It has now been two years since Iran-related sanctions relief took effect under the Joint Comprehensive Plan of Action.[1] While U.S. persons continue to be generally prohibited from engaging in Iran-related business, the JCPOA clearly expanded opportunities, from a sanctions perspective, for non-U.S. persons (including foreign subsidiaries of U.S. companies under General License H) to do business in that country.
The new sanctions landscape has implications for the reporting requirements of SEC-registered issuers. Since 2013, U.S.-registered issuers have been required to disclose certain Iran-related business activities in public filings with the SEC, and issuers have filed hundreds of such Iran Notices since the lifting of sanctions. We have surveyed the field of these filings to assess whether disclosure trends have been impacted by the still-changing landscape of U.S. sanctions policy toward Iran.
From an enforcement perspective, the SEC appears to have signaled relatively low interest in policing Section 219 since its inception. To our knowledge, the SEC has yet to bring an enforcement action against an issuer for violations of its Section 219 reporting obligations. Moreover, neither the current nor former Presidential Administration has publicly “initiate[d] an investigation into the possible imposition of sanctions” with respect to an issuer or its affiliate disclosing Iran-related business, as envisaged by Section 219.
While federal authorities have thus far shown limited willingness to take a heavy enforcement approach in this area, state governments may be paying closer attention. Thirty states and the District of Columbia have enacted their own divestment legislation or policies, which generally prohibit the investment of state-managed funds (e.g., public pension funds) in any entity determined to be doing business in Iran and other sanctioned countries. Importantly, these state divestiture laws often do not track federal sanctions from either a legal or policy standpoint. Accordingly, conduct that is permissible under U.S. sanctions programs often runs afoul of stricter state divestiture statutes. This is especially so since the lifting of Iran-nuclear sanctions; anecdotally, we can report an uptick in the number of state governments notifying companies that their reported Iran business activities preclude them from receiving the investment of state funds. Often, these state agencies base their initial findings on disclosures made pursuant to Section 219. Consequently, some issuers may find themselves weighing the benefits of Iran ventures with the potential costs of divestiture by certain U.S. states.
It is clear that issuers are maintaining a conservative approach to Section 219, even while relaxed U.S. sanctions requirements allow for new commercial opportunities in Iran. In light of the SEC’s expansive reading of the law, issuers continue to err on the side of reporting even attenuated relationships with Iran.