Stephen M. McNabb, Marsha Z. Gerber, Stefan Reisinger and Kimberly Hope Caine
August 2, 2012
Several major developments this week have intensified the economic and diplomatic pressure on Iran. The U.S. Congress approved a legislative package of stringent new sanctions against Iran, the President signed an Executive Order authorizing additional sanctions against Iran, and the Treasury Department's Office of Foreign Assets Control ("OFAC") imposed sanctions under the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 ("CISADA") against two financial institutions that deal with Iran.
I. New Iran Sanctions Legislation
On August 1, 2012, the House approved 421-6 and the Senate approved unanimously a bill that significantly tightens sanctions against Iran and companies that assist in the development of Iran's energy resources or nuclear program. The Iran Threat Reduction and Syria Human Rights Act of 2012 ("the Act") resulted from a bipartisan, bicameral agreement reached earlier in the week. The Act targets the energy, shipping, and financial sectors with severe, punitive measures that are intended to undercut Iran's oil revenues and suspected nuclear activities. The Act will not become law until it is signed by President Barack Obama.
The United States already prohibits all U.S. persons and entities (wherever located) from engaging in trade, financial transactions, and other dealings with Iran. However, the Act represents a dramatic expansion of the existing sanctions. It not only strengthens the Iran Sanctions Act of 1996, but also imposes new sanctions related to the energy, shipping, and financial sectors that further restrict U.S. persons and entities from doing business with Iran.
The key provisions of the Act include:
A. Sanctions Related to Iran's Energy Sector and Nuclear Program
Expanding the Iran Sanctions Act of 1996 to:
Impose sanctions on any person who knowingly participates in certain petroleum resource development joint ventures outside of Iran if the Iranian government is a substantial partner or investor, or if such joint venture could significantly contribute to the development of petroleum resources in Iran.
Impose sanctions on any person who knowingly sells, leases, or provides to Iran certain petroleum and infrastructure development-related resources goods, services, technology, or support.
Impose sanctions on any person who knowingly sells, leases, or provides to Iran certain petrochemical development-related goods, services, technology, or support.
Impose sanctions on any person who knowingly participates in certain joint ventures with Iran's government, Iranian entities, or persons acting for or on behalf of Iran in the mining, production, or transportation of uranium.
Authorize the President to (a) prohibit any U.S. person from investing in or purchasing significant amounts of equity or debt instruments of a sanctioned person; (b) direct the Secretary of State to exclude from the United States an alien who is a corporate officer, principal, or controlling shareholder in a sanctioned firm; and (c) impose sanctions against the principal executive officer or other principal executive officers of a sanctioned firm.
- Directing the President to block the property and property interests in the United States or under the control of a U.S. person of a person who knowingly provides ships, insurance or reinsurance, or other shipping services for transportation of goods that materially contribute to Iran's proliferation of WMDs or terrorism-related activities.
- Imposing mandatory CISADA sanctions on any person who knowingly provides underwriting services or insurance or reinsurance for the National Iranian Oil Company ("NIOC"), the National Iranian Tanker Company ("NITC"), or a successor entity to either such company.
- Imposing mandatory CISADA sanctions on any person who knowingly purchases, subscribes to, or facilitates the issuance of (a) sovereign debt of the Government of Iran, including governmental bonds; or (b) debt of any entity owned or controlled by the Government of Iran, including bonds.
- Amending CISADA to impose sanctions on entities controlled or owned by a person sanctioned by U.N. Security Council resolutions regarding Iran.
- Prohibiting an entity owned or controlled by a U.S. person and established or maintained outside the United States from engaging in any transaction with Iran or a person under Iran's jurisdiction that would be prohibited if the transaction were engaged in by a U.S. person or in the United States.
- Amending the Securities Exchange Act of 1934 to require securities issuers to disclose to the Securities and Exchange Commission ("SEC") whether they or their affiliates have engaged in certain sanctionable activities.
- Authorizing the President to impose sanctions against persons who provide or facilitate the provision of specialized financial messaging services to the Central Bank of Iran or other sanctioned financial institutions.
- Prohibiting persons involved in Iran's illicit nuclear activities or WMD proliferation, support for international terrorism, or human rights abuses against Iranian citizens from being granted U.S. immigration status or admitted into the United States.
B. Sanctions Related to Iran's Revolutionary Guard Corps
- Directing the President to (a) identify officials, affiliates, and agents of Iran's Islamic Revolutionary Guard Corps ("IRGC") that are not already designated for the imposition of sanctions pursuant to the International Emergency Economic Powers Act ("IEEPA"); and (b) designate them for sanctions, exclusion from the United States, and freezing of assets.
