On August 10, 2012, President Obama signed a legislative act that expands U.S. sanctions against Iran and Syria, and imposes new reporting requirements on public companies related to their business dealings with sanctioned entities or their involvement in sanctioned activity.

The Iran Threat Reduction and Syria Human Rights Act of 2012 (the “Act”) affects all public companies that are required to file quarterly and annual reports with the Securities and Exchange Commission (SEC) under Section (13) of the Securities Exchange Act of 1934 (the “Exchange Act”).

As explained more fully below, Section 219 of the Act requires publicly listed issuers to file with the SEC reports pertinent to their:

  • Business activities involving certain financial, technology, energy, mining, insurance, shipping or weapons-related products and services that are prohibited by the Iran Sanctions Act of 1996 (ISA), the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (ISADA) and any regulations thereunder;
  • Business dealings with sanctioned entities that are involved in terrorist support, or in the proliferation of weapons of mass destruction or certain advanced conventional weapons; and
  • Business dealings with entities that are part of or controlled by the government of Iran.

The Act also amends the ISA and the ISADA, expanding their reach and the sanctions for violations thereunder. Furthermore, it now extends that reach to foreign subsidiaries of U.S. companies, prohibiting them from engaging in certain business activities related to Iran and Syria, and imposing penalties on the U.S. parent companies for any violation by their foreign affiliates as of 60 days after enactment.

Corporate officers and principals should also be aware that the Act permits sanctions against executive agents in their individual capacities for violations by their companies.

This update explains the public reporting requirements related to the Act, and offers a brief overview of reportable activities and related sanctions. You can view the full text of the Act at: http://www.govtrack.us/congress/bills/112/hr1905/text.

The new disclosure rules take effect with respect to reports required to be filed with the SEC after February 6, 2013 (180 days after the date of enactment of the Act).

DISCLOSURE TRIGGERS

Section 219(a) of the Act amends Section 13 of the Exchange Act, requiring each affected public issuer to file an annual or quarterly report disclosing certain prescribed information if, during the period covered by the report, the issuer or any of its affiliates:

  1. Knowingly engaged in an activity described in specified sections of the ISA, which primarily apply to companies or persons that make investments in Iran’s energy sector or that sell to Iran weapons of mass destruction or destabilizing advanced conventional weapons.
  2. Knowingly engaged in an activity described in specified sections of the ISADA, which primarily apply to companies that are selling petroleum and energy products to Iran, providing services or information to Iran for development of its energy sector, or doing business with Iranian banks, the Islamic Revolutionary Guards Corps, or associated entities blacklisted by the U.S. Department of the Treasury (the “Treasury”) as bad actors. For more details, see the relevant list published by the Treasury’s Office of Foreign Assets Control (OFAC).
  3. Knowingly engaged in an activity described in that portion of the ISADA that requires the President to impose sanctions on persons who are responsible for or complicit in human rights abuses committed against the citizens of Iran.
  4. Knowingly conducted any transaction 4. or dealing with any person, the property and interests of which are financially “blocked” pursuant to Executive Order No. 13224, which prohibits transactions with individuals and organizations who commit, threaten to commit, or in any way support terrorism. For more details, see the relevant list published by OFAC.
  5. Knowingly conducted any transaction 5. or dealing with any person, the property and interests of which are financially “blocked” pursuant to Executive Order No. 13382, which prohibits transactions with designated proliferators of weapons of mass destruction or of destabilizing numbers or types of advanced conventional weapons. For more details, see the relevant list published by OFAC.
  6. Knowingly conducted any transaction 6. or dealing with any person identified under Section 560.304 of Title 31 of the Code of Federal Regulations, which lists people and entities that are part of the Government of Iran or are under its control. For more details, see the relevant list published by OFAC.

The Act also amends the ISA and the ISADA, expanding the scope of activities that are sanctioned, and consequently must be reported to the SEC. Specified forms of participation in any of the following activities are likely to be reportable:

  • Development of Iranian petroleum resources;
  • Transportation of crude oil from Iran;
  • Concealment of the origin of crude oil;
  • Ventures related to mining, production or transportation of uranium for Iran;
  • Provision of underwriting, insurance or reinsurance services to specified entities;
  • Purchase, subscription to or facilitation of debt offerings by Iran or its entities;
  • The transfer of goods or technology that are likely to be used to commit human rights abuses in Syria or Iran; or
  • Facilitation of or participation in such abuses, including technological or other facilitation of censorship of the citizens of those countries.

REQUIRED DISCLOSURES

If a public issuer or one of its affiliates has engaged in any reportable activity, as summarized in the previous section (and described in more detail in the pertinent statutes and regulations), then the issuer must disclose the following in its annual or quarterly report for the period in which the activity was conducted:

  • The nature and extent of the activity;
  • The gross revenue and net profits, if any, attributable to the activity; and
  • Whether the issuer or its affiliate(s), as • the case may be, intends to continue the activity.

NOTICE OF DISCLOSURE

To alert the SEC to what has happened, the issuer must file with the SEC, concurrently with the relevant annual or quarterly report detailing the proscribed activity, a notice that the disclosure of that activity has been included in the pertinent report.

PUBLIC INFORMATION

Upon receiving a notice of reportable activity as described above, the SEC must promptly:

  • Transmit the report to the President of the United States;
  • Transmit the report to the Committee on Foreign Affairs and the Committee on Financial Services in the House of Representatives;
  • Transmit the report to the Committee on Foreign Relations and the Committeeon Banking, Housing and Urban Affairs in the Senate; and
  • Make the information provided in the disclosure available to the public by posting it on the SEC’s Website.

MANDATED INVESTIGATIONS

Upon receiving a report as described herein, the President must:

  • Initiate an investigation into the possible imposition of statutory sanctions; and
  • Not later than 180 days after the start of • such investigation, make a determination as to whether sanctions shall be imposed on the issuer or its affiliate(s).

SANCTIONS

There are now 12 different kinds of sanctions that can be imposed on issuers who engage in any of the reportable activities described in the ISA, the ISADA or the Act.

Those sanctions include:

  1. removing access to export-import bank credits;
  2. removing or blocking export control licenses;
  3. blocking access to large loans from U.S. financial institutions;
  4. imposing restrictions on the ability to deal in U.S. government bonds or to act as a repository of government funds;
  5. imposition of government procurement sanctions;
  6. prohibiting transactions in foreign exchanges that are subject to the jurisdiction of the U.S.; 
  7. prohibiting transfers of credit or payments through U.S. financial institutions;
  8. prohibiting participation in any property transaction in which the issuer has an interest;
  9. additional emergency sanctions that restrict imports by or to the issuer;
  10. prohibiting any U.S. investors from purchasing significant amounts of equity or debt instruments of the sanctioned entity;
  11. prohibiting the issuance of visas to or entry into the U.S. by specified individuals associated with the sanctioned entity; and 
  12. imposition of sanctions on the principal executive officers or persons performing similar functions for any sanctioned entity.