Treasury Department Launches Operation Economic Outcast

Summary

Following President Trump’s warning on August 19 that the United States would launch against Iran the “most crushing economic operation ever taken against any country,” the U.S. Department of the Treasury (“Treasury”) announced on August 24 a new economic initiative called “Operation Economic Outcast” (the “Operation”). The Operation is intended to further reduce Iran’s remaining links to the global economy by targeting the economic lifelines supporting the Iranian regime and pressing foreign governments and companies to terminate identified Iran-related activities. As initial measures in support of the Operation, Treasury’s Office of Foreign Assets Control (“OFAC”) expanded existing sectoral sanctions to target five additional sectors of the Iranian economy; designated nearly 60 entities, individuals, and vessels; indefinitely suspended five general licenses; and updated its guidance concerning the sanctions risks associated with Iranian demands for passage through the Strait of Hormuz. On August 28, Treasury announced a second set of measures in support of the Operation. The Financial Crimes Enforcement Network (“FinCEN”) proposed a rule that would cut off the five United Arab Emirates (“UAE”) branches of Egyptian state-owned Banque Misr (collectively, “Banque Misr UAE”) from U.S. correspondent banking access, and OFAC designated two additional alleged Iranian financial facilitators connected to Bank Melli and a sanctioned Iranian exchange house.

The announcement of the Operation comes nearly six months after President Trump launched Operation Epic Fury on March 1, 2026, and follows numerous prior measures[1] intended to increase economic pressure on Iran.[2]

The Treasury Department’s Strategy to Isolate Iran

In announcing the Operation, Treasury Secretary Scott Bessent described the Trump administration’s objective as seeking “to sever every economic lifeline that sustains this tyrannical regime until Tehran stands alone.” Secretary Bessent stated that Treasury has “mapped every node, every facilitator, and every network” used by Iran to smuggle oil and evade sanctions and is using that information to press foreign governments and companies to terminate identified Iran-related activities. He noted that these diplomatic efforts would be supported by immediate sanctions measures and the expanded threat of secondary sanctions—including potential exclusion from the U.S. financial system—for foreign parties that fail to comply with U.S. demands.

Secretary Bessent described the announcement as a “warning shot” that would be followed by a period of “quiet diplomacy.” He explained that the Trump administration is providing foreign countries and companies an opportunity to remedy identified conduct before imposing additional sanctions. He nevertheless warned that the administration will “move very quickly” and does not have “infinite patience.”

While relatively few details have been provided to date, Secretary Bessent highlighted several aspects of the Trump administration’s overall strategy:

• Secretary Bessent indicated that President Trump has personally contacted foreign leaders with “specific requests” to end their countries’ economic interactions with Iran. The Treasury Department, the State Department, and the U.S. military are following up with identified governments and entities, and Secretary Bessent stated that each identified country has been given a defined, but undisclosed, timeline to take corrective action. Secretary Bessent also cited the UAE’s August 19 announcement that it had halted “all trade, commercial exchanges, and financial transactions with Iran until further notice” as evidence that these efforts were already yielding results, characterizing the UAE’s decision as “not a coincidence.”
• Secretary Bessent declared that “[e]very branch of Bank Melli must be shuttered and dark.” Bank Melli has been designated as a Specially Designated Global Terrorist (“SDGT”) under Executive Order (“E.O.”) 13224 since 2018,[3] meaning U.S. persons have long been generally prohibited from dealings involving the bank, while non-U.S. persons may risk designation or other enforcement for engaging with the bank and foreign financial institutions may face secondary sanctions for knowingly facilitating significant transactions on the bank’s behalf.[4] Despite these restrictions, Bank Melli’s website lists foreign branches in Azerbaijan, France, Germany, Iraq, Oman, and the UAE and subsidiaries in the United Kingdom, Hong Kong, and Russia.
• Secretary Bessent stated that additional sanctions would be announced in waves and that he expected “a major announcement of a financial institution being sanctioned by the end of this week.”
• When asked whether the United States would target major Chinese banks facilitating trade with Iran, Secretary Bessent stated that “no one is above the reach of U.S. sanctions” but did not specifically commit to action against China or any Chinese financial institution.

Initial Sanctions Measures Announced in Support of Operation Economic Outcast

Sectoral Determinations

OFAC issued five determinations pursuant to E.O. 13902 targeting the aviation, digital asset, gold, shipping, and technology sectors of the Iranian economy. Under E.O. 13902, OFAC may designate any person, regardless of where they are located, determined either to operate in any of the five sectors or to have knowingly engaged in a significant transaction for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with any of those sectors. Foreign financial institutions also face potential secondary sanctions—in the form of prohibitions or strict conditions on U.S. correspondent or payable-through accounts—for knowingly conducting or facilitating any such significant financial transaction.

The Treasury Department noted that these determinations build on earlier determinations targeting Iran’s financial and petroleum and petrochemical sectors. OFAC previously provided guidance regarding the scope of sectors identified under E.O. 13902 and the goods and services considered to be used in connection with those sectors,[5] but it did not issue comparable guidance regarding the five newly identified sectors.

