On Jan. 28, 2010, the U.S. Senate voted to pass the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2009 (S. 2799), a bill that would significantly increase U.S. sanctions against Iran and seriously impact U.S. and foreign manufacturers, as well as financial institutions. A similar but less-stringent piece of legislation, the Iran Refined Petroleum Sanctions Act (H.R. 2194), passed the U.S. House of Representatives on Dec. 15, 2009. Members of Congress are anticipating that the bills will be combined into a single piece of legislation, possibly within the next few weeks.
While Congress is in the process of creating a unilateral sanctions option, the Obama Administration is attempting to rally international support for multilateral sanctions imposed through the United Nations. Given the constantly changing climate concerning the political situation concerning Iran at this time, unilateral and multilateral options remain under development and very much on the table. Below we highlight significant provisions from both U.S. bills to illustrate the potential impact of such additional sanctions on U.S. and foreign businesses.
Expanded Ban on Exports and Imports Could Impact U.S. Foreign Subsidiaries and non-U.S. Companies Selling U.S. Origin Goods and Technology
One proposal under consideration is a blanket prohibition on exports and re-exports of “any article of United States origin” by any party. Certain limited exceptions would remain in place for licensed trade in agricultural commodities, medicine, medical devices, and food under the Trade Sanctions Relief Act (TSRA), as well as for certain exports of humanitarian or informational purposes, and exports related to the safe operation of commercial aircrafts.
However, if this proposed ban were to pass, no foreign company (not just U.S. subsidiaries) could ship EAR99 items of U.S. origin into Iran, even where no U.S. persons were involved and the items were coming from “general inventory.” Furthermore, depending on how these provisions would be interpreted by export enforcement authorities, the 10 percent de minimis exception for re-exports of foreign-made goods containing U.S. origin content could also be eliminated.
Expanded Extraterritorial Reach on Any Company Supporting the Refined Petroleum Industry
Another proposal under consideration would expand the Iranian Sanctions Act (ISA) so that it applies extraterritorially to any individual, organization, or company (whether U.S. subsidiary or not) supporting the refined petroleum industry in Iran (to the extent possible under U.S. law).
These provisions specifically target investments and sales or provision of goods, services, technology, information, or support that could facilitate the maintenance or expansion of Iran’s domestic production of refined petroleum products. Additionally, they impose mandatory sanctions on any person who provides refined petroleum products or goods, technology, services, information, or support that could contribute to the enhancement of Iran’s ability to import refined petroleum products. The threshold dollar amounts for liability under these provisions begin as low as US$200,000 and covered services include underwriting, provision of insurance or reinsurance, financing or brokering, as well as shipping services.
Increased Risk of Liability for U.S. Parent Companies with Foreign Subsidiaries Engaging in Any Business with Iran
Another proposal would hold U.S. parent companies liable for violations of the Iranian sanctions administered by the Office of Foreign Assets Control (OFAC), if the parent companies were found to establish and maintain subsidiaries outside the United States “for the purpose of circumventing” OFAC sanctions, and if those subsidiaries were found to engage in acts that, if committed directly by U.S. persons, would be prohibited.
Increased scrutiny on U.S. parents for the activities of their subsidiaries is new to the Iranian sanctions and could cause a great deal of difficulty for multinational companies. The real impact of this provision, if it were to pass, will depend on how OFAC interprets “for the purpose of circumvention.”
McGuireWoods LLP continues to closely monitor U.S. and international sanctions developments and the potential impact on U.S. and foreign companies. If you are in need of further guidance, please contact any of the listed attorneys below.