Operation Economic Outcast: Two Key Updates Two Weeks In

What to Know

• Treasury has threatened to add countries to the OFAC SDN list via secondary sanctions if they refuse to halt Iran-related activity, but has not yet acted despite public defiance from China, Russia, and Pakistan.
• OFAC designated nearly 60 Iran-linked entities, individuals, and vessels on August 24, 2026, targeting nuclear, missile, cyber, and oil networks as part of its Iran sanctions enforcement push.
• Financial institutions should evaluate whether they have any direct or indirect exposure to Banque Misr UAE, Bank Melli, or Golden Global Bank, including through correspondent banking chains.

On August 24, 2026, the Trump administration announced Operation Economic Outcast, a sanctions package that is the administration’s latest attempt “to sever every economic lifeline that sustains this tyrannical regime until Tehran stands alone.”[1]

Key actions included:

1.   Treasury Secretary Scott Bessent threatened to impose secondary sanctions on countries that refuse to acquiesce to demands by the US government to immediately cease all Iran-related activity.

2.   Treasury expanded the categories of Iran-related conduct subject to sectoral sanctions by issuing determinations against five critical sectors: digital assets, technology, gold, aviation, and shipping.

3.   Treasury’s Office of Foreign Assets Control (OFAC) added to the Specially Designated Nationals (SDN) List nearly 60 entities, individuals, and vessels for their alleged role in enabling Iran’s illicit nuclear and missile technology procurement, cyber operations, and oil‑revenue generation networks.

4.   OFAC suspended several general licenses that previously authorized certain remittance payments to Iran and Iranian access to the US cultural and academic system with a wind-down period until September 8.

5.   OFAC issued additional guidance on the sanctions risks of cooperating with Iran related to shipping in the Strait of Hormuz, highlighting that payment in cryptocurrency is not permissible. 

Now, two weeks in, we examine how two of these actions have begun to unfold and consider potential implications as the war grinds into its seventh month and US midterm elections loom.  In short, while the administration has not followed through on its most headline-grabbing threat to sanction other countries, it has doubled down on its intent to use sanctions to address national security and financial access, creating new and meaningful risk — including potential criminal exposure — for entities whose operations or supply chains have even tangential connections to Iran.

Defiance and Coordination at the Nation-State Level

In announcing Operation Economic Outcast, Secretary Bessent emphasized that it was a “whole-of-government [] campaign” in which “[t]eams from the Departments of Treasury, State, and War are engaging counterparts around the world to make clear that the United States expects immediate action. Every country will be given a defined timeline to shut down the Iran-related activity we have identified. If they fail to act, Treasury will act” by imposing secondary sanctions on those countries. 

Secondary sanctions are punitive economic measures that target non-US entities for conducting business with sanctioned entities or countries, even when the transaction has no direct connection to the United States. The penalties for secondary sanctions primarily involve exclusion from the US financial system, markets, and commercial networks. Typically aimed at individuals or companies, Operation Economic Outcast raises the specter of imposing secondary sanctions on other countries. The reach and ramifications are as broad and as significant as they sound. Indeed, Bessent himself acknowledged that fully implementing secondary sanctions may very well “blow up the global financial system.”

This approach to coercing other nation-states, as opposed to natural and legal persons, has yielded mixed results.

China, Iran’s biggest counterparty, almost immediately rejected what it called “illegal unilateral sanctions” on Iran and said it “will do everything necessary to firmly safeguard its rights and interests” regarding trade with Iran.[2] If Washington were to call Beijing’s bluff, it would mean forcing China, which buys roughly 90 percent of Iranian crude exports, to choose between that oil and access to the US markets and financial system, potentially dramatically escalating the tension between the two countries. Similarly, on August 27, Russia and Pakistan said they were not bound to accept US sanctions related to Iran and would continue their trade relationships involving agricultural goods, industrial supplies, military equipment, heavy machinery, and petroleum. Notably, another major trader with Iran, India, has remained strategically silent on whether it would accede to the United States’s demands, notwithstanding that the United States has designated four Indian firms and three Indian nationals associated with the companies.

