Could there be possible issues with allowing a customer residing in Iran to maintain an account with our U.S. Financial institution.
I uncovered during a review a customer living in Iran that should come under restriction of OFAC Title 31 C.F.R. 560.
I informed the apporporiate people that the account was active and has debits and credits occuring on it.
The response was that we only completely restrict the account but we are not required to close it. As I understand them the sanctions outline that it is prohibited for a U.S. Financial Institution to have on its books an account owned by a iranian Govermental entity, bank, or person living in Iran. There are a few exemptions to this. An account can be debited for service charges, maintanenece, humanitarian purposes. But should the bank be conducting this kind of monitoring.
The account owner once lived in the United States which is why we hold an account for them. Any potential exam violations?

Any suggestions?

You are not required to close the account, nor should you. You are required to block the account from further debits, except for the reason you already outlined. Additionally, you need to prepare the annual report of blocked accounts found in the regulations. There are potential exam violations and possible CMPs due to all the transactions that may have taken place on this account prior to it being discovered and acted upon.

We had a situation whereby we opened an account for a person who subsequently moved back to IRAN. We restricted the account, but when the customer came into the States he was allowed access to his account when he came into a branch office.....a person from OFAC compliance in DC informed us this was allowed...we still had to include this account in the annual report of blocked accounts......he has since closed the account by us wiring the funds to an off-shore bank as directed by OFAC....

You should probably seek guidance regarding an individual in Iran. I believe you cannot deal with an Iranian business or government entity, but OFAC does sometimes allow you to conduct business with a person. Either the customer or you can petition OFAC. I do think you should restrict activity until OFAC says otherwise.