New Iran Sanctions May Expose U.S. Companies to Liability for Foreign Subsidiary Transactions

International Trade & Customs Update

Date: August 16, 2012

Overview

On August 10, 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, which was passed by Congress on August 1 (Pub. Law No. 112-158). These new sanctions may expose U.S. companies to liability for the actions of their non-U.S. subsidiaries. Much of the new law is effective immediately, although some prohibitions do not come in effect until later.

Until now, foreign subsidiaries of U.S. companies were exempted from the Iran sanctions for many transactions if no U.S. persons (individual or corporate) participated in or facilitated the transactions. The new sanctions extend the current prohibition on direct participation by U.S. persons or companies to non-U.S. companies that are owned or controlled by U.S. companies. This prohibition will take effect within 60 days, upon action by the president to implement the prohibition. Further, the law provides U.S. companies 180 days to terminate existing business relationships with Iran before facing penalties.

In addition, companies traded on U.S. stock exchanges must publicly report transactions they or their affiliates conduct that violate certain Iran sanctions. Reported transactions trigger a mandatory investigation to determine whether penalties should be imposed.

The new sanctions also expand non-U.S. company liability for certain transactions with Iran. Of particular note, all persons (U.S. or non-U.S. persons or entities) are prohibited from:

  • Participating in joint ventures with Iranian companies in energy-related projects outside of Iran. Companies participating in such joint ventures in existence prior to the new sanctions have 180 days to terminate their participation before facing penalties. Certain exemptions are provided under the new sanctions, e.g., if the joint venture was established prior to January 1, 2002, the prohibition does not apply.
  • Providing shipping services for certain transactions related to proliferation or terrorist activity.
  • Providing insurance services to certain Iranian entities.
  • Participating in or facilitating transactions related to the issuance of debt of the government of Iran.
  • Dealing with certain denied parties found to have participated in proliferation of weapons of mass destruction, terrorism or subject to certain United Nations sanctions.

Additionally, the new sanctions target Iran's energy sector by expanding and codifying certain prohibitions put in place under the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (CISADA). CISADA's sanctions generally require the president to impose penalties for any person participating in a variety of transactions that assist in Iran's ability to develop energy-related products. For further discussion of CISADA, please see Thompson Hine's bulletin "OFAC Issues Iran Financial Sanctions Regulations."

Given the expansion of sanctions against Iran, U.S. companies with foreign subsidiaries should re-evaluate their trade compliance programs to ensure they are not exposed to liability under the new sanctions.