The United States has done nothing in response to these assertions of defiance. But that doesn’t mean it won’t; some of the chief benefits of sanctions are their discretionary application and the speed at which they can be deployed. And, more importantly, the choice not to do so is almost certainly due to the fact that these are countries; individuals and corporations are unlikely to survive a game of sanctions chicken with OFAC.

On the other side of the coin, the European Union has increasingly adopted a policy of working alongside the United States to maximize economic pressure on Tehran. Indeed, a statement issued in the context of the G20 Finance Ministers and Central Bank Governors meetings in Asheville, North Carolina on August 31 and September 1, affirmed:

However, this approach is at odds with the EU Blocking Statute (Council Regulation EC No 2271/96), which explicitly prohibits EU companies from complying with comprehensive US secondary sanctions on Iran. While the EU does maintain specific sanctions lists against Iran, they are not comprehensive like the US program. 

This creates a tension for European actors whose governments support the US’s economic isolation campaign against Iran but who themselves cannot terminate business relations on that ground alone. For example, in 2018, a German telecom company terminated services to Bank Melli, the Iranian national bank, after the United States reactivated sanctions against the bank. The European Court of Justice concluded that while there was no general requirement to provide reasons for terminating contracts, the burden of proof is effectively reversed in civil proceedings on the EU Blocking Statute, such that the EU person must prove that it terminated the contract for reasons other than to comply with US sanctions.[4] The Court recognized this tension, but noted that EU persons may seek authorization to comply with US sanctions if failure to do so would seriously harm their interests. Additionally, Advocate General Gerard Hogan observed in his May 12, 2021 nonbinding opinion that one example of a company demonstrating that it terminated the contract for reasons other than to comply with US sanctions was for it to show that “it is actively engaged in a coherent and systematic corporate social-responsibility policy (CSR) which requires … [it], inter alia, to refuse to deal with any company having links with the Iranian regime.”[5]

Similarly, the UK, which during Brexit assimilated the EU Blocking Statute as the UK Blocking Regulation, has confirmed its solidarity with the US’s Iran sanctions efforts. In a statement issued August 25, 2026, Chancellor of the Exchequer John Healey specifically affirmed that “[w]e support US work to secure a diplomatic solution and welcome efforts to increase pressure, including through Operation Economic Outcast.”[6]

This issue is complex with different lines of caselaw considering blocking legislation in a variety of contexts that extend beyond this alert. But EU and UK persons must take this nuance into account, and consult counsel, when considering how to operate in the current geopolitical environment.

OFAC Sanctions Highlight Focus on National Security and Finance

OFAC’s August 24 designations of nearly 60 Iran-linked entities, individuals, and vessels underscored its concern with threats to national security, focusing on nuclear, missile, cyber, and oil networks, as well as its ongoing efforts to isolate Tehran from the global banking system. Several recent designations warrant attention.

First, one designation involving a cyber group demonstrates the potential for criminal liability in addition to sanctions exposure, given that many Iranian entities are also designated as terrorist organizations. Iran’s Ministry of Intelligence and Security (MOIS) is designated pursuant to multiple authorities for cyber activity that threatens US national security; support to multiple terrorist groups; for being responsible for, or complicit in, the commission of serious human rights abuses against the Iranian people, and for its involvement in the wrongful detention of US citizens, with the authorization of senior Iranian government officials. OFAC designated a MOIS-directed malicious cyber group that is allegedly responsible for extensive compromises of US critical infrastructure and financially motivated cyber theft. The designation occurred in close coordination with the Federal Bureau of Investigation and US Attorney’s Office for the Southern District of New York, which on August 18, 2026 unsealed a superseding indictment charging 17 Iranian cyber actors, four of whom were designated on August 24. 

Additionally, a series of designations related to the financial sector demonstrate the administration’s focus on this enforcement path. First, a designation related to financing networks showcases one of Treasury’s lesser-known sanctions tools: designation as a “primary money laundering concern.” On August 28, 2026, Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed a rule under Section 311 of the USA PATRIOT Act that would designate Banque Misr UAE as a “primary money laundering concern” and thereby revoke its correspondent banking access to US financial institutions. Banque Misr is one of the five largest banks in Egypt, and Treasury alleges that its UAE branch, Banque Misr UAE, is a critical node for the Iranian regime’s access to US dollars, estimating that the bank processed roughly $1.8 billion for 103 companies that are potentially part of Iranian shadow banking networks between January 2024 and June 2026.

