[authors: J. Scott Maberry and Matthew Riemer]
In the months since the signing of the Iran Threat Reduction and Syria Human Rights Act (which we will stubbornly continue to refer to here as “ITRA”), the Obama administration has worked to implement tougher sanctions against Iran. Although many of the ITRA regulations are not expected until early November, an Executive Order issued last week marked the beginning of a much stricter era of sanctions pursuant to ITRA, the Iran Sanctions Act of 1996 (ISA), and the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA).
On October 9, 2012, sixty days after President Obama signed ITRA into law, he issued Executive Order No. 13,628, extending U.S. Iran sanctions to cover foreign subsidiaries of U.S. parent companies, a prohibition that did not exist until promulgated in ITRA. The Executive Order implements ITRA Section 218, which we highlighted in our August 17, 2012 post, by providing that:
No entity owned or controlled by a United States 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 that transaction would be prohibited by [the pre-existing Iran sanctions].
The Executive Order defines the term “entity” to mean “a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization.” This is a slight expansion of the definition provided by Congress in Section 218, which does not include the words “group” or “subgroup.” The resulting definition appears to authorize sanctions where any group “controlled by” a U.S. person, regardless of whether the group is formally incorporated, conducts prohibited Iran-related business.
The Executive Order gives no quarter for existing contracts, and authorizes standard Office of Foreign Assets Control (OFAC) penalties against the U.S. person controlling the foreign entity. However, Subsection 4(c) of the Order provides that civil penalties shall not apply if the U.S. person divests or terminates its business with the foreign subsidiary not later than February 6, 2013.
The Order also directs that Secretaries of Treasury and State to issue regulations to implement several other provisions of ITRA (though the ITRA itself also directed the issuance of such regulations within 90 days of the effective date of the statute). Thus, Treasury regulations may be expected by around November 8, 2012 regarding several ITRA provisions, including the following:
Section 202, which requires the imposition of at least five ISA sanctions on any person who, on or after November 8, 2012, beneficially owns, operates, or controls a vessel that is used to transport crude oil from Iran to another country. This provision applies, however, only if the President determines under the National Defense Authorization Act that there is a sufficient supply of petroleum from countries other than Iran to permit petroleum purchasers to significantly reduce purchases from Iran;
Section 214, which increases the availability of sanctions on subsidiaries and agents of UN-sanctioned persons;
Section 215, which extends the availability of sanctions against persons connected to Iran’s weapons of mass destruction to any foreign financial institution who aids that person; and
Section 216 adds a new section to CISADA, expanding sanctions to apply to financial institutions connected to certain proliferation or terrorism activities of Iran or its National Guard.
In addition to the forthcoming regulations, the President is required to provide a great deal of information to Congress on and after November 8. Under section 211, the President must report to Congress on the identity of operators of vessels and persons that conduct or facilitate significant financial transactions that manage Iranian ports designated for sanctions under the International Emergency Economic Powers Act. Furthermore, the President must provide the identity of and the restrictions on individuals, including senior Iranian officials, Iranian Revolutionary Guard Corps Officials, foreign persons supporting the Iranian Revolutionary Guard, and foreign government agencies carrying out transactions with certain Iran-affiliated persons.
The Secretaries of Treasury and State also are required to report to the relevant Congressional committees on certain aspects of the implementation of ITRA. Under Section 206, the Secretary of State must brief Congress on the implementation of the ISA by November 8, 2012, and every 120 days thereafter. The Secretary of Treasury, pursuant to sections 216 and 220, must report to Congress on the implementation of sanctions on persons and entities who provide financial assistance to proliferation and terrorism activities.
The pace of Iran sanctions has accelerated rapidly in recent months and should be expected to continue to increase over the near and medium term. We will continue to provide our analysis of new developments here.
 On the same day the Executive Order was issued, OFAC issued a “Frequently Asked Questions” document providing guidance with regard to the Order.
 Sec. 218 – Liability of Parent Companies for Violations of Sanctions by Foreign Subsidiaries (requiring the President and the Secretary of Treasury to promulgate regulations within 60 days of enactment).
 ITRA §§ 221, 301-303.