The Iran Threat Reduction and Syria Human Rights Act of 2012 (the “ITR Act”) adds new reporting obligations for companies that are required to file periodic reports with the Securities and Exchange Commission (the “SEC”). New Section 13(r) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires an SEC reporting company to disclose in its quarterly and annual reports if, during the relevant reporting period, it or any of its affiliates knowingly engaged in certain Iran-related activities— particularly investments or transactions relating to the Iranian petroleum, petrochemical or marine transport sectors—or transactions with persons designated under certain executive orders relating to the prevention of terrorism and the proliferation of weapons of mass destruction.

On December 4, 2012, the SEC published Compliance and Disclosure Interpretations (“CDIs”) related to the new disclosure requirements contained in the ITR Act. The new CDIs confirm, among other things, that:

  • The new disclosure requirements apply to all quarterly and annual Exchange Act reports due after February 6, 2013.
  • The term “affiliate” as used in Section 13(r) has the meaning in Exchange Act Rule 12b-2, which provides that an affiliate is “a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.” This confirmation has potentially broad implications for reporting companies, as a reporting company may be required to report the activities of certain “affiliates” for which it does not exercise sufficient control as a practical matter to require their cooperation in the collection of the relevant information. For example, a reporting company controlled by a private investment fund may be required to disclose not only its own covered activities, but also any such activities engaged in by other portfolio companies controlled by the same private investment fund. An analysis of what disclosure is required is highly fact-specific, and the SEC has not issued any formal guidance about how issuers should ensure proper disclosure in circumstances involving portfolio companies controlled by private investment funds.

For more information on the new disclosure requirements in the ITR Act and the ITR Act generally, please see the September 5, 2012 Davis Polk Client Memorandum, New Law Requires Issuers to Disclose Certain Iran-Related Transactions and the September 12, 2012 Davis Polk Client Memorandum, United States Enacts Further Sanctions on Iran and Syria: the Iran Treat Reduction and Syria Human Rights Act of 2012. In addition, for more information on the CDIs, please see the December 5, 2012 Davis Polk Client Newsflash, SEC Issues Guidance on New Iran Disclosure Requirements.