Regulations	Executive Orders such as 13902, statutes such as 22 U.S.C. 8513a
Who decides	OFAC enforcement, Department of Justice	Treasury and State designation decisions

What Operation Economic Outcast changed on 24 August 2026

Operation Economic Outcast is a Treasury-led campaign, announced by Secretary Scott Bessent on 24 August 2026, that combines a large batch of designations with a formal widening of secondary sanctions risk. Treasury said it had mapped the networks Iran uses to smuggle oil, evade sanctions and fund terrorism, and it relied on a long list of authorities, including Executive Orders 13902, 13382, 13224, 13694, 13553, 14078 and 13606. The White House fact sheet described the aim as severing every economic lifeline that sustains the regime.

The designations reached well beyond Iran. According to a country-by-country breakdown by Al Jazeera, targets included Iran's Ministry of Intelligence and Security and its defence logistics ministry, around a dozen Hong Kong companies, several mainland Chinese logistics and technology firms, Singapore shipping and chartering companies, a Malaysian trader, a UK company (Estanica Trading Ltd), a French refiner (La Nivernaise de Raffinage SAS), a Marshall Islands shipowner and two Greek individuals. The same report noted that no Chinese financial institutions were designated, despite their role in Iran's oil trade.

Treasury also suspended several general licences. Sullivan & Cromwell's client memo identifies five: the authorisations at 31 CFR 560.544, 560.550 and 560.554 and Iran General Licences F and G, which covered personal remittances, educational exchanges, conferences, sports and academic cooperation. A wind-down period runs until 8 September 2026. In his remarks, Bessent said the measures broaden secondary sanctions risk for anyone who continues to do business with the regime, that every country has a defined timeline to shut down activities Treasury has identified, and that Treasury will otherwise act unilaterally. He added that "the clock is ticking".

The five sectors: digital assets, technology, gold, aviation and shipping

The most consequential legal step was not any single designation but five new sectoral determinations under Executive Order 13902, which put the digital assets, technology, gold, aviation and shipping sectors of Iran's economy on the same footing as the sectors already covered. Once a sector is determined, OFAC may designate any person, anywhere, found to operate in it, or to have knowingly engaged in a significant transaction for goods or services used in connection with it. As Sullivan & Cromwell puts it, exposure attaches regardless of location.

In practical terms the determinations turn ordinary commercial roles into designation risk. A crypto exchange that processes Iranian flows, a technology distributor supplying Iranian end users through a third country, a refiner or trader of Iranian-origin gold, an aircraft parts broker and a ship manager or charterer servicing Iranian cargoes are all now within the zone Treasury has marked out. Those who supply controlled items face a second layer of exposure under US export rules, which is why export control specialists are usually brought in alongside sanctions counsel.

The shipping determination matters most for the many European, Greek and Asian businesses that own, manage, insure or finance tankers. It sits on top of the EU's own ban, in force since 1 January 2026, on professional services to Iranian oil tankers, so a single voyage can engage several regimes at once. For companies in these sectors the key question is no longer whether a transaction involves a listed person, but whether the company is itself "operating in" a sector Treasury has named.

Why foreign banks are in the front line

Foreign banks are the primary target of secondary sanctions because the US dollar clearing system is the lever Washington controls. Treasury's announcement warned that a foreign financial institution that knowingly conducts or facilitates any significant transaction on behalf of a designated person risks having its US correspondent or payable-through accounts prohibited or made subject to strict conditions. Bessent went further, saying that every Bank Melli branch must be shuttered and that any entity facilitating money laundering on Iran's behalf will be removed from the US dollar system.

The threat is credible because the statutory machinery already exists. The financial sector statute removes much of the discretion: where the President determines that a foreign bank has knowingly handled a significant transaction with a designated Iranian bank, the correspondent account consequences follow. The statute also contains an exception for transactions in agricultural commodities, food, medicine and medical devices, which remains important for humanitarian trade.

For a bank outside the US, the consequence is not a fine but a commercial cliff edge, and the likely effect is that correspondent banks will reassess relationships well before any formal decision. A sensible compliance response starts with a review of nested correspondent relationships, trade finance books and exchange-house clients, and with banking and finance lawyers checking the Iran-related clauses in facility agreements and correspondent contracts.

Banque Misr UAE and the section 311 proposal

On 28 August 2026 FinCEN found Banque Misr UAE, the United Arab Emirates branches of Egypt's state-owned Banque Misr, to be a financial institution operating outside the US of primary money laundering concern under section 311 of the USA PATRIOT Act. Treasury estimated that between January 2024 and June 2026 the branches processed about $1.8 billion for 103 companies that are potentially part of Iranian shadow banking networks. OFAC designated the general manager of Bank Melli's Dubai branch and a Hong Kong trading company on the same day.