Traditional designations remain a potent tool as well, and Treasury seems willing to apply them more extensively. Secretary Bessent’s August 24 announcement singled out Bank Melli, the Iranian national bank, with implications for other foreign financial institutions. While Bank Melli has been designated under multiple OFAC authorities for years, it continues to operate globally through branches and correspondent relationships in various jurisdictions. Secretary Bessent’s demand that “every Bank Melli branch must be shuttered” signals that Treasury intends to pursue the foreign institutions and jurisdictions that continue to host or facilitate its operations, not just the bank itself. Indeed, on August 28, OFAC sanctioned Reza Mohammad Taeedi, the general manager of Bank Melli’s Dubai Branch, alleging that the bank has facilitated billions of dollars’ worth of transactions through accounts controlled by the Islamic Revolutionary Guard Corps Qods Force (IRGC-QF) and has allowed the IRGC to move funds in and out of Iran. 

And on September 4, OFAC designated Türkiye-based Golden Global Yatirim Bankasi Anonim Sirketi (Golden Global Bank) and its two subsidiaries, alleging that Golden Global was established to facilitate the movement of Iranian oil reserves from China to Türkiye and knowingly provided correspondent banking services that enabled transactions through accounts controlled by the IRGC-QF and its proxies. Announcing the action, Secretary Bessent warned that “financial institutions continue to find out the hard way that [Treasury is] serious about Operation Economic Outcast.”[7] While expressing hope that “no more banks will need to be sanctioned,” Bessent cautioned that “that ultimately depends on how quickly the international community comes to its senses and ceases support of the murderous Iranian regime,” adding a direct warning to financial institutions: “we know who you are, and we know where you are.”

This scrutiny may increasingly apply domestically as well: financial experts have observed that “Washington’s efforts could have limited impact if it doesn’t put more pressure on US lenders to scrutinize their correspondent banking relationships more closely.”[8] Treasury has identified approximately $9 billion in Iranian funds that moved through US banks in 2024, suggesting that US financial institutions may be the next front in efforts to identify and choke out Iranian financial flows.

Accordingly, financial institutions both in the United States and around the world must evaluate whether they have any direct or indirect exposure to Banque Misr UAE, Bank Melli, or Golden Global Bank, including through correspondent banking chains, even if transactions are not conducted in USD.

Looking Forward

OFAC, FinCEN, and other US regulators will no doubt take additional steps to further Operation Economic Outcast in the coming weeks and months as the midterm elections near. While no sanctions have been issued in the newly designated sectors (digital assets, technology, gold, aviation, and shipping), companies must remain vigilant regarding operations in these fields, knowing that Treasury and State are watching them closely. Bracewell will continue to monitor the rollout of Operation Economic Outcast and is prepared to assist in evaluating any related risk.

[1] https://home.treasury.gov/news/press-releases/sb0613.

[2] https://www.aljazeera.com/opinions/2026/9/1/why-china-will-not-comply-with-us-sanctions-on-iran.

[3] https://ec.europa.eu/commission/presscorner/detail/en/statement_26_1777.

[4] Bank Melli Iran v Telekom Deutschland GmbH (C-124/20).

[5] Opinion of Advocate General Hogan delivered on May 12, 2021 in case C‑124/20, Bank Melli Iran v. Telekom Deutschland GmbH, EU:C:2021:386, at 88.

[6] https://www.gov.uk/government/news/chancellor-statement-on-iran-sanctions (Aug. 25, 2026 Statement of Chancellor of the Exchequer John Healey).

[7] https://home.treasury.gov/news/press-releases/treasury-severs-iranian-regime-s-financial-lifelines-turkiye/.

[8] Jones et al., How Billions in Iranian Money Passes Through U.S. Banks, WSJ (Sept. 5, 2026), https://www.wsj.com/finance/regulation/how-billions-in-iranian-money-passes-through-u-s-banks-69106989?mod=article_inline.