On August 9, 2012, a new Executive Order signed by President Obama once again tightened U.S. sanctions against Iran. While one part of the new Executive Order authorizes the framework for implementing the Iran Threat Reduction and Syria Human Rights Act of 2012 that was signed into law in August 2012 (“ITRSHRA”), there are additional provisions relating to increased sanctions against those entities and individuals conducting business with Iranian interests. Certain actions by non-U.S. subsidiaries of U.S. parent companies will now also result in direct liability to those U.S. parent companies.

Background

The U.S. continues to close perceived loopholes and strengthen existing sanctions programs targeting Iran, including the Iranian petroleum and petrochemical industries. This latest Executive Order is titled “Authorizing the Implementation of Certain Sanctions Set Forth in the Iran Threat Reduction and Syria Human Rights Act of 2012 and Additional Sanctions with Respect to Iran” (http://www.treasury.gov/resource-center/sanctions/Programs/Documents/2012iranthreat_eo.pdf). Among other things, this Executive Order authorizes the enforcement of the ITRSHRA provisions. There are also specific additional measures now put into place to prevent persons sanctioned under other pieces of legislation, namely the Iran Sanctions Act of 1996, as amended (“ISA”), and the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (“CISADA”), from being able to conduct any business with U.S. financial institutions and U.S. investors as well as subject the property and interests in property of sanctioned persons to blocking by U.S. entities and their foreign branches.

Likely of most interest to non-U.S. based or incorporated companies is Section 4 of the new Executive Order. Section 4 now specifically extends prohibitions to foreign subsidiaries of U.S. entities from knowingly engaging in any transaction, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran, if that transaction would be prohibited for a U.S. person under the previous Executive Orders and regulations relating to Iranian sanctions by the U.S. Government. “Knowingly” engaging in a transaction includes a person that has actual knowledge or should have known of the relevant conduct, circumstance or result. A “person subject to the jurisdiction of the Government of Iran” means an Iranian entity or a person or entity in Iran, ordinarily resident in Iran, or owned or controlled by any of the foregoing (i.e., a non-Iranian subsidiary of an Iranian company).

For the first time, penalties assessed for these violations may now be imposed directly on the U.S. parent of the foreign subsidiary or subsidiaries engaging in these transactions, unless the parent entity divests or terminates its business with the subsidiary not later than February 6, 2013.

Advice

The advice relating to engaging in business with Iranian interests remains unchanged. There are significant and increasing risks to companies and individuals, regardless of location or jurisdiction of formation, that engage in transactions with Iranian companies, subsidiaries and assets. It is difficult for most international companies, especially those involved in energy, shipping and other forms of transportation, to avoid the reach of U.S. sanctions against Iran. There is no indication that these sanctions programs will be relaxed at any point in the near future and, to the contrary, one should expect continuing tightening of the sanctions programs by the U.S. Government and other governments and organizations around the world.