Without Aid of Foreign Governments, Cover Payments Remain a Sanctions Gap, Say Attorneys

By Colby Adams

In a congressional hearing last May, sanctions experts outlined how gaps in U.S. and EU blacklists could let designated Iranians and other designees exploit the American banking system. But the witnesses failed to point out one important, perhaps permanent, loophole in international sanctions: the misuse of interbank cover payments. The payments, which allow banks to transact with one another despite differences in time zones, require the beneficiary's financial institution to temporarily cover the payment to the intended beneficiary. Until recent years, banks relied on MT 103 and MT 202 messages sent by the originating bank to beneficiary and intermediary institutions,...