Iranian Sanctions Extended by Executive Order


[authors: Margaret M. Gatti, Louis Rothberg, and Timothy M. Rolland]

Foreign subsidiaries of U.S. parent companies are deemed fully subject to U.S. jurisdiction regarding all Iranian sanctions.

On October 9, an Executive Order was issued by President Barack Obama, fully implementing Section 218 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (the Act), P.L. 112-158, which was signed into law on August 10, 2012.[1]

Section 218 of the Act provides that non-U.S. companies that are incorporated, organized, and operating outside of the United States and are owned or controlled by U.S. parent companies must comply with all U.S. laws and regulations related to transacting business in or with Iran, as if they were themselves U.S. companies.

The October 9 Executive Order has the effect of bringing any foreign subsidiary of a U.S. parent company within the scope of all the Iranian sanctions regulations administered by the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC). The U.S. sanctions apply to all such companies, notwithstanding the effect of inconsistent non-U.S. laws otherwise applicable to a foreign subsidiary regarding transactions with Iran.

Thus, absent an OFAC license, no U.S. company's foreign subsidiary is permitted to export, reexport, import, sell, or supply any U.S.-origin or non-U.S.-origin product, technology, or service directly or indirectly to or for Iran. Section 218 of the Act provides that a U.S. parent company can be directly sanctioned by OFAC for the violations committed by its foreign subsidiary.

Also in connection with foreign subsidiaries' activities, Section 219 of the Act requires that an "issuer" disclose certain information in either its annual or quarterly report filed with the Securities and Exchange Commission (SEC) if the issuer or any "affiliate" of the issuer (as defined for purposes of the Securities Exchange Act of 1934) has knowingly conducted or engaged in any activity that includes, but is not strictly limited to, the following:

  • Any activity involving the development of (a) petroleum resources in Iran, (b) weapons of mass destruction, or (c) other Iranian military capabilities
  • Any activity involving or destined to Iran's energy sectors (petroleum, petrochemical, and gas)
  • Any transactions or dealings with any person or entity identified by OFAC as a Specially Designated National (SDN) or blocked party

The Act further defines what information needs to be disclosed for any of the above reasons. The disclosed information will be made public on the SEC's website and the U.S. government is required to initiate an investigation. This disclosure becomes effective for reports filed with the SEC after February 9, 2013.

As a result of the Executive Order, U.S. companies with foreign subsidiaries should examine the practices of their foreign subsidiaries to ensure compliance with the Act.

[1]. Read the Executive Order here.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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