President Obama has issued an executive order blocking all property of the government of Iran and Iranian financial institutions, including the Central Bank of Iran, which became effective on February 6 2012. The executive order, which implements the National Defence Authorisation Act 2012, comes in the midst of growing international concern regarding Iran's nuclear programme and its recent threats to block the Strait of Hormuz.
The order affects property that:
- is currently in the United States;
- comes into the United States; or
- comes into the possession or control of any US person.
Foreign branches of US entities are required to comply with the order, including the foreign branches of US financial institutions processing transactions for non-US, third-country clients. 'Property' is broadly defined to include many kinds of asset, including services and contracts. US persons have 10 business days to report blocked property to the Treasury Department's Office of Foreign Assets Control (OFAC).
The new blocking requirements mark a significant escalation in US efforts to isolate Iran's government and constrain its banking sector. As a result of these new sanctions, US financial institutions may no longer reject financial transfers involving the government of Iran or Iranian financial institutions. Instead, US financial institutions must now block such funds and report them to OFAC.
In addition to the new blocking requirement, the executive order also prohibits:
- donating food, clothing or medicine to the government of Iran or Iranian financial institutions;
- providing any funds, goods or services to, or for the benefit of, the government of Iran or Iranian financial institutions; and
- receiving any funds, goods or services from the government of Iran or Iranian financial institutions.
The new sanctions are designed to enhance, rather than replace, current US sanctions. To that end, OFAC has issued two general licences that permit the continuation of most activities currently authorised under the Iranian Transactions Regulations administered by OFAC, including personal remittances.
US companies currently holding specific licences that authorise activities involving the government of Iran or Iranian financial institutions – including, for example, specific licences issued under the Trade Sanctions Reform and Export Enhancement Act that authorise financing by Iranian financial institutions – may continue to rely on such licences until they expire. With some exceptions, specific licences without an expiration date that authorise activities involving the government of Iran or Iranian financial institutions will expire with regard to such activities on April 6 2012.
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]).