New Iran Sanctions Enacted

by BakerHostetler
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Satellite Export Controls Now Eligible to be Returned to Commerce Department Jurisdiction

On January 3, 2013, President Obama signed into law Public Law No. 112-239, the Iran Freedom and Counter-Proliferation Act of 2012 ("IFCPA" or the "Act"), as part of the National Defense Authorization Act for Fiscal Year 2013. It represents the fourth time in less than three years that the United States has enacted new legislatively-imposed sanctions against Iran.

The new law, which comes just shy of five months after the enactment of the Iran Threat Reduction and Syria Human Rights Act of 2012 [click here for a description of that statute], among other things, imposes significant new sanctions against Iran, most notably against Iran's energy, shipping and shipbuilding sectors, and persons providing Iran with certain products for those sectors or Iran's nuclear program. It also provides for sanctions against (re)insurers covering sanctionable activities/risks.

This additional expansion of the current sanctions regime against Iran requires companies with business interests in the affected sectors to assess their risk exposure and evaluate their internal compliance programs to ensure that they do not run afoul of the new sanctions and are able to take advantage of the "due diligence" safe harbors contained in the law.

The new statute also removes the legislatively-imposed requirement that commercial satellite export controls fall under the jurisdiction of the State Department, which should make such exports easier for U.S. companies.

Following is a brief review of the Act's key provisions.

IRAN SANCTIONS PROVISIONS

  • Blocking of Transactions and Property Associated with the Iranian Energy, Shipping and Shipbuilding Sectors and Iranian SDNs: With certain exceptions, the Act requires the President, on or after 180 days from enactment (July 2, 2013), to block and prohibit all transactions with persons that are part of the energy, shipping or shipbuilding sectors of Iran, that operate a port in Iran, or knowingly (known or "should have known") provide significant support or goods or services in support of such persons or Iranian SDNs. Additionally, the Act directs the President to impose five or more of the sanctions provided for in the Iran Sanctions Act of 1996 ("ISA") against any person that knowingly sells, supplies or transfers to or from Iran, on or after 180 days from enactment, significant goods or services used in connection with the aforementioned sectors, including the National Iranian Oil Company, the National Iranian Tanker Company and the Islamic Republic of Iran Shipping Lines. The President is also directed to prohibit the opening and prohibit or impose strict conditions on the maintaining in the United States of correspondent or payable-through accounts of foreign financial institutions that knowingly conduct or facilitate a significant related financial transaction.
     
  • Imposition of Sanctions on the Sale, Supply or Transfer of Certain Materials to or from Iran: With certain exceptions, and subject to a Presidential national security waiver, the Act directs the President, on or after 180 days from enactment, to impose five or more of the ISA sanctions against any person who knowingly sells, supplies or transfers, directly or indirectly, to or from Iran, precious metals and certain other materials (graphite, raw or semi-finished metals, such as aluminum and steel, coal and software for integrating industrial process) for Iran's energy, shipping, shipbuilding industries or other sectors of the Iranian economy controlled by Iran's Revolutionary Guard Corps, its nuclear, military or ballistic missile programs, or to Iranian SDNs. Foreign financial institutions facilitating or conducting related significant financial transactions would be prohibited from opening, or would have strict conditions imposed on maintaining, a U.S. correspondent or payable-through account.

    Significantly, the provision provides a "due diligence" safe harbor for persons who establish and enforce official policies, procedures and controls to make sure they do not take any of the sanctionable actions.
  • Imposition of Sanctions on Those Who Provide Underwriting Services, Insurance or Reinsurance for Sanctioned Activities or Persons: The IFCPA directs the President to impose five or more ISA sanctions on any insurance or reinsurance provider or underwriter that the President determines knowingly provided, 180 or more days after enactment, underwriting services or insurance or reinsurance: (1) for activities subject to sanctions under U.S. law, including those in the IFCPA; or (2) to or for any Iranian SDN, except Iranian financial institutions not connected with Iran's proliferation of weapons of mass destruction or delivery systems for weapons of mass destruction, Iran's support for international terrorism or Iran's abuses of human rights.