The notice of proposed rulemaking, published in the Federal Register on 1 September 2026, concerns five UAE-based branches with an estimated USD 6 billion in assets and three direct US correspondent accounts. The proposed special measure would bar US banks from opening or maintaining correspondent accounts for Banque Misr UAE, require them to take reasonable steps not to process transactions involving it through other foreign banks' accounts, and require special due diligence. Comments are due on or before 1 October 2026.

The reactions show how the tool works in practice. According to Al Jazeera, the Central Bank of Egypt said the measure was limited to Banque Misr UAE's dollar transactions with correspondent banks and did not affect any other Egyptian bank, while the UAE Central Bank announced a special and urgent examination of the branches. A section 311 action does not freeze assets, but by cutting off dollar access it can be as damaging as a designation. Businesses banking in the Gulf will want advisers in the UAE to check whether their own payment chains run through the affected branches. Cross-border disputes involving Gulf banks are nothing new, as the English court's ruling on Emirates NBD's bankruptcy claim showed in June.

Which businesses and countries are most exposed?

The businesses most exposed are those that sit between Iran and the dollar: banks, exchange houses, commodity traders, shipping and chartering companies, insurers, and technology and gold intermediaries in trading hubs. The 24 August designations concentrated on Hong Kong, mainland China, the UAE, Singapore and Malaysia, reflecting where Treasury believes Iran's trade is routed. Oil and metals houses in particular should involve commodities trading lawyers, because the counterparties and vessels that concern Treasury often appear several steps removed from Iran in the documents.

China is the largest single exposure. Bessent's warnings were aimed squarely at countries still buying Iranian crude, and Beijing's foreign ministry responded, as reported by Anadolu, that it would do what is necessary to protect its legitimate rights and interests. The pattern of geopolitics reaching directly into corporate control is familiar from the Wingtech and Nexperia dispute.

Europe's direct trade with Iran is small. Euronews, citing EU data, puts EU-Iran goods trade in 2025 at €3.72 billion, down from €27 billion in 2011, with EU exports of €2.97 billion, or 0.1% of the EU total, led by Germany, Italy and the Netherlands and dominated by pharmaceuticals, machinery and medical equipment. The indirect exposure, through Gulf and Asian counterparties, is much larger than those figures suggest.

How the US enforces Iran sanctions: OFAC penalties and the ten-year limitation period

The US enforces Iran sanctions against anyone subject to its primary jurisdiction through civil penalties imposed by OFAC and criminal prosecution by the Department of Justice. Under the International Emergency Economic Powers Act, wilful violations carry fines of up to $1,000,000 and, for individuals, up to 20 years' imprisonment. Civil penalties are adjusted for inflation; the adjustment published in January 2025 set the IEEPA maximum at the greater of $377,700 or twice the value of the underlying transaction, per violation.

OFAC's Economic Sanctions Enforcement Guidelines set a base penalty by asking two questions: was the case egregious, and did the company voluntarily self-disclose? In a non-egregious case that was voluntarily disclosed, the base amount is one-half of the transaction value, capped per violation; the highest base amounts are reserved for egregious cases that OFAC discovered for itself. Timing matters too. The same statute now allows civil and criminal proceedings to be brought within 10 years of the latest violation, double the old period, an extension OFAC explained in guidance published in 2024.

The largest Iran-related case remains the reference point for banks. In 2014 BNP Paribas agreed to plead guilty and pay $8.9 billion for processing dollar transactions for Sudanese, Iranian and Cuban parties. A non-US bank can fall under primary jurisdiction the moment a dollar payment clears through New York, which is where secondary and primary exposure meet. Companies facing an inquiry typically engage internal and government investigations counsel early, and white-collar defence lawyers where individuals are at risk.

Can EU companies still trade with Iran?

EU companies can still trade with Iran in goods and services that are not prohibited, but the permitted space has narrowed sharply since the United Nations sanctions returned in September 2025. After France, Germany and the UK triggered the snapback mechanism on 28 August 2025, the EU reimposed its nuclear-related measures. According to Mayer Brown's summary, Regulations 2025/1975, 2025/1980 and 2025/1982 restored asset freezes on more than 50 individuals and around 200 entities, bans on importing Iranian crude oil, petroleum products, petrochemicals and natural gas, export bans on oil, gas and naval equipment and on certain software, restrictions on gold and diamonds, limits on insurance and reinsurance, and controls on fund transfers and correspondent banking.

