Congress is working on new Iran sanctions legislation that would further target the activities of non-U.S. companies with Iran, even when the activity has no U.S. nexus. Specifically, the House of Representatives already passed H.R. 850, the Nuclear Iran Prevention Act of 2013, by a vote of 400-20 on 31 July 2013, which would impose new sanctions on non-U.S. companies doing business with Iran (please see our prior client alerts regarding the Iran Freedom and Counter-Proliferation Act and Executive Order 13645). H.R. 850 has been referred to the Senate Committee on Banking, Housing, and Urban Affairs (Committee) for consideration.
This new legislation would primarily impact non-U.S. companies (even those with no U.S. operations or any other U.S. nexus), because it would expand the types of sanctionable activities that could expose foreign companies to the imposition of restrictive measures under U.S. law. Certain measures cut across all industry sectors. Federal contractors would be adversely affected because the legislation would require a broader certification regarding Iran-related activities of any affiliates globally and not just the activities of the U.S. contracting entity or its subsidiaries.
It does not appear at this time that the Senate will take up a vote on H.R. 850. Instead, we understand that the Committee is working on its own version of new sanctions legislation, which may be introduced in the next several weeks. Any differences between the two versions of the bill (H.R. 850 and a new Senate bill) would have to be worked out during conference, assuming the Senate passes its own bill. It is presently expected that U.S. Government may enact new Iran sanctions legislation before the end of the year.
I. Summary of H.R. 850
The mostsignificant provisions of the bill relate to:
- transactions by any entity (including non-financial institutions) with sanctioned Iranian financial institutions for the purchase or sale of goods or services to/from Iran (not limited to any specific industries or types of goods);
- transactions by non-U.S. financial institutions involving entities owned or controlled by sanctioned Iranian entities (i.e., not just listed Iranian entities);
- restrictions on transactions involving Iran’s automotive and mining sectors (and potentially Iran’s construction, engineering and other sectors);
- transactions involving foreign currencies and sanctioned Iranian entities; and
- a broader certification under the Federal Acquisition Regulation (FAR) for federal contractors regarding the activities of all of their affiliates globally (not just the subsidiaries of the particular contracting entity) that involve Iran.
These provisions, among other relevant sections of the bill, are discussed below.
II. Analysis of specific provisions
The key provisions of the House-passed version of H.R. 850 are as follows:
Transactions with sanctioned Iranian financial institutions: Sec. 215 would amend the Iran Threat Reduction Act (ITRA) to impose sanctions against any person (including non-U.S. persons and not limited to financial institutions) that knowingly conducts or facilitates a significant financial transaction with the Central Bank of Iran (CBI) or other Iranian banks on the list of Specially Designated Nationals and Blocked Persons (SDN List), maintained by U.S. Treasury’s Office of Foreign Assets Control (OFAC), when the transaction involves the purchase of any goods or services from or by a person in Iran or on behalf of a person in Iran.
- Essentially, this provision targets all transactions with Iran that involve the CBI or an Iranian SDN bank, including sales to and purchases from Iran irrespective of the nature of the goods/services.
- We note that this provision does not apply to sales of food, medicine, and medical devices.
Activities involving Iran’s automotive and mining sectors (and potentially others): Sec. 222 would amend the Iran Freedom and Counter-Proliferation Act (IFCA) to authorize sanctions against persons and entities in Iran’s “strategic sectors” that are defined in the bill to expand beyond energy, shipping, shipbuilding, and ports to include the automotive or mining sectors in Iran, and requires the President to determine within 45 days of enactment whether construction and engineering are also sectors of strategic importance to Iran that should be targeted by this provision (the bill also authorizes the President to designate other sectors as being of strategic importance and thus subject to sanctions under IFCA). The sanctions could be imposed against persons/entities that knowingly provide significant financial, material, technological, or other support to, or goods or services in support of, any activity or transaction on behalf of persons/entities in such strategic sectors.
Although the Iranian automotive sector is already targeted by Executive Order 13645 (issued on 3 June 2013), this bill could have a broader impact because:
- This bill does not define Iran’s automotive sector, so that term could be interpreted more broadly than the current definition used for purposes of Executive Order 13645 that targets only “the manufacturing or assembling in Iran of light and heavy vehicles including passenger cars, trucks, buses, minibuses, pick-up trucks, and motorcycles, as well as original equipment manufacturing and after-market parts manufacturing relating to such vehicles.”
