On July 12, 2012, the United States added a substantial number of oil, banking, and shipping companies to the list of Specially Designated Nationals ("SDN list") subject to US economic sanctions. The designation of this latest group of entities was made by the US Treasury Department, in coordination with the US State Department. It is part of a continuing effort to expose the use of front companies and other illicit methods employed by Iran to circumvent international sanctions. The move is intended to further limit the Iranian government's ability to finance its nuclear weapons program.
This action by the US comes as Iran reportedly faces unprecedented challenges in exporting crude oil to its overseas customers. The European Union embargo on Iranian oil that become effective on July 1, 2012, prohibiting the import, purchase or transportation of Iranian crude oil, petroleum and petrochemical products. The sanctions also ban the provision of financing or financial assistance (direct or indirect), including financial derivatives, insurance and reinsurance, related to the import, purchase, or transport of Iranian crude oil, petroleum and petrochemical products. (This prohibition on financial services also extends to non-EU third country purchases of Iranian crude oil, petroleum and petrochemical products.) The EU restrictions, along with a similar United States that recently went into effect, have forced Iran to stockpile significant amounts of crude oil that it currently cannot sell. Iran reportedly is nearing the capacity of its onshore storage facilities, so it must store substantial quantities of crude oil on container vessels at sea.
Within this context, the US has sought to increase the economic and political pressure on Iran, in part by exposing - and imposing sanctions on - Iranian front companies in the oil, banking, and shipping sectors. On July 12, the US made several such identifications pursuant to US Executive Order 13599 ("EO 13599"). EO 13599 was issued on February 6, 2012. It freezes1 the property and interests in property (within US jurisdiction) of "the Government of Iran"2 - EO 13599 also generally prohibits US persons from doing business with the Government of Iran.3
Notably, the provisions of EO 13599 apply to an entity regardless of whether the US Government has publicly identified that entity as "the Government of Iran" and added it to the SDN list. To help US persons better understand - and meet - the potential compliance challenges posed by this framework, from time to time the US announces identifications of certain entities and individuals who are considered by the US to be "the Government of Iran" for sanctions purposes. The July 12, 2012 announcement is particularly notable both because of the large number of designations made and the specific designation of the National Iranian Tanker Company.
Among the key aspects of the July 12 announcement are the following:
Oil. The US exposed several front companies involved in Iran's efforts to remain engaged in the international petroleum markets by evading the requirements of sanctions regimes imposed recently by the US, European Union, and other nations that seek to drastically curtail Iran's ability to export crude oil. The US identified four front companies for the Naftiran Intertrade Company ("NICO") or the National Iranian Oil Company ("NIOC"). Both NICO and NIOC were added to the SDN list in 2008 and are central to Iran's ability to conduct oil sales. The front companies identified by the US on July 12 are located in Switzerland, Hong Kong, Malaysia, and Dubai. All four are in key geographic areas of focus for the US Government as it seeks to enforce sanctions against Iran.
Financial Services. The US identified 20 additional Iranian financial institutions that are blocked under EO 13599. US authorities are mindful that many non-US financial institutions also screen their customers and counterparties against the SDN list, so the addition of these financial institutions to the list is intended to have more global ramifications beyond merely prohibiting US persons from dealing with the designated banks. This reflects the ongoing efforts by the US to further isolate Iran from global markets, and to prevent Iran from obtaining access to international trade and investment.
Shipping. The July 12 actions by the US also targeted Iran's shipping fleet, which reportedly is used by Iran to evade international sanctions on its oil exports and on its involvement in weapons of mass destruction activities. Several major news outlets have recently reported on Iran trying to camouflage its ships by repainting and/or re-flagging its vessels, as well as by turning off ships' GPS transponders contrary to international maritime law and custom.
For the first time, the US identified and listed as a Specially Designated National the National Iranian Tanker Company ("NITC"), a major international container company that purports to be privately held, but which the US now officially views to be owned or controlled by the Government of Iran. In addition to adding NITC to the SDN list as a corporate entity, the US also designated 58 of NITC's vessels and 27 of its affiliates.
The July 12 announcements also included designations related to the Islamic Republic of Iran Shipping Lines ("IRISL"). These additions to the SDN list were made pursuant to US Executive Order 13382 ("EO 13382"), which authorizes sanctions on persons involved in Iran's weapons of mass destruction proliferation activities. In addition to the asset blocking measures and the restrictions on doing business with US persons outlined above, EO 13382 also prohibits any persons designated under its authority from receiving a visa to enter the United States. The US Government designated seven new vessels because of their affiliation with IRISL, bringing the total number of IRISL-related blocked vessels to 155. The US also updated its SDN listings for 57 IRISL-affiliated vessels that, since their original listing, have been renamed and/or re-flagged. Additionally, the US added to the SDN list a Dubai-based company that acts or purports to act on behalf of IRISL.
As the international sanctions against Iran continue to intensify, active monitoring of the policy landscape remains critical. The evolving structure of the various restrictions on Iran's oil exports and vessel fleet makes it especially important to employ enhanced due diligence measures to mitigate risk. Similarly, given the EU's embargo on Iranian crude oil, petroleum and petrochemical products, attention should be focused on EU Member States and other countries that may impose new national sanctions regimes.