On June 3, 2013, President Obama signed Executive Order 13645 ("E.O."), "Authorizing the Implementation of Certain Sanctions Set Forth in the Iran Freedom and Counter-Proliferation Act of 2012 and Additional Sanctions with Respect to Iran." (Available here.) Concurrently with the issuance of the E.O., the Office of Foreign Assets Control ("OFAC") published Frequently Asked Questions about the E.O. (Available here.) This E.O. is the latest in a series of economic sanctions designed to thwart Iran's nuclear proliferation program. In addition to implementing certain provisions of the Iran Freedom and Counter-Proliferation Act of 2012 ("IFCA"), which was signed into law on January 2, 2013, the E.O. provides for new sanctions that target transactions involving the Iranian rial, Iran's automotive sector, and persons providing material assistance to certain persons blocked under the laws and regulations pertaining to Iranian sanctions. The provisions of both IFCA and the E.O. are scheduled to go into effect on July 1, 2013.
Implementation of IFCA
The E.O. implements parts of IFCA, including Sections 1247 and 1249. It also expands the scope of authorized sanctions for transactions and activities covered by IFCA.
First, the E.O. tightens financial sanctions against foreign financial institutions ("FFIs") under Section 1247 of IFCA. Specifically, under Section 3(a)(i) of the E.O., FFIs may be sanctioned for knowingly conducting or facilitating a significant financial transaction on behalf of (i) an Iranian person on OFAC's Specially Designated Nationals and Blocked Persons List (the "SDN List"), or (ii) certain other persons on the SDN List whose property and interests in property are blocked pursuant to Executive Order 13599 or the E.O. Authorized sanctions include prohibition or restrictions on the opening or maintaining of correspondent accounts or payable-through accounts in the United States.
There are a number of exceptions to this provision, including:
- transactions on behalf of an Iranian depository institution whose property and interests in property are blocked solely pursuant to Executive Order 13599;
- transactions that provide agricultural commodities, food, medicines, or medical devices to Iran (i.e. transactions for the provision of humanitarian aid);
- a significant financial transaction conducted or facilitated by a FFI for the purchase of petroleum or petroleum products from Iran if a significant reduction exception under Section 1245(d)(4)(D) of the National Defense Authorization Act applies to the country with primary jurisdiction over the FFI, the transaction is for trade between Iran and the country with primary jurisdiction over the FFI, and any funds owed to Iran under the trade are credited to an account located in the country with primary jurisdiction over the FFI;
- certain significant financial transactions conducted or facilitated by a FFI for the sale, supply, or transfer of natural gas to or from Iran if the transaction is solely for trade between Iran and the country with primary jurisdiction over the FFI, and any funds owed to Iran under the trade are credited to an account located in the country with primary jurisdiction over the FFI; and
- certain activities pertaining to the natural gas pipeline from the Shah Deniz gas field in Azerbaijan to Europe and Turkey.
- The E.O. also implements the statutory requirements of Section 1249 of IFCA by blocking the property and property interests and suspending entry into the United States of persons engaging in corruption or otherwise diverting goods or proceeds intended for the Iranian people.
In addition to implementing parts of IFCA, the E.O. authorizes sanctions against three new types of transactions or activities – the Iranian rial, the Iranian automotive sector, and the provision of material assistance to persons blocked under the laws and regulations pertaining to Iranian sanctions. The following prohibitions apply except to the extent provided by statutes, regulations, orders, directives, or licenses issued pursuant to the E.O. They apply to any contract entered into or any license or permit granted prior to the effective date of this order, i.e. July 1, 2013.
Material Assistance to Blocked Persons
Similar to Section 3's prohibition of FFIs transacting on behalf of blocked persons, Section 2 of the E.O. authorizes the blocking of the property and interests in property of persons providing material assistance to (i) Iranian persons listed on the SDN List, or (ii) certain other persons whose property and property interests are blocked pursuant to Executive Order 13599 or the E.O. OFAC has declared that exceptions will be made for the provision of humanitarian aid and basic services such as telecommunications. Certain activities pertaining to the natural gas pipeline from the Shah Deniz gas field in Azerbaijan to Europe and Turkey are also excepted.