- IFCA’s restrictions would apply to transfers to or from Iran of significant goods or services used in connection with the automotive sector (among other strategic sectors). This is a broader restriction than the existing sanctions under Executive Order 13645 because it would also target exports from Iran of items that are used in connection with the automotive sector.
- The addition of Iran’s mining sector, as well as the potential addition of Iran’s construction, engineering, and other (as yet unspecified) strategically important sectors, was not previously covered under IFCA or other measures.
- Although the Iranian automotive sector is already targeted by Executive Order 13645 (issued on 3 June 2013), this bill could have a broader impact because:
Transactions by non-U.S. financial institutions with entities owned or controlled by Iranian SDNs: Sec. 224 would authorize sanctions against non-U.S. financial institutions (including central banks) that knowingly facilitate a significant financial transaction on behalf of any person that is directly owned or controlled by an Iranian SDN (with an exception for Iranian financial institutions that have not been designated for terrorism, weapons proliferation, or human rights abuses).
- IFCA currently authorizes sanctions against non-U.S. financial institutions that engage in transactions with Iranian SDNs. The bill therefore would broaden this prohibition to cover transactions involving entities directly owned or controlled by such SDNs, in addition to transactions involving listed Iranian SDNs.
- Certain transactions in foreign currencies: Sec. 214 would impose sanctions against any person (including non-U.S. persons and not limited to financial institutions) involved in conducting or facilitating transactions in foreign currencies over which the non-U.S. financial institution/non-U.S. person does not have primary jurisdiction (e.g., a British bank or a British company dealing in euros) on behalf of the Central Bank of Iran, another designated Iranian bank, or any persons/entities that are targeted by section 1244(c) of IFCA such as those in the energy, shipping, shipbuilding, port, automotive, and mining sectors in Iran, as well as those who provide significant financial or other support for such entities or for any Iranian entities identified on the SDN List.
Broader FAR required certification related to affiliate activities involving Iran: Sec. 226 would amend the FAR to require a certification from any prospective contractor that the contractor, and any person under common ownership or control with the person, does not sell goods, services, or technology to, or conduct any other transaction with, Iran for which sanctions may be imposed under the bill.
- Current FAR certifications related to Iran activities require prospective contractors to certify that they, and any entities they own or control, are not engaged in certain sanctionable activities involving Iran. Sec. 226 of the bill appears to broaden the scope of persons covered by the certification as it relates to activities by entities under common ownership or control with the contractor (e.g., the affiliates of the contractor), instead of just activities by subsidiaries of the contractor.
- This expanded certification could impact U.S. and non-U.S. owned and controlled entities that are U.S. government contractors—for example, they may be unable to continue performing under federal contracts if any entity in the corporate family (even outside the United States) provides any goods or services to Iran (irrespective of the sector involved) and there is involvement by an Iranian designated bank or the Central Bank of Iran. If your company has contracts with the U.S. Government, the company would want to assess the full scope of Iran-related activities by non-U.S. affiliates to ascertain whether any such activities are targeted by the new bill and thus could have an impact on the federal contractor certification that would be required under the bill.
State and local measures: Sec. 212 would explicitly authorize state and local governments to adopt and enforce measures to divest from, to prohibit the investment of assets of the State or local government in, to prohibit the issuance of licenses to conduct business in the State or locality to impose disclosure and transparency requirements on any entity that invests in or engages in any transaction with or for any person engaged in any activity for which sanctions may be imposed under any provision of federal law imposing sanctions with respect to Iran.
- This provision is broader than a similar authorization currently contained in the Comprehensive Iran Sanctions Accountability and Divestment Act of 2010 (CISADA), which related only to entities that engaged in certain transactions involving Iran’s energy sector. As a result, the provision could lead to additional state and local governments enacting measures targeting entities that engage in sanctionable activities with Iran. We note that a number of states already have such measures targeting entities that are involved in specified activities in Iran, and a few others (e.g. Michigan) have enacted broader Iran-related legislation.