New Sanctions Designations

OFAC designated nearly 60 entities, individuals, and vessels in multiple jurisdictions pursuant to E.O. 13382, which targets proliferators of weapons of mass destruction and their means of delivery; E.O. 13694, as amended, which targets malicious cyber-enabled activities; E.O. 13902, which targets certain sectors of the Iranian economy; and E.O. 13224, as amended, OFAC’s principal counterterrorism authority. Specifically, the designations targeted: (i) a procurement scheme supporting the acquisition of proliferation-sensitive technology and equipment for ballistic missile development and nuclear research by entities subordinate to Iran’s Ministry of Defense and Armed Forces Logistics; (ii) a malicious cyber group directed by Iran’s Ministry of Intelligence and Security that Treasury described as responsible for extensive compromises of U.S. critical infrastructure and financially motivated cyber theft; and (iii) a network of brokers, companies, and shadow-fleet vessels operating across the UAE, Hong Kong, China, Singapore, Switzerland, Europe, and other regions to transport Iranian oil and channel revenue to the IRGC-Qods Force and other elements of the Iranian government. OFAC also designated several international companies operating in Iran’s petroleum sector that Treasury alleges enabled the deceptive movement and sale of Iranian crude oil and petroleum products.

Suspension of General Licenses

OFAC indefinitely suspended general licenses set forth at Sections 560.544, 560.550, and 560.554 of the Iranian Transactions and Sanctions Regulations, as well as Iran General Licenses F and G. These authorizations previously permitted certain educational activities by U.S. persons in third countries involving Iranian universities or persons ordinarily resident in Iran, certain noncommercial personal remittances involving Iran, the importation and exportation to or from Iran of services related to conferences involving persons ordinarily resident in Iran, certain services in support of professional and amateur sports activities and exchanges involving the United States and Iran, and certain academic exchanges with Iranian universities and the importation and exportation to or from Iran of certain educational services. OFAC concurrently issued General License BB, authorizing, until September 8, 2026, transactions ordinarily incident and necessary to the wind down of activities previously authorized under the suspended general licenses, provided that any payment to a blocked person is made into a blocked interest-bearing account in the United States.

Updated Strait of Hormuz Guidance

OFAC updated its May 1, 2026 alert concerning the sanctions risks associated with Iranian demands for safe passage through the Strait of Hormuz. OFAC warned that U.S. and non-U.S. persons may face sanctions risk from engaging with the Persian Gulf Strait Authority (PGSA), Persian Gulf Marine Insurance Company (PGMIC), or the Hormuz Safe Marine Services Authority (Hormuz Safe), including by accepting insurance or other services or responding to demands for information in exchange for safe passage—even if no payment or other exchange of value occurs. OFAC also advised maritime service providers to conduct enhanced due diligence concerning vessels transiting the Strait, including whether a vessel coordinated with Iranian parties, paid or expects to pay safe-passage fees, or accepted insurance or other services from Iran.

Additional Measures Targeting Iranian Financial Networks

On August 28, Treasury followed its initial sanctions measures with additional steps directed at the institutions and intermediaries that facilitate Iran’s access to the international financial system. As part of these measures, FinCEN issued a proposed rule under section 311 of the USA PATRIOT Act finding Banque Misr UAE to be “of primary money laundering concern.” According to FinCEN, Banque Misr UAE processed approximately $1.8 billion for 103 companies potentially associated with Iranian shadow-banking networks between January 2024 and June 2026. The proposed rule states that Banque Misr UAE “has three direct U.S. correspondent relationships through which it accesses the U.S. financial system.”

If finalized, the rule would prohibit covered U.S. financial institutions from opening or maintaining correspondent accounts for or on behalf of Banque Misr UAE. It would also require U.S. financial institutions to take reasonable steps not to process any transaction involving Banque Misr UAE through U.S. correspondent accounts maintained for foreign banking institutions. In addition, they would be required to apply special due diligence to their foreign correspondent accounts to guard against those accounts being used to process transactions involving Banque Misr UAE. The rule would directly apply only to Banque Misr UAE, not to Bank Misr’s operations in Egypt or other countries.

Also on August 28, OFAC designated Reza Mohammad Taeedi, the general manager of Bank Melli’s Dubai branch, pursuant to E.O. 13224 for having acted or purported to act for or on behalf of Bank Melli. OFAC separately designated Hong Kong-based Kameng Trading Limited pursuant to E.O. 13902 for operating in the financial sector of the Iranian economy, alleging that the company helped a sanctioned Iranian exchange house launder money for Iran. Accordingly, any property or interests in property of Taeedi or Kameng Trading Limited that are in the United States or in the possession or control of U.S. persons are blocked, and U.S. persons are generally prohibited from engaging in transactions involving such property. Foreign financial institutions also face potential secondary sanctions for knowingly conducting or facilitating significant financial transactions on behalf of these parties.

Conclusion

Operation Economic Outcast heightens the U.S. economic sanctions risks for foreign governments, foreign financial institutions, and other entities that continue to engage in economic activity with or involving Iran. Given Treasury’s stated intention to impose additional sanctions measures against those that do not terminate identified Iran-related activities, parties should carefully assess their existing and contemplated Iran-related dealings and conduct heightened due diligence regarding their counterparties and financial relationships. S&C is closely tracking developments in this area and is ready to help clients analyze and navigate the associated sanctions risks.