OFAC anticipates publishing an online list to help identify Iranian persons included on the SDN List.
Section 1 of the E.O. directly targets Iran's currency, the rial, by authorizing sanctions against FFIs that:
- knowingly conduct or facilitate significant transactions related to the purchase or sale of Iranian rials or a derivative, swap, future, forward, or other similar contract whose value is based on the exchange rate of the Iranian rial; or
- maintain significant funds or accounts outside the territory of Iran denominated in the Iranian rial.
OFAC will determine, on a case-by-case basis, whether a transaction is "significant" based on a broad list of factors set forth in the Iranian Financial Sanctions Regulations. Applicable sanctions include a prohibition or restriction on a FFI's opening or maintaining of a correspondent or payable-through account in the United States, as well as blocking a FFI's property and property interests that are subject to the jurisdiction of the United States.
Section 1244 of IFCA targets Iran's energy, shipping, and shipbuilding sectors in an effort to diminish the revenue that the Iranian government can generate in support of nuclear proliferation activities. The E.O. adds the automotive sector as a target of sanctions under two separate provisions – Section 3(a)(ii) and Section 5.
Section 3(a)(ii) prohibits a FFI from knowingly conducting or facilitating a significant financial transaction "for the sale, supply, or transfer to Iran of significant goods or services connected to Iran's automotive sector." This provision authorizes the same sanctions as those authorized for a FFI's acting on behalf of a blocked person – a prohibition or restriction on the opening and maintaining in the United States of a FFI's correspondent or payable-through accounts.
Section 5 of the E.O. authorizes the imposition of sanctions on a person that knowingly engages in a significant transaction "for the sale, supply, or transfer to Iran of significant goods or services connected to the automotive sector of Iran."
"Automotive sector of Iran" is defined in Section 14(a) of the E.O. as "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." OFAC expects that coming regulations will specifically "include goods or services that contribute to (i) Iran's ability to research, develop, manufacture, and assemble light and heavy vehicles, and (ii) the manufacturing or assembling of original equipment and after-market parts used in Iran's automotive industry."
Sections 6 and 7 of the E.O. set forth a broad range of authorized sanctions for persons engaging in prohibited transactions involving the Iranian automotive sector, including:
- the refusal by the Export-Import Bank to provide any warranty, insurance or extension of credit for the export of goods or services to a sanctioned person;
- the refusal of any specific license or any other specific permission by the U.S. government that is required for the export or reexport of goods or technology to a sanctioned person;
- denial or termination of a sanctioned financial institution's designation as a primary dealer in U.S. debt instruments;
- a prohibition on a sanctioned financial institution serving as an agent of the U.S. government or serving as a repository for U.S. government funds;
- a prohibition on procurement of any goods or services by U.S. government agencies from a sanctioned person;
- the refusal of a visa to and exclusion from the United States of any corporate officer or controlling shareholder of a sanctioned person that is not a U.S. citizen;
- a prohibition on U.S. financial institutions making loans to a sanctioned person for more than $10 million in any 12-month period;
- a prohibition of any transaction in foreign exchange that is subject to the jurisdiction of the United States and in which a sanctioned person has any interest;
- a prohibition of transfers of credit or payments between financial institutions or by, through or to any financial institutions that are subject to the jurisdiction of the United States and involve any interest of a sanctioned person;
- the blocking of all property and property interests of a sanctioned person that are in the United States, later come within the United States, or are or later come within the possession or control of any United States person (including any foreign branch), and a prohibition on transfer or withdrawal of such property and interests in property;
- a prohibition on significant investments or purchases of a sanctioned person's equity or debt instruments by a United States person;
- a prohibition or restriction on imports into the United States from a sanctioned person; and
- the imposition of any of the sanctions discussed above on the officers of a sanctioned person.
In addition to implementing parts of IFCA, the E.O. adds sanctions targeting the Iranian rial, the Iranian automotive sector, and persons materially assisting blocked persons. These provisions will go into effect on July 1, 2013. As there are no general exceptions for contracts entered into prior to this effective date, global companies should take immediate steps to ensure compliance