Yesterday, May 8, 2019, President Donald Trump issued an Executive Order (EO) authorizing broad new sanctions with respect to the steel, aluminum, iron, and copper sectors of Iran.
The announcement came hours after Iran announced that it would no longer fully comply with elements of the Joint Comprehensive Plan of Action that it negotiated with world powers in 2015.
What does the Executive Order cover?
The EO is a major expansion of existing statutory secondary sanctions which relates to steel and aluminum and also addresses two new sectors, copper and iron. The EO authorizes the Administration to add to the Specially Designated Nationals List any person who is determined:
- To be operating in the iron, steel, aluminum, or copper sector of Iran, or to be a person that owns, controls, or operates an entity that is part of the iron, steel, aluminum, or copper sector of Iran;
- To have knowingly engaged, on or after the date of this order, in a significant transaction for the sale, supply, or transfer to Iran of significant goods or services used in connection with the iron, steel, aluminum, or copper sectors of Iran;
- To have knowingly engaged, on or after the date of this order, in a significant transaction for the purchase, acquisition, sale, transport, or marketing of iron, iron products, aluminum, aluminum products, steel, steel products, copper, or copper products from Iran;
- To have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of any person whose property and interests in property are blocked pursuant to this section; or
- To be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to this section.
Moreover, if a foreign financial institution is found to have done (i), (ii), or (iii) above, the Treasury Department can prohibit it from opening or impose strict conditions on maintaining US correspondent accounts or US payable-through accounts.
What impact does this have on the Iran Freedom and Counter-Proliferation Act?
This is a very substantial expansion of the Iran Freedom and Counter-Proliferation Act’s (IFCA) Section 1245 sanctions on the sale, supply, or transfer to Iran of certain materials, including raw and semi-finished metals such as aluminum or steel, as it is far broader than those provisions with respect to steel and aluminum. In addition, this Executive Order covers two new sectors: iron and copper.
How does OFAC intend to interpret “significant” in the Executive Order?
In its FAQs, OFAC indicated that it intends to interpret “significant” as it has under IFCA in FAQ 289, which states as follows:
As a general matter, in determining for purposes of IFCA and relevant Executive orders whether transactions, financial transactions, or financial services are significant, the Department of the Treasury will rely on the interpretation set out in §561.404 of the I[ran] F[inancial] S[anctions] R[egulations]. The IFSR provide that the Department of the Treasury may consider the totality of the facts and circumstances set forth a list of broad factors that can play a role in the determination whether transactions, financial services, and financial transactions are significant, including:
(a) The size, number, and frequency of the transactions, financial services, or financial transactions;
(b) The nature of the transactions, financial services, or financial transactions, including their type, complexity, and commercial purpose;
(c) The level of awareness of management and whether the transactions are part of a pattern of conduct;
(d) The nexus of the transactions, financial services, and financial transactions and blocked persons;
(e) The impact of the transactions, financial services, and financial transactions on statutory objectives;
(f) Whether the transactions, financial services, and financial transactions involve deceptive practices;
(g) Whether the transactions solely involve the passive holdings of Central Bank of Iran (CBI) reserves or repayment by the CBI of official development assistance or the transfer of funds required as a condition of Iran’s membership in an international financial institution; and
(h) Other relevant factors that the Secretary of the Treasury deems relevant.
Is there a wind-down period?
The Executive Order was effective upon signing on May 8, 2019. However, there is a 90 day wind-down period but this is a wind-down of existing business only. Entering into new business after May 8, 2019 is considered to be sanctionable.