Expanded Sanctions Against Iran Continue Unabated in the New Year
On January 2, 2013, President Obama signed the National Defense Authorization Act for Fiscal Year 2013 (NDAA 2013), which included expanded sanctions against Iran. The Iran Freedom and Counter Proliferation Act of 2012 (the Act), included as Subtitle D of Title XII of NDAA 2013, imposes a new round of sanctions on Iran focused on foreign businesses including foreign financial institutions involved in the energy, shipping and shipbuilding sectors, underwriting and insurance as well as metal trading with Iran.
The Act follows earlier sanctions imposed either by Executive Order or legislation by expanding the type of conduct that requires the impositions of sanctions under the Iran Sanctions Act of 1996 (Public Law 104-172), as amended (ISA). In addition, the Act requires that various entities be placed on the List of Specially Designated Nationals and Blocked Persons (the SDN List) maintained by the Office of Foreign Assets Control or become subject to sanctions under the International Emergency Economic Powers Act or other earlier Iran sanctions statutes.
Energy, Shipping and Shipbuilding Sector
Section 1244 of the Act requires the President to block and prohibit all transactions of any person who is part of the energy, shipping or shipbuilding sector in Iran, and anyone who operates an Iranian port. Any person who knowingly provides significant support, or goods or services, to such persons or any Iranian person who has been placed on the SDN List becomes subject to ISA sanctions. The Act draws a distinction between Iranian financial institutions designated as SDNs under weapons of mass destruction (WMD) and Terrorism programs, significantly Bank Melli and Bank Saderat, and all other Iranian banks that are blocked pursuant to E.O 13599. Only the provision of services to the WMD and Terrorism SDN banks will trigger ISA sanctions. This section takes effect 180 days after enactment (July 1, 2013).
There are some exceptions notably for petroleum purchases from Iran that fall under the National Defense Authorization Act of 2012 (NDAA 2012) for governments that have reduced their purchases of crude old from Iran. There is also an exception made for purchases of food, medicine and other humanitarian activity.
Metal Trading to or from Iran
Section 1245 requires that the President impose ISA sanctions on any person who has sold, supplied or transferred precious metals, graphite, raw or semi-finished metals, coal, and software for integrating industrial processes where such materials are for barter or are listed on the national balance sheet of Iran, including materials connected to the energy, shipping, or shipbuilding sector or any sector controlled by the Iranian Revolutionary Guard Corps or for use in weapons development programs. As in earlier programs, a foreign financial institution that engages in significant transactions related to these materials can be barred from maintaining a correspondent bank account in the United States This section also takes effect 180 days after enactment.
This section recognizes an exception for persons who exercise due diligence in establishing policies and procedures to prevent the sale of the restricted products. This is similar to language included in the Comprehensive Iranian Sanctions Accountability, and Divestment Act of 2010 (CISADA) for compliance efforts of insurers.
Underwriting Services, Insurance and Reinsurance
Section 1246 requires the President to impose ISA sanctions on persons who knowingly provide underwriting services, insurance or reinsurance services for any activity in Iran which is subject to U.S. sanctions. This includes previously imposed sanctions as well as any services provided to any person for sanctionable activity in the energy, shipping or shipbuilding sectors under the Act or for the sale, supply, or transfer of restricted metals under Section 1245 described above. As in other sections, the provision of insurance services to any SDN will cause ISA sanctions to be imposed, but Iranian financial institutions designated solely under E.O. 13599 will not trigger sanctions.
There is a carve out for humanitarian activity as well as an exception for insurers who exercise due diligence.
Other sections of the Act expand existing sanctions. Restrictions on correspondent accounts for foreign financial institutions can now be imposed when an institution facilitates a significant transaction on behalf of any Iranian SDN. Any person who engages in the diversion of goods intended for the Iranian people or the misappropriation of proceeds will be subject to sanctions under CISADA §105(c). The Islamic Republic of Iran Broadcasting and its president are subject to the same sanctions.
The President is afforded greater flexibility in one provision which expands his ability to waive the imposition of sanctions on foreign financial institutions under NDAA 2012 in instances where a country is unable to reduce its purchase of petroleum products due to exceptional circumstances.
In the absence of meaningful diplomatic progress, it is likely that sanctions against Iran will continue to expand in the coming year. While there are few areas of commercial engagement with Iran remaining that do not bring the threat of sanctions, it is likely that we will see additional sanctions enacted in the coming year with the focus increasingly on foreign persons who engage with Iran.