OFAC Issues New Sanctions Targeting Iran’s Shadow Banking Network

Overview

On June 6, 2025, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced a new round of sanctions targeting individuals and entities tied to the Zarringhalam brothers in Iran. The Zarringhalam brothers have, according to OFAC, collectively laundered billions of dollars through the international financial system using Iranian exchange houses and foreign front companies, as part of Iran’s “shadow banking” network.

In conjunction with this action, the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued an updated advisory to help financial institutions identify and report suspicious activity connected with illicit Iranian financial activity, including shadow banking. This is the first action being taken against Iran’s shadow banking network since the Trump Administration’s February 4, 2025, National Security Presidential Memorandum 2, which directs maximum pressure on Iran. We last reported on sanctions against Iran’s shadow banking networks on July 1, 2024.

Iran’s Shadow Banking Network

Iran’s shadow banking network, involving facilitators such as the Zarringhalam brothers, enables sanctioned individuals and military entities to access international financial systems and support Iran’s illicit foreign trade. The proceeds are used to fund Iran’s military and terrorist affiliates. The Zarringhalam network, OFAC states, has been specifically utilized by Iran’s main oil and petrochemical exporters, as well as the Iranian military, to evade sanctions and send and receive funds related to oil and petrochemical sales.

This parallel system operates through Iran-based exchange houses and front companies, sometimes in Hong Kong and the UAE, which conduct transactions on behalf of sanctioned parties. Brokers may fabricate invoices or transaction records to disguise illicit payments. These front companies may also be established in jurisdictions with minimal regulatory oversight to avoid scrutiny.

In addition to undermining sanctions, the system has led to widespread reports of corruption, including billions embezzled through these illicit financial channels.

Continued Diplomatic Tensions

The latest round of sanctions is being imposed at a time of heightened tensions among Iran, the U.S., Israel, and European nations concerning Iran’s nuclear program. The recent escalation between Iran and Israel has further destabilized the region, injecting new volatility into U.S.-Iran negotiations and complicating efforts to revive diplomatic channels.

OFAC Designation Implications

As a result of OFAC’s designations, all property and interests in property of the targeted individuals and entities that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC or exempt. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.

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