Our thanks to law firm Baker & Hostetler for their useful overview of this latest sanctions legislation in the United States:
August 28 2012
On Friday, August 10, 2012, President Obama signed into law Public Law No. 112-158 - - the "Iran Threat Reduction and Syria Human Rights Act of 2012" (the "Act"). The 56 page statute substantially expands the already broad sanctions, which could be imposed against foreign entities doing business with Iran, that are included in the Iran Sanctions Act (ISA), the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), the National Defense Authorization Act of 2012, and in a number of Presidential Executive Orders issued in the last year. It also provides for sanctions against persons engaging in activities related to human rights abuses in Iran and Syria.
Following is an overview of key provisions of the new far-reaching legislation that are the most likely to impact businesses:
1. The US embargo of Iran is expanded to include activities of foreign subsidiaries of US companies
Until now, the US embargo of Iran did not directly cover the activities of foreign subsidiaries of US companies, unless they were shipping goods, technologies, or software subject to US jurisdiction to Iran, or they were engaging in specified types of sanctionable activities with Iran, e.g., providing Iran with refined petroleum products. The Act changes this by prohibiting (60 days following enactment), foreign entities owned or controlled by US Persons (US citizens and permanent resident aliens, US-organized entities and their foreign branches and persons in the United States, including US branches of foreign entities) from knowingly (know, or should know) engaging in any Iran-related activity that is prohibited for US Persons. If a foreign subsidiary of a US company violates, attempts to violate, conspires to violate, or causes a violation of the new prohibition, civil penalties, per violation, of up to $250,000, or twice the value of the transaction, whichever is higher, can be imposed against the US parent to the same extent as if the US parent itself engaged in the activity (US parent companies have always been subject to monetary penalties to the extent they approve, finance, guarantee or facilitate transactions by their foreign subsidiaries with Iran). The penalty will not be imposed if the US parent divests or terminates its business with the subsidiary within 180 days of enactment.
2. Disclosures to the Securities and Exchange Commission
Effective 180 days from enactment, companies required to file reports with the SEC are required to include in their annual/quarterly reports, details regarding any sanctionable activity involving Iran or transactions with certain blocked persons knowingly engaged in by them or their affiliates. Such disclosures will become public information on the SEC website and will be referred to the President for investigation and the possible imposition of sanctions.
3. Sanctions on persons providing vessels or (re)insurance to Iran
Subject to a possible national security waiver, the Act requires the blocking of the property/assets of persons (potentially also including their parent companies and subsidiaries/affiliates) that knowingly sell, lease or provide a vessel, (re)insurance or any other shipping service for the transportation to or from Iran of items that could materially contribute to Iran's WMD or terrorism-related activities.
4. Sanctions on persons (re)insuring the National Iranian Oil Company (NIOC) and the National Iranian Tanker Company (NITC)
The Act requires the imposition of at least five of the ISA-available sanctions against persons knowingly providing underwriting services or (re)insurance for NIOC, NITC or one of their successors. Significantly, the Act provides a "due diligence" safe harbor (like the one included in CISADA regarding underwriting/(re)insurance for shipments of refined petroleum products to Iran), for (re)insurers exercising due diligence to insure they do not provide the sanctionable underwriting/(re)insurance services, and also exempts from sanctions underwriting/(re)insurance for shipments of agricultural commodities, food, medicine, medical devices and humanitarian assistance. In addition, sanctions will not be imposed when the President receives reliable assurances that the underwriter/(re)insurer will terminate the provision of the sanctionable services within 120 days of enactment.
5. Sanctions on persons purchasing Iranian Sovereign Debt
The Act authorizes the imposition of at least five of the ISA sanctions against persons knowingly purchasing, subscribing to, or facilitating the issuance of Iranian Government sovereign debt or bonds or the debt of any entity owned or controlled by the Government of Iran.
6. Sanctions on persons providing financial services to the Central Bank of Iran and blacklisted Iranian financial institutions
The Act authorizes the imposition of sanctions under the International Emergency Economic Powers Act (IEEPA) or CISADA against certain persons who, as of November 8, 2012, knowingly and directly continue to provide specialized financial messaging services, e.g., SWIFT Network, to, or knowingly enable or facilitate direct or indirect access to, such messaging services for the Central Bank of Iran or a sanctioned Iranian financial institution.
7. Sanctions for activities related to the Iranian Revolutionary Guard Corps (IRGC)
The Act requires the imposition of at least five of the ISA-available sanctions and authorizes additional sanctions under IEEPA against persons that knowingly materially assist, sponsor, or provide financial, material, or technological support for, or goods or services in support of the IRGC, or its blocked officials, agents, or affiliates, engage in a significant transaction(s) with the IRGC, or any of its blocked officials, agents, or affiliates, or engage in a significant transaction(s) (including barter) with Iran-related persons sanctioned by the UN Security Council. The Act also authorizes the imposition of various sanctions against foreign government agencies knowingly and materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services in support of, or knowingly and materially engaging in a significant transaction with blocked IRGC officials, agents, or affiliates, persons subject to sanctions under UN Security Council resolutions related to Iran, or a foreign person acting on their behalf or at their direction. Finally, persons wishing to contract with the US Government, within 120 days of enactment, will be required to certify that neither they, nor any person owned or controlled by them, knowingly engage in a significant transaction(s) with the IRGC, or any of its blocked officials, agents or affiliates.