The result is that EU law now prohibits much of the trade US secondary sanctions target, notably oil, petrochemicals and dealings with listed banks. Where the two regimes overlap, there is no conflict: an EU company refusing an Iranian oil cargo is complying with EU law, not US law. The conflict arises in the space EU law still permits, such as food, medicines, much industrial machinery and ordinary services to unlisted Iranian parties. That is where the blocking statute bites.

The EU blocking statute: the law that forbids compliance

The EU blocking statute, Council Regulation (EC) No 2271/96, forbids EU operators from complying with the extraterritorial third-country laws listed in its Annex. The Annex was extended by Delegated Regulation 2018/1100, with effect from 7 August 2018, to cover the US Iran sanctions reimposed after the US left the nuclear deal. The Commission's summary sets out its four working parts:

• Notification (Article 2). An EU operator whose economic or financial interests are affected must inform the Commission within 30 days.
• Non-recognition (Article 4). Foreign court rulings and administrative decisions giving effect to the listed laws have no effect in the EU.
• Compliance ban (Article 5). EU operators may not comply with requirements or prohibitions based on the listed laws, unless the Commission authorises them to do so where non-compliance would seriously damage their interests or those of the EU.
• Clawback (Article 6). An EU operator can recover damages caused by the application of the listed laws from the person who caused them.

Penalties for breaching the blocking statute are set by each member state. Much of its practical force lies in private litigation: an Iranian counterparty whose contract is cut off can argue that the termination was an act of compliance with US law and is therefore unlawful in the EU. Companies that need to comply with the US measures for sound business reasons can apply to the Commission for an authorisation under Article 5, but must show that non-compliance would seriously damage their interests or those of the EU.

Bank Melli v Telekom: terminating contracts without breaking EU law

The Court of Justice's only full ruling on the blocking statute, Bank Melli Iran v Telekom Deutschland (Case C-124/20), decided on 21 December 2021, is the starting point for any EU company thinking of exiting an Iran-linked relationship. Telekom Deutschland, which derives roughly half of its turnover from business in the US, had terminated telecoms contracts with the German branch of Bank Melli, a bank on the SDN list, without giving reasons and without a Commission authorisation.

The Grand Chamber held, first, that the compliance ban in Article 5 applies even where no US authority has ordered the EU company to comply; the mere threat of secondary sanctions is enough. Second, the ban can be relied on in civil proceedings between private parties. Third, an EU operator may terminate a contract without giving reasons where national law allows it, but if the evidence suggests it acted to comply with US sanctions, the burden shifts to the operator to prove that it did not. Finally, national courts must weigh the blocking statute's objectives against the risk of disproportionate economic loss to the operator, including whether it could have sought an authorisation.

The practical lessons are to document a genuine commercial rationale for any exit, to avoid internal communications that cite US sanctions as the reason, and to consider an authorisation request where US exposure is severe. The reference came from the Higher Regional Court in Hamburg, and groups with operations in Germany will want advisers in Germany and dispute resolution lawyers to review any termination notice before it is served.

The UK position: retained blocking rules, snapback and OFSI enforcement

The UK kept its own version of the blocking statute after Brexit. The retained Regulation 2271/96, amended with effect from 1 January 2021, transfers the Commission's role to the Secretary of State, who may authorise compliance where non-compliance would seriously damage the person's interests or those of the UK. Affected persons must notify the Secretary of State within 30 days, and the Annex still lists US Iran sanctions legislation.

At the same time the UK has tightened its own Iran regime. Ashurst Perkins Coie reports that the Iran (Sanctions) (Nuclear) (EU Exit) (Amendment) Regulations 2025 implemented the UN snapback at the end of September 2025, and that the Foreign Office designated 71 individuals and entities, including the National Iranian Oil Company, the National Iranian Gas Company and several major banks. UK enforcement is also active: on 2 September 2026 OFSI published a £4,732,830.58 penalty against Citibank, N.A., London Branch for breaches of the Russia and global anti-corruption regimes, after discounts for voluntary disclosure and settlement, according to AML Intelligence.

English contract law adds a further twist. In Lamesa Investments v Cynergy Bank (2020), the Court of Appeal held that a clause excusing non-payment to comply with "any mandatory provision of law" could cover US secondary sanctions, even though such sanctions do not directly bind a non-US party. How a sanctions clause is drafted can therefore decide whether a UK party may lawfully stop performing. Operation Economic Outcast is a good moment for UK advisers to revisit them.

