The Situation: The Trump administration announced a new round of sanctions on January 10, 2020, following escalating tensions between the United States and Iran.
The Result: The new sanctions complement existing sanctions that already target a wide swath of the Iranian economy, including the automotive, energy, finance, metals, and shipping sectors.
Looking Ahead: Non-U.S. companies contemplating or engaged in business in Iran should review their activities and, even if in sectors not yet identified, consider the risk of sanctions on further sectors of the Iranian economy.
Following escalating tensions between the United States and Iran capped by an Iranian missile strike on two U.S. air bases in Iraq, the Trump administration announced a new round of sanctions on January 10, 2020. These sanctions target sources of revenue, including major Iranian companies operating in the metals sector, that might be "used to fund and support [Iran's] nuclear program, missile development, terrorism and terrorist proxy networks, and malign regional influence," as well as certain senior Iranian officials determined to be complicit in the missile strikes.
Executive Order Targeting Additional Sectors of Iranian Economy
President Trump Executive Order 13902 authorizing sanctions relating to dealings in the construction, manufacturing, mining, and textiles sectors of the Iranian economy, as well as additional yet-to-be-named sectors in the future. As U.S. companies have long been prohibited from doing business in Iran, these new sanctions are aimed at the activities of non-U.S. companies and individuals, constituting, in effect, new "secondary" or extraterritorial sanctions.
The executive order provides the Secretary of the Treasury—in consultation with the Secretary of State and through the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC")—broad authority to block the property and interests in property of any person determined to, inter alia:
- Operate in the construction, mining, manufacturing, or textiles sectors of the Iranian economy, or any other sector of the Iranian economy specified in the future;
- Knowingly engage in a significant transaction for the sale, supply, or transfer of significant goods or services in connection with above-listed sectors; or
- Materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to the executive order.
Persons designated under the executive order will be identified on the Specially Designated Nationals and Blocked Persons ("SDN") List.
The executive order also provides for specific sanctions on foreign financial institutions that, on or after January 10, knowingly conduct or facilitate any significant financial transaction:
- For the sale, supply, or transfer to or from Iran of significant goods or services used in connection with the construction, mining, manufacturing, textiles, or other designated sectors of the Iranian economy; or
- For or on behalf of any person whose property and interests in property are blocked pursuant to the executive order.
Foreign financial institutions sanctioned under the executive order may be prohibited from, or subject to restrictions on, opening or maintaining correspondent or payable-through accounts in the United States.
OFAC has also issued new FAQ 816 in which it advises that persons engaged in transactions that could be sanctionable under the executive order with respect to transactions in the construction, mining, manufacturing, and textiles sectors of the Iranian economy have a 90-day period (expiring on April 9, 2020) to wind down those transactions without exposure to sanctions under the executive order. Entering into new business that would be sanctionable under the executive order on or after January 10, 2020, will not be considered wind-down activity and could be sanctioned even during the wind-down period.
These new sanctions complement existing sanctions that already target a wide swath of the Iranian economy, including the automotive, energy, finance, metals, and shipping sectors. Significantly, although the executive order focuses on the four listed sectors of the Iranian economy, it authorizes the Secretary of the Treasury to identify additional sectors, leaving open the possibility that sanctions may expand to other sectors without the issuance of an additional executive order.
It remains to be seen how other sanctions authorities will react to the continuing focus on the activities of non-U.S. persons, including, in particular, whether some or all of the new sanctions will fall within the scope of the so-called "Blocking Regulation" (Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extraterritorial application of legislation adopted by a third country, as updated by Delegated Regulation (EU) 2018/1100 of 6 June 2018). Among other matters, the Blocking Regulation expressly prohibits covered persons from complying "actively or by deliberate omission" with the secondary sanctions connected to Iran imposed by the United States following its withdrawal from the Joint Comprehensive Plan of Action ("Iran Nuclear Deal"). The impact of the Blocking Regulation continues to raise complex issues of conflict of laws for those persons affected by both regimes, and there have been growing demands for a strengthened EU sanctions policy that would deter the use of secondary sanctions and/or protect European businesses from their effects.
In addition, France, Germany, and the United Kingdom announced on January 14, 2020, that they are invoking the dispute resolution process under the Iran Nuclear Deal after determining that Iran is no longer in compliance with certain of its commitments under the deal. This opens the possibility that the European Union could reimpose previously lifted EU sanctions on Iran.
Designations Under Executive Orders 13876 and 13871
In concert with the new executive order, OFAC designated not only key Iranian officials involved in the recent missile strike on U.S. military facilities, but also the largest steel, aluminum, copper, and iron manufacturers in Iran pursuant to earlier executive orders. The majority of the newly designated entities are located in Iran, though entities in China, Seychelles, and Oman also were designated. The designation of these companies appears to reflect an increased focus on denying the government of Iran revenue and targeting ever-broader areas of the Iranian economy, including foreign entities doing business in Iran.
As tensions between the United States and Iran continue, non-U.S. companies contemplating or engaged in business in Iran should review their activities and, even if in sectors not yet identified, consider the risk of sanctions on further sectors of the Iranian economy.
Three Key Takeways
- Non-U.S. companies dealing directly or indirectly with the construction, manufacturing, mining, and textiles sectors of the Iranian company should review their activities to determine whether the activities pose a risk of blocking under the new executive order.
- As tensions between Iran and the United States remain high, the U.S. government may further expand the sectors of the Iranian economy that are subject to extraterritorial sanctions.
- The U.S. government also may increase enforcement of the existing extraterritorial sanctions, as demonstrated by the recent designations in the metals industry in Iran.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.