As previously reported in our Aug. 2, 2012 Alert, Congress passed on August 1 the Iran Threat Reduction and Syria Human Rights Act of 2012. Among other things, the Act holds parent companies liable for their foreign subsidiaries’ transactions with Iran. On Aug. 10, 2012, President Barack Obama signed the Act into law, thus starting the clock on the 60-day implementation period for the new sanctions.
Beginning Oct. 9, 2012, a partnership, association, trust, joint venture, corporation, or other organization owned or controlled by a U.S. person and established and maintained outside the U.S. will be prohibited from knowingly engaging in any transaction directly or indirectly with Iranian companies, organizations or citizens, if a U.S. person would be prohibited from engaging in such a transaction. Consequently, foreign subsidiaries of U.S. companies will be prohibited from participating in virtually all types of transactions with Iran.
U.S. parent companies will be subject to civil penalties for the violations of their foreign subsidiaries, up to $250,000 per violation, or an amount that is twice the amount of the transaction that is the basis of the violation. Criminal penalties include fines of up to $1,000,000 per violation or imprisonment for not more than 20 years, or both.
Civil penalties will not be imposed on a U.S. parent company if it divests its interest in the foreign subsidiary no later than 180 days after enactment (i.e., early February 2013). However, U.S. companies can avoid having to divest their foreign subsidiaries by ensuring immediately that their foreign subsidiaries are not engaged in transactions with Iran – or that any such transactions cease - by October 9.