President Obama on October 9, 2012 issued the Executive Order (see: required by Section 218 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (see: ). The new Order for the first time applies Iranian sanctions to U.S.-controlled offshore subsidiaries and allows penalties against the U.S. parent or other controlling U.S. entity for the actions of its foreign subsidiaries. Now the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) has a power similar to that it already exercises under the Cuba sanctions to enforce U.S. law extraterritorially against U.S.-controlled foreign subsidiaries. Anticipating the President's compliance with the Act, OFAC previously released a series of FAQs discussing Section 4 (see:

Most significant, immediately effective is Section 4 of the Order, which prohibits non-U.S. companies that are owned or controlled by a U.S. Person from engaging in transactions with Iran, as if that non-U.S. company was itself directly subject to U.S. jurisdiction. Should that foreign-owned entity engage in a prohibited transaction with Iran, the U.S. parent company, not the foreign-owned entity, is subject to penalty. The new Order provides that U.S. Persons can divest or terminate their Iranian business by February 6, 2013, but OFAC has indicated that the effective date for enforcement of the new Order remains its date of issuance. OFAC also has indicated, however, that it will be receptive to reviewing applications for a specific license to permit a U.S.-controlled entity to in effect "wind-down" its Iranian transactions by foreign subsidiaries of U.S. companies by the February 6, 2013 deadline.

The Act already had defined the term "entity" to mean a partnership, association, trust, joint venture, corporation or other organization. The Act also clarified that the term "own or control" means, with respect to an entity (1) to hold more than 50 percent of the equity interest by vote or value in the entity; (2) to hold a majority of seats on the board of directors of the entity; or (3) to otherwise control the actions, policies, or personnel decisions of the entity. One clarification in the new Order provides guidance with respect to the term "subject to the jurisdiction of the Government of Iran." As used in Section 218 of the Act and in Section 4 of the Order, that term applies to a "person ordinarily resident in Iran" or "in Iran," meaning Iranian nationals outside Iran are not included unless that person ordinarily is resident in Iran. Another direction given is that a non-U.S. subsidiary will be treated as a U.S. person for purposes of license application and issuance and that either it or its U.S. parent can apply for an OFAC license.

What is most clear from the new Order is that any U.S. company that has offshore subsidiaries that conduct business with Iran should immediately analyze their activities. They should either determine they are in compliance with the requirements of the new Order or take action to come into compliance, through termination of their foreign subsidiary's Iranian transactions or divestiture of that foreign subsidiary where required (applying for a specific license as needed to complete any such termination or divestiture).