New Executive Order Expands Iran Sanctions to Cover Foreign Subsidiaries of U.S. Companies

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On October 9, 2012, the President signed a new executive order (“Executive Order”) implementing certain provisions of the Iran Threat Reduction and Syria Human Rights Act of 2012 (now referred to as the TRA). The TRA expanded sanctions against Iran’s financial, energy, and transportation sectors. The Executive Order addresses a number of provisions in the TRA that required presidential action within 60 days of the law’s enactment.

Most notably, Section 218 of the TRA called for sanctions to be extended to U.S. owned or controlled foreign subsidiaries, joint ventures, and other entities, when those entities knowingly engage in transactions, directly or indirectly, with Iran or the Government of Iran. Section 4 of the Executive Order implements Section 218. Under Section 4, no entity that is owned or controlled by a U.S. person and established or maintained outside the United States may “knowingly engage in any transaction, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran” if the transaction would be prohibited if performed by a U.S. person or a person in the United States. A U.S. person may be subject to civil penalties if a foreign entity it owns or controls engages in these prohibited transactions.

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