How the regimes collide: an at-a-glance comparison

The table below sets out how the US, EU and UK regimes treat the same Iran-related activity as at 2 September 2026. It is a simplification, and the answer in any real case depends on the counterparty, the goods and the payment route.

Issue	United States	European Union	United Kingdom
Iranian crude and petrochemicals	Sanctionable for non-US persons; prohibited for US persons	Import banned since the 2025 snapback measures	National Iranian Oil and Gas companies designated; further sectoral measures announced
Dealing with designated Iranian banks	Correspondent account risk for foreign banks	Asset freezes and transfer controls	Asset freezes on several major Iranian banks
Food, medicine and medical devices	Statutory humanitarian exception	Generally permitted, subject to asset freezes	Generally permitted, subject to asset freezes
Unlisted Iranian counterparties in permitted sectors	Secondary sanctions risk if within the five new sectors	Blocking statute bars compliance with US measures	Retained blocking rules bar compliance with US measures
Who grants permission	OFAC licences	Commission authorisation under Article 5	Secretary of State authorisation

A compliance checklist for secondary sanctions on Iran

The practical answer to what secondary sanctions on Iran demand of a non-US business is a structured review, completed quickly, because Treasury has said countries have a defined timeline to act. The steps below follow directly from the measures and rulings described above:

1. Map sector exposure. Identify any business line that could be said to operate in Iran's digital assets, technology, gold, aviation or shipping sectors, directly or through intermediaries.
2. Rescreen counterparties. Run customers, vessels and payment chains against the 24 and 28 August designations, paying attention to Hong Kong, UAE and Singapore trading companies.
3. Trace dollar flows. Check whether any Iran-linked payment could touch a US correspondent account, which turns secondary exposure into primary liability.
4. Check licence reliance. Confirm whether any activity relied on the suspended general licences, and complete wind-down before 8 September 2026.
5. Manage the blocking statute. For EU and UK entities, record genuine commercial reasons for any exit, consider notification duties and assess whether an authorisation is needed.
6. Review contract clauses. Look at sanctions, illegality and force majeure wording, in light of Lamesa and Bank Melli v Telekom.
7. Consider disclosure. Where a past US violation surfaces, weigh voluntary self-disclosure, which reduces base penalties, against the ten-year look-back.

When to bring in a sanctions adviser

Secondary sanctions on Iran become a legal problem the moment a business has to choose between US market access and its obligations under EU or UK law, and that choice rarely has an obvious answer. The right time to take advice is before a termination notice is sent, a payment is rejected or a vessel is refused, because each of those steps can create evidence in one jurisdiction that is used against the company in another. Groups with dollar exposure will usually need US counsel alongside local advisers in the EU, the UK and the Gulf.

Operation Economic Outcast is little more than a week old, and Treasury has signalled that more designations will follow. For now, the clearest guide to what secondary sanctions on Iran mean for a European or British business is the combination described here: a widening US threat focused on banks and five sectors, EU and UK prohibitions that already cover much of Iran's oil and banking trade, and blocking rules that make it unlawful to follow Washington in the narrow space that remains.

Frequently asked questions

What are secondary sanctions on Iran?

Secondary sanctions on Iran are US measures that penalise non-US companies and banks for dealings with Iran that have no US connection. Rather than fines, the consequences are designation, asset blocking or loss of access to US correspondent accounts, which effectively forces foreign firms to choose between the US market and Iran.

What are primary sanctions and secondary sanctions?

Primary sanctions bind US persons, anyone in the US and US-origin goods or dollar payments, and breaches are violations of US law punishable by civil or criminal penalties. Secondary sanctions target foreign persons outside US jurisdiction and work by threatening commercial exclusion from the US financial system rather than by prosecution.

What is Operation Economic Outcast?

It is a US Treasury campaign launched on 24 August 2026 that designated nearly 60 companies, individuals and vessels, made five new sectoral determinations under Executive Order 13902 covering digital assets, technology, gold, aviation and shipping, suspended several Iran general licences and warned foreign banks of correspondent account consequences.

What is the penalty for violating OFAC sanctions?

Under IEEPA, civil penalties can reach the greater of $377,700 or twice the transaction value per violation, based on the January 2025 inflation adjustment. Wilful violations can be prosecuted, with fines of up to $1,000,000 and, for individuals, up to 20 years in prison. Proceedings can be brought within 10 years.

How does OFAC enforce its sanctions?

OFAC investigates apparent violations and applies its Economic Sanctions Enforcement Guidelines, which set a base penalty according to whether the case is egregious and whether the company voluntarily self-disclosed, then adjust it for factors such as cooperation and compliance programmes. Serious wilful cases are referred to the Department of Justice for prosecution.

