On August 10, 2012, the US implemented new sanctions against Iran through the enactment of the Iran Sanctions, Accountability and Human Rights Act of 2012 (the “Act”).
The Act is designed to place new restrictions on the Iranian economy to compel Iran to abandon its efforts to achieve nuclear weapons capacity (and to apply sanctions against human rights violators in Syria). The Act targets specific industries in Iran, including the petroleum, petrochemical, oil and natural gas, financial, and energy sectors.
The Act comes at a time of heightened enforcement of US sanctions and export control laws. On July 30, 2012, President Obama issued a new Executive Order (“EO”) targeting foreign financial institutions and segments of Iran's energy sector and imposed sanctions on two foreign financial institutions. More recently, on August 7, 2012, in an appeal before the High Court of Singapore, US authorities obtained the extradition of two Singaporean nationals to face charges in the US that they violated US export controls with respect to Iran. What is more, US authorities recently concluded one of the largest enforcement actions in history for violations of sanctions against a major financial institution, and indications are that more enforcement actions against foreign financial institutions may soon follow.
New Iran Sanctions Legislation
The Act will likely have far-reaching effects on organizations with any connection to Iran. The new measures include, among other things:
- imposing penalties against any US owned or controlled non-US entity engaging in trade with Iran that is prohibited by the current US embargo. The term “own or control” is defined as (1) holding more than 50 percent of the equity interest by vote or value in the entity; (2) holding a majority of seats on the board of directors of the entity; or (3) otherwise controlling the actions, policies, or personnel decisions of the entity. This provision will go into effect within 60 days from the date of the enactment of the Act;
- requiring any US-listed company to disclose certain activities of the company or its affiliates that are prohibited by the US Iran sanctions regime;
- imposing new prohibitions on those providing underwriting services, insurance or re-insurance to the National Iranian Oil Company or the National Iranian Tanker Company;
- penalizing the owner or operator of any vessel used to conceal Iranian origin crude oil or refined petroleum products, or that transports crude oil from Iran to any country that has not been placed on the so-called “white list” of countries deemed to have significantly reduced their purchase of Iranian oil;
- imposing sanctions on any person knowingly participating in a petroleum resources joint venture established on or after January 1, 2002 in which the government of Iran is a substantial partner or investor;
- restricting the purchase of Iranian sovereign debt;
- banning the practice of so-called “barter transactions” pursuant to which goods are traded to Iran in return for oil;
- restricting the transfer to Iran of certain goods or technologies, including weapons, riot control equipment and surveillance equipment, that are likely to be used for human rights abuses;
- requiring US government contractors to certify that neither they nor their subsidiaries have engaged in significant economic transactions with designated sections of the Iran Revolutionary Guard Corps; and
creating grounds for the denial of visas for the officers or shareholders of any organization designated under the US sanctions regime against Iran.
Overall, the Act has broad extra-territorial reach and is geared towards changing the conduct of non-US companies and persons in relation to Iran. It is expected that the US Office of Foreign Assets Control will soon follow with regulations to clarify the interpretation and implementation of the Act. Even organizations with limited connection to the US should pay close attention to these US government actions as the risk of running afoul of US sanctions with respect to any activity that touches upon Iran has been significantly increased.
New EO Authorizing Additional Sanctions with Respect to Iran
On July 30, 2012, the Obama administration ordered a new round of economic sanctions against foreign financial institutions and Iran's energy sector in an Executive Order. On the same day, the US imposed sanctions on two financial institutions based in Iraq and China, respectively. Details about that Executive Order and the contemporaneous enforcement actions can be found at our Client Alert dated Aug 2, 2012.
Singapore Court approved extradition of Singaporean nationals for violations of US export controls and denied extradition for violation of US sanctions against Iran
In February 2012, a Singaporean Court granted a request from the US authorities to extradite four Singaporean nationals for violations of US export control laws. Two of the individuals were charged for conspiracy to commit violation of EO 12957 (which prohibits participation in the development of petroleum resources in Iran) and two of the individuals were charged with exporting communications equipment to Iran in violation of the Arms Export Control Act.
On August 7, 2012, the Singaporean High Court affirmed the extradition of only those alleged to have violated the Arms Export Control Act. The Court declined to extradite those alleged to have violated the US / Iran sanctions on the grounds that the offense did not satisfy the “double criminality” requirement, ie, the offences alleged in the US would not constitute offences under Singaporean law (Singapore follows UN sanctions against Iran, but they are not as broad as the US regime).
The decision is noteworthy in that it exemplifies the aggressive posture taken by US authorities in enforcing its sanctions regime as well as the limits that these same agencies may face in wielding their enforcement powers abroad.
The last two weeks has witnessed several significant developments with respect to US sanctions. Global companies, and their employees, should consider these significant changes to US law, which reach beyond the energy and financial sectors. Moreover, companies should assess whether their subsidiaries are engaging in restricted activities, review whether they are covered by contractual provisions that would support non-performance, assess the ability to obtain OFAC licenses, and evaluate next steps.