- Requiring investigative priority for foreign persons identified with the government of Iran, who have conducted transactions with Iran relating to petroleum, petrochemicals, energy resources, finances, nuclear, chemical or ballistic weapons, or sensitive technologies.
- Directing the President to identify and impose mandatory and discretionary sanctions upon a foreign person who knowingly (a) assists or engages in any significant transactions with the IRGC or its agents and affiliates, or (b) engages in any significant transactions with a person subject to U.N. sanctions relating to Iran.
- Amending the Iran Sanctions Act of 1996 to require certification by prospective U.S. government contractors that neither they nor their subsidiaries have engaged in significant economic transactions with the IRGC, or its officials, agents, or affiliates whose property is blocked pursuant to IEEPA.
- Amending CISADA to direct the Treasury Secretary to determine whether NIOC or NITC is an IRGC agent or affiliate and submit such determination to Congress.
C. Sanctions Related to Human Rights Abuses in Iran and Syria
- Amending CISADA to direct the President to identify and submit a list to Congress of persons who have knowingly transferred to Iran goods or technology, or provided post-transfer services, that are likely to be used by the government of Iran to commit human rights abuses.
- Directing the President to freeze the assets of listed persons, and impose additional sanctions if such transfers are made to the IRGC.
- Directing the President to impose sanctions against persons who have engaged in censorship or repression of the rights of freedom of expression or assembly of Iran's citizens.
- Requiring OFAC to expedite processing of Iran-related humanitarian, human rights and democratization aid by entities receiving funds from the Department of State, the Broadcasting Board of Governors, and other U.S. agencies.
- Directing the President to identify and impose sanctions related to human rights abuses in Syria.
II. New Executive Order Authorizing Additional Iran Sanctions
Preceding passage of the Act by both chambers, President Obama signed an Executive Order, "Authorizing Additional Sanctions With Respect to Iran." The Executive Order, signed July 31, 2012, expands upon the sanctions authorities of the Department of Treasury and the Department of State. The key provisions of the Executive Order include:
- Authorizing the Treasury Secretary to impose financial sanctions on foreign financial institutions found to have knowingly conducted or facilitated certain significant financial transactions, including (a) transactions with NIOC or NICO or (b) transactions for the purchase or acquisition of petroleum or petroleum products from Iran through any channel.
- Authorizing the Treasury Secretary to impose sanctions on foreign financial institutions found to have knowingly conducted or facilitated significant transactions for the purchase or acquisition of petroleum, petroleum products, or petrochemical products from Iran.
- Authorizing the Treasury Secretary to block the property and property interests of any person determined to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, NIOC, NICO, or the Central Bank of Iran, or the purchase or acquisition of U.S. bank notes or precious metals by the Government of Iran.
- Expanding upon the measures specified in the Iran Sanctions Act and Executive Order 13590 that relevant agency heads may take to implement sanctions against Iran.
III. New OFAC Sanctions Against Two Financial Institutions
In addition, on July 31, 2012, the Treasury Department announced the imposition of sanctions under CISADA against two financial institutions – Bank of Kunlun in China and Elaf Islamic Bank in Iraq – for knowingly facilitating significant transactions or providing significant financial services for designated Iranian banks. These banks are effectively barred from directly accessing the U.S. financial system. Financial institutions may not open correspondent or payable-through accounts for Bank of Kunlun or Elaf Islamic Bank in the United States and any financial institutions that currently hold such accounts must close them within 10 days.
This article was prepared by Stephen M. McNabb (firstname.lastname@example.org or 202 662 4528), Marsha Z. Gerber (email@example.com or 713 651 5296), Stefan H. Reisinger (firstname.lastname@example.org or 202 662 4698) and Kimberly Hope Caine (email@example.com or 202 662 0394) from Fulbright's International Trade Practice. Stephen M. McNabb is a partner in Fulbright's Washington D.C. office and is Head of Fulbright's International Trade Practice. Lista M. Cannon (firstname.lastname@example.org or +44 020 7832 3601) is head of the firm's UK and EU Trade and Sanctions Practice in London.
Fulbright's International Trade Practice
Fulbright's International Trade Practice is comprised of experienced attorneys in several of Fulbright's offices throughout the world. Attorneys in the group assist clients in matters concerning international trade laws and regulations; including economic sanctions regulations, export/import control regulations, anti-boycott regulations, and anti-corruption laws. To learn more about our international trade practice, please go to www.fulbright.com/internationaltrade.
Stephen M. McNabb
Marsha Z. Gerber
Kimberly Hope Caine