On December 4, 2012, the Securities and Exchange Commission (SEC) staff issued a series of Compliance and Disclosure Interpretations (CDIs) addressing public company disclosure requirements for company business dealings with Iran. The CDIs specifically provide guidance on compliance with the recently enacted Iran Threat Reduction and Syria Human Rights Act of 2012 (Iran Act), which was signed into law on August 10, 2012.

The Iran Act created a new Section 13(r) to the Securities Exchange Act of 1934 (Exchange Act), which mandates disclosure, regardless of materiality, of the following activities, among others, by SEC-reporting issuers or their affiliates:

  • Knowingly conducting any transaction or dealing with the government of Iran without the specific authorization of a federal department or agency;
  • Knowingly engaging in any transaction or dealing with any person whose property and interests in property are blocked pursuant to executive orders that label such persons as terrorists and terrorist supporters or weapons of mass destruction proliferators and supporters;
  • Enabling Iran’s production, exportation, development, or enhancement of its petroleum resources; or
  • Knowingly engaging in any activity that facilitates Iranian efforts to develop weapons of mass destruction, support international terrorism, or commit serious human rights abuses against the people of Iran.

If the issuer or its affiliates have engaged in any reportable activities, issuers must disclose in annual or quarterly reports for the applicable fiscal quarter or fiscal year: (1) the nature and extent of the activity; (2) the gross revenues and net profits attributable to the activity, if any; and (3) whether the issuer and/or its affiliates intend to continue the activity. If such disclosures are made, the SEC must transmit the periodic report to the President and certain Congressional committees, and the President is required to initiate an investigation into possible sanctions. The disclosure requirements take effect for periodic reports required to be filed with the SEC after February 6, 2013.

The CDIs address certain ambiguities left unanswered in the Iran Act and Section 13(r). The primary issues answered by the CDIs are as follows:

  • A report that is filed before February 6, 2013, but is “required to be filed” after February 6, 2013—for example, a Form 10-K for a calendar year reporting issuer—must include the required disclosure under Section 13(r).
  • For the purposes of Section 13(r), “affiliate” has the same meaning as Rule 12b-2 under the Exchange Act, or a person that “directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with” the issuer.
  • Issuers are not required to make any disclosure in a periodic report if neither the issuer nor its affiliates are engaged in any of the activities requiring disclosure under Section 13(r).
  • For an annual report, the issuer must disclose all reportable activities during the fiscal year, including those that occurred before the enactment of the Iran Act.
  • Section 13(r)’s language regarding dealings with Iran “without the specific authorization of a federal department or agency” means disclosure must be provided unless it was specifically authorized by a U.S. federal department or agency. Approval from a foreign governmental agency may be disclosed to provide appropriate context, but may not be relied upon to omit disclosure.
  • Both general and specific licenses issued by the U.S. Department of Treasury’s Office of Foreign Assets Control constitute “specific authorization of a federal department or agency,” provided all conditions of the license are strictly observed.
  • The disclosure responsive to Section 13(r) will become public upon filing through the SEC’s EDGAR system.

The disclosure requirements covered by the Iran Act and the SEC’s CDIs take effect soon, in most cases the next periodic report for reporting issuers. If not already done, companies should immediately begin evaluating whether they or their affiliates have had any dealings with Iran or other parties that may require disclosure under the Iran Act.