Citing Federal Sanctions, TCF Bank in Minnesota Closes Accounts of Iranian Students

Citing Federal Sanctions, TCF Bank in Minnesota Closes Accounts of Iranian Students

It has recently come to light that Iranian students have been receiving notifications from banks regarding the closure of their accounts, most recently those attending the University of Minnesota.  According to local news reports, as many as a dozen visiting Iranian students at the University of Minnesota have received such letters from TCF Bank.[1]  The closing of accounts was apparently the result of the Bank’s investigation into transactions that may have violated U.S. sanctions programs.  TCF Bank contends that other students, not just Iranian students, also received such the letters.

U.S. financial institutions have increased both the quantity and the scope of their sanctions compliance policies over the years, in an effort to comply with various U.S. sanctions programs—particularly sanctions imposed against Iran. However, the complexity of these various sanctions programs can lead to confusion and misapplication of the law, as may have happened in the TCF Bank case, or even a conscious decision to shut out account holders deemed to put the bank at risk of sanctions violations.

To that end, is important for banks such as TCF Bank to note that once Iranian students come to the United States they are no longer deemed to be Iranian by the definition contained in the ITSR.[2] Instead, they are considered to be U.S. persons, the definition of which includes an individual physically present in the United States.[3] As such, the maintenance of an account by a U.S. financial institution on behalf of an Iranian student residing in the United States on a student visa is not a prohibited exportation of services to Iran, but rather the provision of services to a U.S. person. Furthermore, although the ITSR does not expressly grant authorization to U.S. financial institutions to open and maintain accounts for Iranian students visiting the U.S. on a student visa, it does in fact authorize transactions ordinarily incident to a licensed transaction. It is not a stretch to consider that maintaining a bank account while attending school in the United States is ordinarily incident to fulfilling the requirements of a student visa. 

The undersigned have begun an investigation into this matter and have been in contact with both the University of Minnesota and TCF Bank.  TCF Bank has confirmed that the investigation into these accounts began because certain transactions were flagged by interdiction software that reviews the text of all incoming wire transfers and account information.  Based on the flagging of certain transactions or accounts by this interdiction software, investigations were initiated by TCF Bank and determinations were made to close some of the accounts at issue.  As a result of the efforts made by the University of Minnesota, TCF Bank is conducting a secondary review of that decision to ensure that their initial risk assessment and decision to close the accounts was correct.

The use of interdiction software to flag suspicious transactions and conduct internal risk assessment analyses are commonplace in the financial services industry. In line with representations made by TCF Bank to members of the undersigned group as well as to the University of Minnesota, the closing of the accounts appears to be the result of an internal risk analysis of its account holders, coupled with a review of those transactions that TCF Bank believed to be suspicious.  U.S. financial institutions are required by law to monitor and report suspicious activity, develop anti-money laundering programs, and implement other risk-based approaches in order to prevent transactions that may run afoul of U.S. banking and sanctions regulations. It is imperative that banks such as TCF conduct secondary high-level reviews subsequent to any initial (and often software-based) interdiction reviews of customer accounts, particularly before taking any drastic action(s) such as closing customer accounts.  This heightened internal scrutiny of these critical decisions will help ensure that the bank actions do not violate either the spirit or letters of any federal laws—ITSR or otherwise. The undersigned recognize that the use of interdiction software is commonplace and that banks have a need to monitor their accounts, however, we also urge banks to perform second-level reviews and careful screening of accounts that are closed as a result of the use of such software, in order to ensure that bank accounts are not improperly closed due to account holders otherwise legal activities—as the closing of bank accounts has serious ramifications. 

We applaud the University of Minnesota for taking a proactive approach in this matter, and will continue to monitor this story and keep the public aware of any new developments.

 

Sincerely,

Iranian American Bar Association

Pars Equality Center

Public Affairs Alliance of Iranian Americans 

No legal advice, express or implied, is intended by this letter

 

 

[1] Jenna Ross, TCF Bank’s Closing of Iranian Students’ Accounts is Questioned, StarTribune, Jan. 8, 2013.
[2] 31 C.F.R. § 560.303.
[3] 31 C.F.R. § 560.314.

TCF Bank letter