United States Steps Up Its Targeting of Non-U.S. Companies Doing Business With Iran

International Trade & Customs Update

Date: January 16, 2013

Overview

Recently enacted U.S. sanctions continue a trend of pursuing non-U.S. companies that do business in Iran. A new statute recently signed into law, the Iran Freedom and Counter-Proliferation Act of 2012 (IFCPA), targets non-U.S. companies doing business with Iran's energy, shipping, shipbuilding and precious metals industries. In addition, the Treasury Department's Office of Foreign Assets Control (OFAC) recently issued new regulations pursuant to the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRSHRA) that under certain circumstances penalize U.S. companies when their non-U.S. affiliates do business with Iran.

IFCPA

On January 2, 2013, President Obama signed IFCPA into law. See Pub. Law 112-239. IFCPA prohibits, inter alia, non-U.S. persons (individuals and entities) from:

  • Conducting "significant" transactions with certain Iranian "Specially Designated Nationals" (SDNs) or with the Iranian energy, shipping or shipbuilding sectors.
  • Providing "significant" financial, material or technological support to, or goods or services in support of, SDNs or the above sectors.
  • Selling or transferring precious metals, aluminum, steel, coal, software or other materials used in connection with the above sectors to Iranian SDNs, or for certain nuclear or military uses.
  • Underwriting or insuring activities prohibited by certain Iran sanctions, including under IFCPA.
  • Facilitating transactions with certain Iranian SDNs.
  • Diverting goods intended for Iran.

Individuals or entities designated by the U.S. government as violating these prohibitions may face a series of sanctions, up to and including having all property and interests within U.S. jurisdiction frozen. IFCPA provides certain exceptions, such as precluding sanctions against persons or entities that have policies and procedures designed to prevent transactions with Iran.

The above prohibitions will take effect 180 days after the date of IFCPA's enactment (i.e., on July 1, 2013), except for the prohibition against diverting goods intended for Iran, which takes effect immediately.

ITRSHRA Implementing Regulations

ITRSHRA became law in August 2012, as we earlier reported. On December 26, 2012, OFAC published new regulations implementing Section 218 of ITRSHRA, which prohibits a non-U.S. company that is owned or controlled by a U.S. company and established or maintained outside the United States from conducting any transaction that would be illegal if conducted by a U.S. person.

Penalties for violating this prohibition apply to the U.S. company, not to the owned or controlled non-U.S. company. However, the U.S. company can avoid penalties if it divests or terminates its business with the non-U.S. company not later than February 6, 2013. The new implementing regulations also permit the non-U.S. company to take steps to "wind down" its business with Iran through March 8, 2013. If the U.S. parent company is not involved in the "winding down" actions, it will not incur penalties for those actions.

In Conclusion

Given the continuous expansion of sanctions against Iran, U.S. companies should reevaluate their trade compliance programs to ensure they are not exposed to liability under the new sanctions due to the actions of their non-U.S. subsidiaries. In addition, non-U.S. companies that may be adversely affected by having their property interests in the United States blocked may want to reevaluate the potential costs of doing business with Iran.