The United States began the new year with more of the same with respect to its approach to containing Iran -- more sanctions. These new sanctions are likely to have a measurable impact on companies in various industries, but particularly in the energy sector. Below are recent developments of which energy companies should be particularly aware.
Iran Freedom and Counter-Proliferation Act of 2012
On January 2, 2013, as part of the National Defense Authorization Act for Fiscal Year 2013, President Obama signed into law the Iran Freedom and Counter-Proliferation Act of 2012 (“IFCP”). Among other things, the ICFP designates as entities of proliferation concern those parties that operate ports in Iran and those in the energy, shipping, and shipbuilding sectors of Iran, such as the National Iranian Oil Company, the National Iranian Tanker Company, and the Islamic Republic of Iran Shipping Lines, and gives the President until July 1, 2013 to block all property and interests in property of these and other parties. The IFCP also subjects to sanctions parties who sell, supply, or transfer to or from Iran certain precious, raw, or semi-finished metals and other materials, or significant goods or services used in connection with the energy, shipbuilding, or shipping sectors. Some of these sanctions with respect to the energy, shipping, and ship building sectors of Iran do not apply to the following: (1) those countries that have obtained a waiver with respect to the purchase of petroleum or petroleum products under Section 1245(d)(4)(B) of the National Defense Authorization Act for Fiscal Year 2012 (“NDAA 2012”); (2) the importation of goods under specific designated circumstances; and (3) the sale, supply, or transfer to or from Iran of natural gas.
Furthermore, the IFCP exempts from various sanctions certain natural gas projects, namely those subject to an exception under Section 603 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“TRA”). Such natural gas projects include activities related to the development of natural gas and the construction and operation of a pipeline to transport natural gas from Azerbaijan to Turkey and Europe, which will provide energy security and independence to Turkey and Europe. A natural gas project must have been initiated before August 10, 2012 pursuant to a production-sharing agreement or a necessary ancillary agreement entered into with, or a license granted by, the government of a country other than Iran. This exception was written with the Shah Deniz II natural gas project in mind, which is operated by BP and involves the following companies as shareholders: Statoil ASA, the State Oil Co. of Azerbaijan, Total SA, Lukoil Holdings, Turkish Petrolium, and Naftiran Intertrade Co., a Swiss-based subsidiary of state-owned National Iranian Oil Company.
Advisory Regarding Third-Country Exchange Houses And Trading Companies
On January 10, 2013, the Office of Foreign Assets Control (“OFAC”) issued an advisory (“Advisory”) regarding the use of third-country exchange houses and trading companies to evade U.S. sanctions against Iran. The Advisory warned of evasive practices by certain exchange houses and trading companies when moving funds on behalf of Iran, such as omitting references to Iranian addresses and names of Iranian persons or entities, as well as transmitting funds to or through the United States without referencing the involvement of Iran or designated persons. OFAC encouraged U.S. financial institutions to monitor diligently third-country exchange houses or trading companies exhibiting suspicious behavior. OFAC stressed that the Advisory “is not intended to suggest that U.S. financial institutions close accounts” for all such institutions, as not all third-country exchange houses or trading companies are “necessarily facilitating illicit finance.”
Disclosures To The SEC Regarding Sanctionable Activities Are Required Beginning In February
The Securities and Exchange Commission (“SEC”) reporting requirement included in Section 219 of the TRA takes effect on February 6, 2013. Under this reporting requirement, issuers must disclose in their annual or quarterly reports if they or their affiliates “knowingly” engaged in prohibited activities with respect to Iran, or in transactions or dealings with individuals whose property and interests in property are blocked by the U.S. Government. The disclosure must provide a detailed description of the activity, including the nature and extent of the activity, the gross revenues and net profits attributable to the activity, and whether the company or its affiliate intends to continue the activity. The SEC will be required to transmit these disclosures to the President and Congress, and to make then publicly available on the SEC’s website.
Public companies should review their activities and their affiliates’ activities with respect to transactions with Iran or entities (including vessels) subject to Iran’s jurisdiction, and should be prepared to disclose such activities in any quarterly and annual reports that must be filed with the SEC after February 6, 2013. A company must disclose any activities that occurred during the period covered by the report, which for a Form 10-K is the entire fiscal year. This requirement means, for example, that an issuer that files an annual report for the fiscal year ending December 31, 2012 is required to disclose reportable activities that took place between January 1, 2012 and December 31, 2012. Importantly, activities authorized by a U.S. federal department or agency need not be reported. This includes both general and specific licenses issued by OFAC, provided that all conditions of the applicable license are strictly observed.