    This provision also contains a "due diligence" safe harbor, as well as a national security waiver, and an exemption for transactions involving humanitarian efforts.
  • Imposition of Sanctions on Foreign Financial Institutions that Facilitate Financial Transactions for Iranian SDNs: With certain exceptions, the Act directs the President to prohibit the opening, and prohibit or impose strict conditions on the maintaining, in the United States, of a correspondent account or a payable-through account by a foreign financial institution that the President determines has, 180 days or more after enactment, knowingly conducted or facilitated a significant financial transaction on behalf of any Iranian SDN, other than Iranian financial institutions not connected with Iran's proliferation of weapons of mass destruction or delivery systems for weapons of mass destruction, Iran's support for international terrorism or Iran's abuses of human rights.
  • Imposition of Sanctions Against Parties Diverting Goods Intended for the People of Iran: The Act requires the publication of the names of individuals engaged in acts of corruption or other activities related to diverting goods intended for the people of Iran or the misappropriation of proceeds from the sale or resale of such goods and the imposition of sanctions against them.
  • Waiver of Sanctions Related to Financial Institutions of Countries that Import Iranian Petroleum: The Act amends the provisions in the National Defense Authorization Act for Fiscal Year 2012 requiring sanctions against financial institutions facilitating imports of Iranian oil to allow the President to waive sanctions against foreign financial institutions of the country with primary jurisdiction over them that face "exceptional circumstances" preventing it from significantly reducing its volume of petroleum purchases from Iran.
  • Increasing the Statute of Limitations for Civil Actions Regarding Terrorist Acts: The Act increases the statute of limitations for civil proceedings brought in the United States by U.S. national victims of international terrorism from four years to 10 years.
  • Imposition of Reporting Requirements Regarding Iranian Seaports: Within 180 days of enactment, and annually thereafter, the President must submit to Congress reports that contain a list of: (1) large or otherwise significant vessels that have entered seaports in Iran controlled by the Tidewater Middle East Company; (2) the owners and operators of those vessels; and (3) all airports at which aircraft owned or controlled by an Iranian air carrier sanctioned by the United States have landed.
  • Imposition of Penalties for Violations: Violations of the IFCPA are subject to the criminal and civil penalties provided for in the International Emergency Economic Powers Act ($1 million fine and/or 20 years in jail, and a civil penalty of the greater of $250,000, or twice the value of the transaction in question).

SATELLITE EXPORT CONTROL PROVISIONS

  • The statute removes the previously imposed legislative requirement that commercial satellite export controls and related items must be under the U.S. Munitions List and the jurisdiction of the State Department. This will allow the President, following Congressional notification, to return export control jurisdiction for those items to the Commerce Department, which, unlike the State Department that requires licenses for export to almost all countries, requires licenses only for exports to certain countries. Notwithstanding this apparent liberalization, the statute will require a presumption of denial for license applications for exports of such items to countries subject to a comprehensive U.S. arms embargo. In addition, subject to a possible Presidential waiver, it will also bar (re)exports or transfers, directly or indirectly, to China, North Korea or a designated state sponsor of terrorism, or persons or entities in or acting for or on their behalf, and launches in those countries or as part of a launch vehicle owned, operated or manufactured by any such government or persons or entities in or acting for or on their behalf. Finally, the statute requires the President to provide for end use monitoring of satellites and related items made subject to Commerce Department export control jurisdiction.

As is evident from the above, the new legislation contains a wide variety of provisions of interest to entities involved in international trade and imposes new compliance requirements, particularly for foreign companies who continue to trade with Iran in the affected sectors. The above summary provides general information in connection therewith. A careful and detailed review is required to address the impact of the new legislation, as well as of prior legislative/administrative restrictions, on any specific set of facts.

For further information, on the material presented in this Alert, please contact Melvin Schwechter ( mschwechter@bakerlaw.com or 202-861-1559); Mark Joye, ( mjoye@bakerlaw.com or 713-646-1313); John Burke ( jburke@bakerlaw.com or 202-861-1625); or J. Garrett Cornelison ( gcornelison@bakerlaw.com or 713-646-1354), or your BakerHostetler relationship contact.

Authorship Credit: Melvin S. Schwechter and Sammi Malek

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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