OFAC targets Iran shadow banking networks and issues new Iran-related compliance guidance
Date of publication: May 8, 2026
Under the U.S. "Economic Fury" action targeting Iran's shadow banking facilitators, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) issued a May 1 action effective 28 April 2026 covering counter terrorism and Iran-related sanctions measures, including new designations and publication of an Iran-related OFAC Alert concerning sanctions risks associated with China-based independent "teapot" oil refineries.
The new measures introduce:
- Designation of 35 entities and individuals connected to Iran's shadow banking architecture, which OFAC states facilitates sanctions evasion, illicit oil sales, access to the international financial system, and support for Iran's armed forces and terrorist proxies.
- Issuance of FAQ 1249, clarifying that "toll" payments to the Government of Iran or the Islamic Revolutionary Guard Corps (IRGC), directly or indirectly, for safe passage through the Strait of Hormuz are not authorized for U.S. persons, including U.S. financial institutions and U.S.-owned or -controlled foreign entities.
- A warning that non-U.S. persons also face significant sanctions exposure where they engage in certain transactions involving the Government of Iran, the IRGC, or other designated or blocked persons, including under Executive Order 13902.
- Publication of an OFAC Alert on sanctions risks of dealing with China-based independent "teapot" oil refineries, primarily in Shandong Province, due to their continued role in importing and refining Iranian crude oil.
- Compliance expectations for financial institutions, including implementation of risk-based controls, enhanced due diligence for transactions involving China-based refineries, and clear communication of sanctions compliance expectations to correspondent banks.
- Additional warnings on sanctions evasion typologies, including the use of front companies in Asia and the UAE, intermediary brokers, and "shadow fleet" shipping practices such as ship-to-ship transfers, falsified documentation, and vessel identity manipulation.
OFAC also stated that China purchases approximately 90 percent of Iran's oil exports, with teapot refineries accounting for most of those imports and noted that some such refineries have used the U.S. financial system for dollar-denominated transactions and to procure U.S. goods. OFAC further noted that, since March 2025, it has designated multiple China-based teapot refineries that collectively processed billions of dollars' worth of Iranian-origin oil.
Since these measures were published on 28 April 2026, the SDN List updates, related blocking measures, and the compliance guidance reflected in FAQ 1249 and the OFAC Alert are effective from that date.
Conclusion
OFAC's 28 April 2026 action reinforces the United States' focus on disrupting Iran's shadow banking networks, oil revenue channels, and related sanctions evasion activity. The action is notable not only for the new designations, but also for the accompanying compliance guidance addressing Strait of Hormuz payment risks and dealings involving China-based teapot refineries. Companies should update restricted party screening, assess exposure to newly designated parties, review transactions involving Iranian-linked payment structures, oil trade, shipping, refinery counterparties, and correspondent banking channels, and strengthen escalation and licensing review procedures where appropriate.
These changes have been updated in ONESOURCE Global Trade Content. For more information on how ONESOURCE Global Trade solutions can assist you in managing restricted party screening, please contact your Account Manager or Customer Success Manager.