Background
Enforcement actions
More to come
The United States recently took a series of steps signalling that it has finally begun to enforce the most controversial extraterritorial aspects of US economic sanctions against Iran. Non-US companies in the petroleum and natural gas industries, as well as their insurance and shipping partners, should carefully consider their response to this significant change in US economic sanction enforcement priorities, particularly in light of laws in several jurisdictions prohibiting non-US companies from complying with these extraterritorial sanctions.
Background
The United States maintains an array of economic sanctions against Iran, many of which impact non-US companies that operate within the United States, deal in US-origin items and employ US persons. Thus, these sanctions require a clear nexus to the United States in order to apply to non-US persons.
However, certain economic sanctions can impact on non-US companies regardless of whether they have any connection to the United States. These economic sanctions are imposed pursuant to the Iran Sanctions Act. Enacted in 1996, the act targets investment by non-US companies in Iran's petroleum and weapons sectors. The extraterritorial aspect of the act caused concern among many US allies (eg, Canada, the European Union, Mexico), prompting them to enact so-called 'blocking statutes' prohibiting companies organised under their laws from complying with US economic sanctions that apply extraterritorially.
Due to the controversy surrounding the act, successive administrations have declined to impose these sanctions. Frustrated with the non-enforcement of the act, in 2010 Congress enacted legislation to limit the president's enforcement discretion. The resulting act - the Comprehensive Iran Sanctions, Accountability and Divestment Act - also expanded the scope of activities sanctionable under the Iran Sanctions Act and the nature of the sanctions that may be imposed.
Enforcement actions
Early enforcement of the act, as amended by the Comprehensive Iran Sanctions, Accountability and Divestment Act, has been tepid. However, on May 23 2011 the Obama administration signalled a change in its enforcement priorities with the issuance of an executive order authorising the implementation of sanctions imposed by the US State Department pursuant to the act.
The next day, the State Department imposed sanctions on seven companies pursuant to the act. Citing these companies' refined petroleum activities involving Iran, the State Department imposed an array of sanctions, ranging from the denial of export licences and export financing to the blocking of property interests subject to US jurisdiction. The sanctioned companies are as follows.
| Company | Home jurisdiction | Sanctions |
| Petrochemical Commercial Company International | Jersey/Iran | Ban on US foreign exchange transactions |
| Royal Oyster Group | UAE | Ban on US foreign exchange transactions |
| Speedy Ship | UAE/Iran | Ban on US foreign exchange transactions Ban on US banking transactions Blocking of property interests |
| Tanker Pacific | Singapore | Ban on Ex-Im bank financing Ban on loans of more than $10 million from US financial institutions Ban on US export licences |
| Ofer Brothers Group | Israel | Ban on Ex-Im bank financing Ban on loans of more than $10 million from US financial institutions Ban on US export licences |
| Associated Shipbroking | Monaco | Ban on US foreign exchange transactions Ban on US banking transactions Blocking of property interests |
| Petróleos de Venezuela | Venezuela | Ban on US government contracting Ban on Ex-Im bank financing Ban on US export licences |
Petrochemical Commercial Company International, Royal Oyster Group, Speedy Ship and Associated Shipbroking are subject to blocking and have been added to the Specially Designated Nationals List maintained by the Treasury Department's Office of Foreign Assets Control (Associated Shipbroking was already identified on this list). US persons are prohibited from having virtually any dealings with these companies.
More to come
On May 24 2011 the State Department made three announcements indicating that additional sanctions are possible under the Iran Sanctions Act.
First, the State Department issued guidelines about the provision of goods and services, including insurance, to entities that ship refined petroleum to Iran. Under the act, a company may be sanctioned if it knowingly sells, leases or provides goods, services, technology, information or support that could "directly and significantly" contribute to the enhancement of Iran's ability to import refined petroleum, or if it knowingly facilitates the maintenance or expansion of Iran's domestic production of refined petroleum products. The guidelines observe that companies in the insurance and shipping-related fields are particularly susceptible to sanctions with respect to these prohibitions.
The guidelines further explain the due diligence measures recommended for such companies. The guidelines emphasise that sanctions under the act may be imposed against any company that knew or should have known that it was engaged in sanctionable activity. The guidelines strongly suggest that a company which fails to undertake adequate due diligence may be sanctioned with respect to transactions that are ultimately determined to have involved the supply of refined petroleum and related support to Iran.
Second, the State Department issued guidelines about the provision of jet fuel to the Iranian government. Under the act, the knowing provision of jet fuel with a fair market value of $1 million, or $5 million cumulatively over 12 months, is sanctionable. The guidelines include a series of clarifications about the prohibitions under the act as they relate to the provision of jet fuel to Iran. These guidelines also emphasise the Comprehensive Iran Sanctions, Accountability and Divestment Act's 'knowingly' standard and urge jet fuel suppliers to exercise due diligence to ensure that their transactions do not involve Iran, directly or indirectly.
Third, the State Department publicised a list of companies that have agreed to reduce or abandon business involving Iran's energy sector. The list identifies companies in a variety of industries, from refined petroleum and natural gas to chemicals and automobiles. Publication of this list strongly indicates that the State Department will continue its efforts to persuade non-US companies to abandon their business dealings involving Iran, consistent with the objectives of the act and other US economic sanctions.
With these actions, the United States has signalled its intention to enforce the act. Non-US companies should evaluate how this enhanced enforcement may impact their business, as well as possible measures to mitigate their risk. At the same time, non-US companies should consider whether they are subject to blocking statutes prohibiting compliance with the act and other US economic sanctions enforced extraterritorially.
For further information on this topic please contact Robert Torresen or Lisa Crosby at Sidley Austin LLP by telephone (+1 202 736 8000), fax (+1 202 736 8711) or email ([email protected] or [email protected]).