Can the EU trade with Iran?

Yes, in goods and services that EU law does not prohibit, such as food, medicines and much ordinary commercial activity with unlisted parties. Since September 2025, however, the EU has again banned imports of Iranian oil, petrochemicals and gas, frozen the assets of many Iranian banks and firms, and restricted finance, insurance and shipping services.

Does the EU blocking statute stop EU companies complying with US sanctions on Iran?

Yes, in principle. Article 5 of Regulation 2271/96 prohibits EU operators from complying with the listed US Iran laws unless the Commission authorises it. The Court of Justice held in Bank Melli v Telekom that the ban applies even without a US order, although courts must consider the risk of disproportionate loss.

What is the section 311 action against Banque Misr UAE?

On 28 August 2026 FinCEN proposed to bar US banks from maintaining correspondent accounts for the five UAE branches of Banque Misr, after estimating that they processed about $1.8 billion for 103 suspected Iranian front companies. The proposal was published on 1 September 2026, with comments due by 1 October 2026.

Is it legal to import from Iran into the UK or EU?

Some imports remain lawful, but key categories are banned. The EU prohibits imports of Iranian crude oil, petroleum products, petrochemicals and natural gas under the measures reimposed in 2025, and the UK implemented the UN snapback at the same time, designating Iran's national oil and gas companies. Importers should also screen every counterparty against asset-freeze lists.

Sources

1. US Treasury: Treasury launches unprecedented campaign against Iranian regime on Economic D-Day (24 August 2026)
2. US Treasury: Remarks from Secretary Scott Bessent on Operation Economic Outcast (24 August 2026)
3. US Treasury: Iran's access to UAE banks targeted under Operation Economic Outcast (28 August 2026)
4. The White House: Operation Economic Outcast, total isolation of the Iranian regime (24 August 2026)
5. FinCEN: FinCEN proposes rule that would revoke Banque Misr UAE's correspondent banking access (28 August 2026)
6. Federal Register: Proposal of special measure regarding Banque Misr UAE (1 September 2026)
7. Sullivan & Cromwell: Treasury Department launches Operation Economic Outcast (August 2026)
8. Al Jazeera: Trump's latest wave of Iran sanctions, which 60 entities are targeted?
9. Al Jazeera: Banque Misr, Egypt's second-largest bank, hit by US sanctions
10. Anadolu Agency: China vows to protect legitimate rights amid US sanctions threats over Iran trade
11. Euronews: What the new US sanctions on Iran mean for European businesses
12. 22 U.S.C. 8513a: Imposition of sanctions with respect to the financial sector of Iran (OFAC)
13. 50 U.S.C. 1705: IEEPA penalties (Legal Information Institute)
14. Federal Register: OFAC inflation adjustment of civil monetary penalties (15 January 2025)
15. Baker McKenzie: OFAC guidance on the extension of the statute of limitations
16. US Department of Justice: BNP Paribas agrees to plead guilty and to pay $8.9 billion (2014)
17. Mayer Brown: EU reintroduces sanctions against Iran following UN snapback (October 2025)
18. Council Regulation (EC) No 2271/96 (the EU blocking statute), EUR-Lex
19. European Commission: Extraterritoriality (blocking statute)
20. Court of Justice of the EU: Press release 227/21, Bank Melli Iran v Telekom Deutschland (21 December 2021)
21. legislation.gov.uk: Regulation 2271/96 as retained in UK law
22. Ashurst Perkins Coie: UK and EU reimpose Iranian sanctions following UN snapback (October 2025)
23. GOV.UK: Imposition of monetary penalty, Citibank, N.A., London Branch (2 September 2026)
24. AML Intelligence: Citibank fined £4.7m over Russia sanctions breaches
25. Debevoise & Plimpton: English Court of Appeal rules on impact of US secondary sanctions (July 2020)

About this article

This analysis was researched and written by The Corporate INTL Newsroom, which covers cross-border legal, regulatory and business developments for lawyers, professional advisers and financiers in over 150 jurisdictions. It has been checked against the US Treasury, FinCEN and White House announcements, the Federal Register notice, the relevant US statutes, the EU and UK texts of the blocking statute, the Court of Justice's ruling in Bank Melli v Telekom and primary reporting. Further designations under Operation Economic Outcast were expected at the time of writing. This article is general information, not legal advice; for advice on a specific matter, consult a qualified adviser. Last reviewed 2 September 2026. For more analysis like this, visit the Corporate INTL newsroom or subscribe to Corporate INTL.