On October 9, 2012, President Obama issued an Executive Order prohibiting non-U.S. companies owned or controlled by U.S. companies from doing business with Iran. The new prohibition, which the president issued pursuant to the Iran Threat Reduction and Syria Human Rights Act of 2012 (Public Law 112-158) (ITRSHRA), significantly expands the scope of U.S. sanctions against Iran.

Under the new prohibition, a U.S. company faces liability for violations of Iran sanctions by non-U.S. affiliates in which the U.S. company owns more than a 50 percent equity interest, holds a majority of seats on the board of directors or otherwise controls the actions, policies or personnel decisions. The new sanctions apply to transactions by non-U.S. affiliates with any entity "subject to the jurisdiction of Iran," defined in the Executive Order as "a person organized under the laws of Iran or any jurisdiction within Iran, ordinarily resident in Iran, or in Iran, or owned or controlled by any of the foregoing." These broad definitions mean that U.S. companies can be penalized even for transactions by non-U.S. affiliates with private entities outside of Iran.

The new prohibition is retroactive to August 10, 2012, the date ITRSHRA was enacted. Under ITRSHRA, U.S. companies can avoid penalties for actions of non-U.S. affiliates by divesting or terminating business with the non-U.S. affiliates prior to February 6, 2013.

For further discussion of ITRSHRA, please read our previous bulletin.