On June 11, 2012, President Obama issued a new determination under Section 1245(d)(4) of the National Defense Authorization Act for Fiscal Year 2012 (NDAA) that a “sufficient supply” of petroleum and petroleum products from countries other than Iran continues to exist. This determination paves the way for the President to impose sanctions on foreign financial institutions, both private and those that are government-owned or controlled, that engage in significant financial transactions involving Iranian petroleum or petroleum products with the Central Bank of Iran or certain specially-designated Iranian financial institutions. The President issued a similar finding on March 30, 2012.
Following the June 11, 2012 determination, the US Department of State announced additional exceptions from the Iranian sanctions mandated by the NDAA. The State Department determined that seven countries had “significantly reduced” their volume of crude oil purchases from Iran: India, Malaysia, South Korea, South Africa, Sri Lanka, Turkey, and Taiwan. They join 11 countries announced in March: Belgium, the Czech Republic, France, Germany, Greece, Italy, Japan, the Netherlands, Poland, Spain, and the United Kingdom. Although there is no specific definition of what constitutes a “significant reduction” of the purchase of Iranian petroleum products, media reports suggest that the excepted countries have reduced their purchases by an estimated 20 percent. Financial institutions in the countries that received waivers will have a six-month reprise from the threat of US sanctions, as the NDAA mandates that the President review the waivers every 180 days. Under the NDAA, these countries must continue to reduce their volume of crude oil purchases from Iran to remain eligible for an exception.
Non-government-owned foreign financial institutions located in countries that have not received an exception can be sanctioned if they conduct or facilitate significant financial transactions with the Central Bank of Iran or other designated Iranian financial institutions, involving (a) the purchase of Iranian petroleum or petroleum products or (b) any other transaction that would meet the significant financial transaction criteria set forth in the Iranian Financial Sanctions Regulations. Government-owned foreign financial institutions in non-exempt countries can be sanctioned for conducting or facilitating significant financial transactions involving the purchase or sale of Iranian petroleum or petroleum products only. Sanctions can include the prohibition or the imposition of “strict conditions” on the maintenance of correspondent or payable-through accounts at US financial institutions. However, sanctions are unlikely to be imposed immediately, as the US Government must gather evidence to support sanctions against foreign financial institutions that have engaged in sanctionable activity. Additionally, we understand that the US Government’s priority is to convince foreign financial institutions to stop or curtail such business significantly rather than to impose sanctions.
The new exceptions bring the total number of countries that have “significantly reduced” their Iranian petroleum products purchases to 18, including major importers, such as India, Japan, South Africa, South Korea, and Turkey. This announcement leaves China and Singapore as the remaining major importers of Iranian crude oil whose financial institutions could face US sanctions, although the former has signaled a reduction in Iranian petroleum product purchases. The announcement also demonstrates the determination of the United States to reduce Iranian income derived from its energy sector, largely in an effort to persuade Iran to commence negotiations with respect to its nuclear program.