Under the Joint Comprehensive Plan of Action signed by the United States on January 16, 2016, certain nuclear-related secondary sanctions were lifted on Iran. The partial lifting of sanctions in large measure does not apply to US companies, who continue to be broadly prohibited from engaging in transactions or dealings with Iran unless such activities are exempt or authorized by OFAC.
Under a general license issued by OFAC in January 2016, a non-US entity owned or controlled by a US person (a "US-Owned or Controlled Foreign Entity") is now authorized to engage in transactions, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran even if such transaction would otherwise be prohibited if engaged in by a US person. This general license, however, does not authorize the re-exportation from a US-Owned or Controlled Foreign Entity of any US-origin goods, technology, or services.
OFAC has now published guidance that clarifies the permissible activities of a US person who serves as a board member, or is otherwise involved in the activities of, the US-Owned or Controlled Foreign Entity doing business in Iran. In summary, the guidance advises as follows:
- An entity established or maintained outside the US is “owned or controlled” by a US person if the US person: (1) holds at least a 50 percent equity interest by vote or value in the entity; (2) holds a majority of seats on the board of directors of the entity; or (3) otherwise controls the actions, policies, or personnel decisions of the entity.
- U.S. persons employed by or serving on the board of directors of the foreign entity must be recused or “walled off” from all Iran-related business with these exceptions:
- The January 2016 general license authorized US persons to engage in activities related to the establishment or alteration by the foreign entity of corporate policies and procedures “to the extent the establishment or alteration of such policies is necessary to allow the US-owned or –controlled foreign entity to engage in transactions authorized. . .”
- US parent companies are authorized to make available to the foreign entity automated and globally integrated computer, accounting, email, telecommunications, or other business support systems, platforms, databases, applications, or servers necessary to store, collect, transmit, generate or otherwise process documents or information related to transactions by the foreign entity, including transactions with Iran.
- US persons may receive reports from the foreign entity that include details on transactions the foreign entity conducted with Iran, but cannot attempt to influence Iran-related business decisions of the entity based on such reports.
- The foreign entity, in OFAC’s words, “should consider instituting a blanket recusal policy (as opposed to case-by-case abstentions which, depending on the facts and circumstances, could be considered a prohibited facilitation and/or export of services. . .) for US person directors, managers, and other employees with respect to Iran-related matters. . .”
US-Owned or Controlled Foreign Entities may wish to consider adopting a board resolution or take other affirmative action to implement OFAC’s recommendation to institute a blanket recusal policy with respect to US persons’ involvement in Iran-related matters. Such steps will help ensure that both the US-Owned or Controlled Foreign Entity and its US parent are compliant with OFAC’s recommended “best practices.”