New Executive Order Targets Foreign Exchange, Material Support, Auto Sector, Consumer Goods Diversion and Petrochemicals
Amid a series of recent developments in US sanctions on Iran, on June 3, 2013, US President Barack Obama issued Executive Order ("EO") 13645, further expanding the scope of US extra-territorial restrictions designed to isolate Iran from the global economy. EO 13645 implements certain authorities established under the Iran Freedom and Counter-Proliferation Act of 2012 (“IFCA”), as well as other measures. The EO includes five major areas of focus: (i) restricting Iran's ability to convert its currency, the rial, into other currencies; (ii) enhancing sanction authorities regarding persons who provide material support to certain prohibited parties; (iii) imposing new sanctions on involvement in Iran's automotive sector; (iv) expanding penalties on persons engaged in corruption and other acts that misappropriate or divert humanitarian goods intended for the people of Iran; and (v) expanding the scope of petroleum sanctions to the petrochemical sector.
Set forth below are key aspects of EO 13645.
As part of an effort by the United States to increase the pressure on Iran’s currency and prevent Iran from using currency conversions to obtain much-needed foreign exchange, the EO authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to impose sanctions on foreign financial institutions that knowingly conduct or facilitate any significant transaction related to the purchase or sale of Iranian rials or other similar contracts whose value is based on the exchange rate of the Iranian rial. The EO also authorizes the imposition of sanctions on foreign financial institutions that maintain significant funds or accounts outside the territory of Iran which are denominated in the Iranian rial. Pursuant to EO 13645, the Secretary of the Treasury may prohibit or impose strict conditions on any US correspondent or payable-through accounts of such foreign financial institutions, or block their property (and interests in property) within US jurisdiction.
EO 13645 authorizes the implementation of sanctions under the IFCA on any person determined by the President to be involved in Iran’s energy, shipping, shipbuilding, or port operations sectors, or a person who knowingly provides material support to the foregoing. EO 13645 also authorizes the imposition of sanctions on a somewhat wider range of persons—namely, any person that has materially assisted, sponsored, or provided financial, material, or technological support for any Iranian person included on the list of Specifically Designated Nationals and Blocked Persons (the “SDN list”) administered by the US Treasury Department’s Office of Foreign Assets Control (“OFAC”). Notably, and in line with other US sanctions authorities, this provision of EO 13645 does not, by its terms, cover the provision of material support to certain Iranian financial institutions that are on the SDN list for reasons other than linkage to weapons of mass destruction proliferation, support for international terrorism, or facilitation of human rights abuses.
EO 13645 includes some particular rules with respect to the imposition of sanctions on foreign financial institutions pursuant to this “material support” restriction. The EO does not apply to a foreign financial institution’s facilitation of the purchase of Iranian petroleum or petroleum products where the country with primary jurisdiction over the foreign financial institution has received a “significant reduction” determination by the US Government. The provisions under the EO also do not apply to a foreign financial institution engaged in the sale, supply, or transfer to or from Iran of natural gas where the transaction is solely for bilateral trade between the country with primary jurisdiction over the financial institution and Iran and where any funds owed to Iran as a result of the transaction are credited to an account in the country that has such primary jurisdiction.
Additionally, consistent with US Government policy, this provision, by its terms, does not reach persons who are involved in the construction of the Shah Deniz pipeline.
In a major expansion of US sanctions, the EO authorizes the Secretary of State, in consultation with Secretary of the Treasury and several other senior officials1, to impose a range of penalties on any person that knowingly engages in a significant transaction for the sale, supply, or transfer to Iran of significant goods or services used in connection with the automotive sector of Iran. (Under the EO, the “automotive sector of Iran” includes the manufacturing or assembling in Iran of light and heavy vehicles, including passenger cars, trucks, buses, minibuses, pick-up trucks, and motorcycles, as well as original equipment manufacturing and after-market parts manufacturing relating to such vehicles.)
The EO authorizes several types of penalties that may be imposed for violating these new restrictions on Iran’s automotive sector, including: prohibiting any US financial institution from making loans or providing credits in excess of $10,000,000 in a 12-month period; prohibiting any transactions in foreign exchange that are subject to US jurisdiction; prohibiting transfers of credit or payments between financial institutions that involve an interest of the sanctioned person; blocking all property and property interests within US jurisdiction; prohibiting any United States person from investing in or purchasing significant amounts of equity or debt instruments of a sanctioned person; and prohibiting the importation of goods, technology, or services into the United States from any sanctioned person. Penalties can also include US visa bans, denial of export licenses, and denial of export financing.
Corrupt Activities and Diversion of Goods and Services Intended for the People of Iran
The EO authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to block all property and interests in property (within US jurisdiction) of any person engaged in corruption, diversion, or the misappropriation of proceeds relating to goods intended for the people of Iran, including agricultural commodities, food, medicine, and medical devices. These sanctions also apply to any person who provides material assistance, sponsorship, or support for these activities. Persons engaged in this sort of sanctionable conduct are also subject to US visa restrictions and debarment from US Government contracts.
This provision is intended to support ongoing efforts by the United States to target the impact of sanctions so that they do not unduly burden the segments of the Iranian public who are not involved in the Government of Iran’s weapons of mass destruction programs, support for terrorism, or human rights abuses. Despite efforts by the United States to limit the blow to the Iranian populace, ensuring that shipments of food and medicine actually reach the Iranian people remains a challenge and this expanded authority is intended to help address it.
The EO also continues to expand the scope of US sanctions with respect to Iran’s petrochemicals sector, which is currently the Iranian Government’s second-largest source of revenue. EO 13645 amends a previous Executive Order (Number 13622 - issued July 20, 2012) by expanding the scope of activities subject to US sanctions to include the "sale, transport, or marketing of petrochemical products from Iran,” in addition to "the purchase or acquisition of petrochemical products from Iran."
Notably, on May 31, 2013, both the US Treasury Department and the US State Department announced new petrochemicals-related enforcement actions. Treasury announced the identification of eight Iranian petrochemical companies2 that are owned or controlled by the Government of Iran and thus subject to sanctions. State imposed penalties on two other companies for knowingly engaging in a significant transaction for the purchase or acquisition of petrochemical products from Iran.
EO 13645 represents the latest in a series of efforts by the United States to expand the scope of extraterritorial sanctions with respect to Iran, which now reach involvement in many of that country’s key economic sectors. Despite the ever broader coverage of US sanctions, there is also a new push by the United States to tailor the impact of US sanctions—against Iran and against other countries, such as Syria - so that they are less burdensome on ordinary civilians, and more targeted to regime officials. EO 13645’s provisions regarding corruption and diversion of consumer goods is a notable example, as is the new General License D to the Iranian Transactions and Sanctions Regulations. General License D, which was issued on May 30, 2013, authorizes certain exports and reexports to the Iran people of personal telecoms goods and services.
As the Iran sanctions landscape continues to evolve, active monitoring of this space remains critical—particularly with Congress at work on a new Iran sanctions bill which, if it becomes law, will be the fifth major legislative expansion of Iran sanctions since 2010.