Both the United States and the European Union have recently taken additional sanctions actions against Iran. Following is a review of the key parts of those actions.

THE U.S. EXECUTIVE ORDER IMPLEMENTING PORTIONS OF THE IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012

In our Executive Alert on August 28, 2012, we reviewed the provisions of Public Law No. 112-158, the "Iran Threat Reduction and Syria Human Rights Act of 2012," which was signed into law on August 10, 2012. On Tuesday, October 9, 2012, President Obama signed Executive Order No. 13628 -- implementing certain provisions of the new legislation, including providing for sanctions imposable against foreign persons for certain activities related to Iran’s energy sector.

However, the part of the Order that most impacts U.S. persons is Section 4, which expands the liability of U.S. persons to include direct or indirect transactions with Iran knowingly (actual knowledge or "should have known") engaged in by their foreign subsidiaries. It holds all "United States person[s]" (U.S. citizens and permanent resident aliens, U.S.-organized entities and their foreign branches, and persons in the United States, including U.S. branches of foreign entities) liable for "knowing" transactions by persons "owned or controlled" by them, and established or maintained outside the United States, with the Government of Iran or with persons subject to the jurisdiction of the Government of Iran (persons organized under the laws of Iran, ordinarily resident in Iran, or in Iran, or owned or controlled by any of them, e.g., foreign subsidiaries of Iranian-organized companies) that would violate the U.S. embargo if performed by a U.S. person, or in the United States.

"Owned or controlled" means (i) ownership of a greater than 50 percent equity interest (by vote or value) in the entity, (ii) the holding of a majority of seats on the entity's board of directors, or (iii) "otherwise control" the actions, policies, or personnel decisions of the entity. "Otherwise control" is not further defined in the statute and neither the President, nor the Office of Foreign Assets Control (OFAC), has set forth a specific definition of "control."

That having been said, other regulations do provide some possible guidelines to assess whether or not "control" exists. These are the Commerce Department’s Anti-Boycott Regulations (15 C.F.R. Part 760), where in §760.1(c), the term "Controlled in Fact" is defined, and in regulations implementing the Terrorism Risk Insurance Act, where in 31 C.F.R. §50.5(c)(2), the situations in which an insurer has "control" over another person are set forth. The guidelines in these regulations are detailed, look at a wide variety of indicia of possible "control" and, in some cases, involve rebuttable presumptions, so evaluating the existence of "control" is likely to involve a painstaking factual analysis.

Civil penalties of up to $250,000, or twice the value of the transaction, whichever is greater, can be imposed on U.S. persons for the above-described actions of their foreign subsidiaries. Penalties will not be imposed if the U.S. person divests or terminates its business with its foreign subsidiary not later than 180 days after enactment (by February 6, 2013). Because of a lack of a wind-down period in the Executive Order, companies whose foreign subsidiaries have not terminated their Iranian business as of October 9, 2012, need to consider applying for a license to allow their subsidiaries to engage in wind-down operations, or taking advantage of the divestment safe harbor. Licenses for shipments to Iran for food, medicine or medical devices may continue to be obtained by foreign subsidiaries to the same extent they can be obtained by their parents.

The prohibitions on foreign affiliate dealings with Iran now makes the U.S. embargo of Iran similar to the U.S. embargo of Cuba, which is the only other embargo specifically impacting foreign subsidiary transactions with an embargoed country. Previously, U.S. parent companies could be penalized for foreign affiliate transactions involving Iran only if they were somehow involved in the transaction or otherwise "facilitated" it. Now, however, they can incur liability even if the subsidiary operates totally independently and even if the parent is ot aware of the subsidiary’s activities vis-à-vis Iran. This requires parent companies to make sure their subsidiaries do not get involved in Iranian transactions if they are to limit their exposure. One way to begin this process is to have the U.S. parent company undertake export/sanctions self-assessments of their subsidiaries’ export activities.

