The Iran Threat Reduction and Syria Human Rights Act (the "Act"), the latest in an ever expanding arsenal of US-based long-arm jurisdiction statutory instruments, was passed into law on 10 August 2012. It is the third law focusing on Iranian sanctions to have been passed in the last two years and the effect of the three regulations (the other two being the Comprehensive Iran Sanctions, Accountability and Divestment Act and the National Defense Authorization Act) is to stifle Iran's ability to develop its petroleum and petrochemical industries, its nuclear enrichment program and its financial sector. This aim is largely achieved by ensuring that companies who, however indirectly, do business with Iran are subjected to intense pressure from competitors, customers, the media, regulators, amongst others.
The Act significantly increases the inherent risks for those companies conducting business in the Middle East, particularly insurers, financial institutions, traders, vessel owners, shippers and charterers and comes at a time when the US has issued a number of Executive Orders and taken a series of enforcement actions against companies in respect of sanctions.
Summary of Key Provisions
One aspect of the Act is the introduction of a plethora of new and enhanced provisions in relation to dealings with Iran, including:
- A prohibition on any non-US companies which are "owned or controlled" by US persons from engaging in transactions that would be illegal if done by their US parents - historically, US companies have been banned from doing almost any business with Iranian entities.
- Subjecting US parents to civil penalties for the conduct of their foreign subsidiaries.
- A prohibition on any person who knowingly participates in a joint venture, established on or after, 1 January 2002, if either the Government of Iran is a "substantial partner or investor" in that venture or Iran could receive previously unavailable technological knowledge or equipment that could directly or significantly contribute to its ability to develop petroleum resources in Iran.
- A prohibition on any person who knowingly sells, leases, or provides to Iran goods, services, technology, or support that could directly and significantly contribute to the maintenance or enhancement of Iran's ability to develop petroleum resources in Iran or its domestic production of refined petroleum resources.
- A prohibition on any person who knowingly sells, leases, or provides to Iran goods, services, technology, or support that could directly and significantly contribute to the maintenance or expansion of Iran's domestic production of petrochemicals.
- A prohibition on any person who knowingly participates in a joint venture established on or after 1 February 2012, if that joint venture involves any activity relating to the mining, production or transportation of uranium with the Government of Iran or an entity incorporated in Iran or subject to the jurisdiction of the Government of Iran.
- A prohibition on any person who acts on behalf of or at the direction of, or is owned or controlled by one of the abovementioned entities, and through which: (i) uranium is transferred directly or indirectly to Iran; (ii) the Government of Iran receives significant revenue; or (iii) Iran could receive technological knowledge or equipment not previously available to it that could contribute materially to its ability to develop nuclear weapons or related technologies. Sanctions also apply to persons who knowingly participated in a similar joint venture established before 2 February 2012 with the Government of Iran.
- A prohibition on the insurance of any vessel used to transport crude oil from Iran to another country if the insurer knows or "should have known" that the vessel was to be used for that purpose. What a company "should have known" will depend on all the circumstances of the case and the US legislature (as has been the case in the past) has remained deliberately vague on this point. What is clear however is that the requisite knowledge is automatically imputed to insurers if the vessel is included on the Specially Designated Nationals List (the "SDN List"), which details proscribed entities.
- A prohibition on the provision of insurance and reinsurance for the National Iranian Oil Company or the National Iranian Tanker Company (or any successor entity to either) with respect to any goods or transactions.
- A prohibition on any "person" (including foreign companies with no link to the US) who is a controlling beneficial owner of a vessel or any person who otherwise owns, operates, controls or insures a vessel used to transport crude oil from Iran to another country if, in the case of a controlling beneficial owner, the person had actual knowledge that the vessel was so used or, in the case of any person who otherwise owns, operates, controls or insures a vessel so used, knew or "should have known" the vessel was being engaged for this purpose.
- A requirement that the President of the USA impose sanctions on any person who permits or otherwise facilitates the transshipment of any goods, services, technology or other items to any other person and who knew or should have known that: (a) the export, transfer or transshipment would likely result in another person exporting, transferring, transshipping or otherwise providing the goods, services, technology or other items to Iran; and (b) the export, transfer, transshipment or provision would contribute materially to the ability of Iran to acquire chemical, biological or nuclear weapons or related technologies, or to acquire or develop destabilizing numbers and types of advanced chemical weapons.
- The imposition of a "whistle-blowing" obligation, which requires companies who engage in certain types of business with Iran to notify the US Securities Exchange Commission.
- Expanding the sanctions available to the president from nine to twelve and mandating that at least five sanctions are imposed on any party who engages in sanctionable activities.
The Act contains extremely limited "safe harbour" provisions.
Like previous rounds of US sanctions (and their European counterparts), it may be possible to avoid sanctions liability by ensuring you conduct due diligence appropriate to the situation in which you find yourself. Recommended steps include:
- Know the parties involved in your transaction, including those not directly linked to you, including carrying out a search of the SDN List (www.treasury.gov/resource-center/sanctions/SDN-List). For parties not on the SDN List, you will need to conduct appropriate due diligence and keep records of such checks.
- Ensure that all contracts entered into contain wording explicitly mandating that parties will conform to all US (and other relevant) sanctions regimes and provide a right to terminate immediately upon a reasonably suspected breach thereof.
- Ensure that your internal polices and processes are fully cognisant of the global sanctions regimes, are implemented and updated regularly and consistently and, again, maintain records of this.
The Act represents but one of a raft of US-based, EU and national sanctions regimes. It is imperative that those involved in any way with Iran turn their attention to compliance with this Act as a matter of urgency. Time is already running in terms of deadlines for conformity and companies cannot afford the financial and reputational damage of being found to be in breach.