The Senate Banking Committee has sent to the floor a bill that would significantly expand the extraterritorial reach of U.S. sanctions against Iran by subjecting foreign affiliates owned or controlled by U.S. companies to the same restrictions as their U.S. parents. Under current law, the U.S. draws a sharp distinction between U.S.-incorporated entities, on the one hand, and their foreign affiliates, on the other. The bill, S. 2101, would erase decades of U.S. laws and policy in this area.
For those who do not remember or never knew the history, U.S. sanctions law, a la the sanctions against Cuba and North Korea, routinely used to apply to persons “subject to the jurisdiction of the United States,” a term defined for these purposes as including non-U.S. entities owned or controlled by U.S. entities.
When President Reagan attempted to prohibit foreign subsidiaries of U.S. companies from participating in the construction of a pipeline from the then Soviet Union to Western Europe, however, there was an outcry from Europe. Foreign affiliates of U.S. companies, they said, are European companies and employ European workers. They should, they said, comply with European, not U.S., policy. And Europe wants Soviet gas and the employment participation in the pipeline’s construction would provide.
They threatened retaliation. And Reagan backed down.
Ever since, U.S. sanctions have applied only to “U.S. persons,” a term that does not include foreign affiliates of U.S. companies. There have been leakages, to be sure, especially via the “approval” or “facilitation” prohibitions in sanctions pertaining to Iran, Sudan and Burma and because U.S. sanctions often apply to anyone dealing in U.S.-origin goods, technology or services.
But the principle of letting U.S. foreign affiliates do their own thing regardless of affiliation with U.S. parents has thus far been preserved.
That may change.