Other provisions of the Order, of note, include:

  • Blocking of Property of Persons Determined to Have Been Involved in Iranian Human Rights Violations - The Order provides for the blocking and designation of persons who knowingly, on or after August 10, 2012, transferred or facilitated the transfer to Iran of goods or technologies, or provided services, where such goods/technology/services are likely to be used by the Government of Iran, or any of its agencies or instrumentalities or by any other person on their behalf, to commit serious human rights abuses against the people of Iran.
  • Blocking of Persons Determined to Have Engaged in Censorship Activities with Respect to Iran - The Order provides for the blocking and designation of persons determined to have engaged in censorship or other activities with respect to Iran, on or after June 12, 2009, that prohibit, limit or penalize the exercise of freedom of expression or assembly by citizens of Iran, or that limit access to print or broadcast media, including the facilitation or support of international frequency manipulation by the Government of Iran (or by an entity owned or controlled by it) that would jam or restrict an international signal.

The Order also restricts the entry into the United States of persons blocked for human rights abuses/censorship reasons.

THE IRANIAN TRANSACTIONS REGULATIONS HAVE BEEN AMENDED AND RENAMED TO IMPLEMENT EXECUTIVE ORDER 13599 AND THE NATIONAL DEFENSE AUTHORIZATION ACT FOR FY 2012

On October 22, 2012, OFAC republished the Iranian Transactions Regulations (ITR), now renamed the "Iranian Transactions and Sanctions Regulations" (ITSR). The ITSR expand upon the ITR principally, to (i) include the blocking requirement ordered by the President in Executive Order 13599 (and related provisions) applicable to the Government of Iran, including its Central Bank, any Iranian financial institution and any person determined to be owned or controlled by them, or to have acted or purported to have acted on their behalf, (ii) provide for certain new general licenses, e.g., certain payments for legal services, and (iii) revise some of the requirements related to OFAC licensing under the Trade Sanctions Reform and Enhancement Act of 2000.

OFAC also issued a Statement of Licensing setting forth its Policy and Procedure for Businesses Seeking to Trade or Deliver Humanitarian or Human Rights Goods to Iran. Under the new guidelines, OFAC and the Department of State have decided to expedite license applications for U.S. entities seeking to engage in trade activities related to "human rights, humanitarian, and democracy [undertakings]" in Iran. Entities which will be eligible for this expedited licensing (decisions generally to be made in no more than 90 days) include, (i) "entities receiving funds from the Department of State to engage in the proposed activity;" (ii) "the Broadcasting Board of Governors, an independent, autonomous entity responsible for all U.S. government and government sponsored, non-military, international broadcasting;" and (iii) "other appropriate agencies of the United State Government."

THE NEW EU SANCTIONS AGAINST IRAN

On October 15, 2012, The Council of the European Union issued Council Decision 2012/635/CFSP (the "Decision") and Implementing Regulation (EU) No. 945/2012 (the "Implementing Regulation"), authorizing and implementing new economic sanctions against Iran. These include the following principal measures:

  1. The addition of 34 entities (principally in the oil, gas, and financial sectors, including the National Iranian Oil Company, Naftiran Intertrade Company, Petropars Ltd. and the National Iranian Tanker Company) and one individual to the list of persons and entities subject to asset freezes by the EU;
  2. A ban on all non-authorized, non-de minimis, financial transactions between European Union financial institutions, on the one hand, and Iranian banks (including their branches and subsidiaries in, or outside of, the EU, as well as the Central Bank of Iran), and financial entities not domiciled in Iran, but which are controlled by Iranian entities and domiciliaries, on the other hand;
  3. A ban on the importation, purchase or transport of Iranian natural gas and certain services (including (re)insurance) related thereto;
  4. A ban on the sale, supply, or transfer to Iran of shipbuilding equipment or technology, or technical assistance/financing for such types of transactions;
  5. Prohibitions on the sale, supply or export to Iran of graphite and raw or semi-finished metals such as aluminum and steel, and software for integrating industrial processes that are relevant to industries controlled by the Iranian Revolutionary Guard Corps or to Iran’s nuclear/missile programs, or technical assistance/financing related to such types of transactions;
  6. Prohibitions on the construction or participation in the construction of new oil tankers for Iran or technical assistance/financing for such types of transactions; and
  7. A ban on the supply to Iranian persons, entities, or bodies, of vessels designed for the transport or storage of oil and petrochemical products.

In light of the above actions, both European and U.S. businesses need to make sure that their compliance programs take account of the new restrictions.