The Act also requires that the Secretary of the Treasury determine, within 45 days of enactment, whether NIOC or NITC is an agent or affiliate of the IRGC, for purposes of the possible imposition of CISADA financial sanctions against foreign financial institutions knowingly facilitating or providing a significant transaction(s)/providing significant financial services to NIOC/NITC related to the purchase of petroleum or petroleum products from Iran.
8. Expansion of ISA-available sanctions
The Act expands the number of sanctions imposable under the ISA from nine to 12 by adding to the previously-available sanctions menu (i) a ban on US person investment or purchase of significant amounts of equity or debt instruments of a sanctioned person, (ii) the exclusion from the United States of alien corporate officers, principals or controlling shareholders of a sanctioned person, and (iii) the imposition of any of the other 11 available ISA sanctions on the sanctioned person's principal executive officer(s). The Act also increases from three to five the number of ISA sanctions that need to be imposed on persons determined to be engaging in ISA-sanctionable activities.
9. Sanctions for entering joint ventures with Iran for the development of petroleum resources
The Act makes ISA-sanctionable the knowing participation in a joint venture for the development of petroleum resources outside of Iran if (i) the joint venture was established on or after January 1, 2002, (ii) the Government of Iran is a substantial partner or investor in the joint venture, and (iii) Iran could receive technological knowledge or equipment not previously available to it that could directly and significantly contribute to the enhancement of its ability to develop petroleum resources in Iran. Sanctions will not be imposed if the joint venture participation terminates within 180 days of enactment.
10. Sanctions for transporting/concealing the transportation of crude oil from Iran
Effective 90 days after enactment, with certain exceptions, the Act provides for the imposition of five or more ISA sanctions against persons that (i) are controlling beneficial owners of, or otherwise own, operate, control or insure a vessel that was used to transport crude oil from Iran, 90 days or more after enactment, to another country, or (ii) are controlling beneficial owners of, or otherwise own, operate or control a vessel that is used, 90 days or more after enactment, in a manner that conceals the Iranian origin of the crude oil or refined petroleum products transported on the vessel. The President may also bar vessels so owned and used from landing at a US port for a period of two years. Sanctions will not be imposed against underwriters/(re)insurers exercising due diligence to insure that they do not provide underwriting/(re)insurance services for sanctionable transportation of crude oil or refined petroleum products from Iran.
11. Sanctions related to the mining, production or transportation of uranium
The Act requires the imposition of at least five of the ISA-available sanctions against persons knowingly participating in a joint venture that involves any activity relating to the mining, production, or transportation of uranium with either the Government of Iran, an Iranian entity or another entity owned or controlled by them or acting on their behalf or direction (for joint ventures established on or after February 2, 2012), or in a joint venture with any such entities through which uranium is transferred, directly or indirectly, to Iran, the Government of Iran receives significant revenue, or Iran could receive technological knowledge or equipment not previously available to it that could contribute materially to Iran's ability to develop nuclear weapons or related technologies (for joint ventures established before February 2, 2012). No sanctions will be imposed if the person in question terminates participation within 180 days of enactment.
12. Additional expansion of ISA-sanctionable events
The Act also adds as ISA-sanctionable events (i) the same types of activities supporting the development of Iranian petroleum resources, or its production of refined petroleum and petrochemical products, that have previously been made sanctionable under Executive Orders, (ii) bartering or contracting by which goods are exchanged for goods, including the (re)insurance of such exchanges, and (iii) purchasing, subscribing to, or facilitating the issuance of Iranian Government sovereign debt and bonds.
13. Expansion of CISADA financial institution sanctions
The Act requires that, within 90 days of enactment, regulations will be issued to expand the scope of foreign financial institutions against which CISADA financial sanctions (the closing of/imposition of restrictions on the foreign financial institution's U.S. correspondent or payable through accounts) can be imposed to include those that (i) knowingly facilitate, participate or assist in a CISADA-sanctionable activity, (ii) attempt or conspire to facilitate or participate in such activity or (iii) are owned or controlled by a foreign financial institution that knowingly engages in such an activity.
14. Expansion of sanctions against persons aiding Iranian WMD development
The Act provides for the imposition of at least five of the ISA-available sanctions against persons who export, transfer, permit or otherwise facilitate the transshipment of any goods, services, technology or other items to any other person and knew or should have known that the items would be provided to Iran and would contribute materially to Iran's WMD development or to its ability to acquire or develop destabilizing numbers and types of advanced conventional weapons.
15. Sanctions related to Iranian/Syria human rights abuses
The Act provides for a variety of sanctions to be imposed against persons who engage in certain activities related to censorship/human rights abuses in Iran/Syria.
As is evident from the above descriptions, the new legislation covers a wide variety of Iran-related activities that could result in the imposition of crippling sanctions against those engaging in such activities. The above summary provides general information in connection therewith. A careful and detailed review is required to address the impact of the new legislation, as well as of prior legislative/administrative restrictions, on any specific set of facts.
For further information on the material presented in this Alert, please contact Melvin S. Schwechter (firstname.lastname@example.org or 202.861.1559); John J. Burke (email@example.com or 202-861.1625); Mark C. Joye (firstname.lastname@example.org or 713.646.1313); J. Garrett Cornelison (email@example.com or 713.646.1354) or your Baker Hostetler relationship contact.
Melvin S. Schwechter
Tel: +1 202 861 1559
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