The US sanctions space is very active and changes are made frequently. This publication is current as of January 17, 2020.
On January 10, 2020, the US significantly increased sanctions on or related to Iran by:
- Authorizing sanctions against Iranian sectors that previously had not been specifically targeted, namely the construction, mining, manufacturing, and textile sectors (New Sectors).
- Designating certain Iranian regime officials.
- Designating Iran's largest companies operating in the steel, iron, aluminum, and copper sectors of Iran.
- Designating non-Iranian entities for trade in Iranian metals.
The above actions may have important implications for both US and non-US persons engaging in any activity that involves Iran, but also in any activity that involves any of the designated targets (which, as discussed below, are not all Iranian).
President Trump signed an executive order (EO 13902) on January 10, 2020, authorizing sanctions on the New Sectors, namely Iran's construction, mining, manufacturing, and textile sectors. The stated goal of EO 13902 is to hold "the Iranian regime responsible for attacks against United States personnel and interests by denying it substantial revenue that may be used to fund and support its nuclear program, missile development, terrorism and terrorist proxy networks, and malign regional influence."
EO 13902 authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to impose sanctions against persons (including non-US persons) determined to:
- Be operating in or transacting with the New Sectors.
- Have knowingly engaged, on or after the date of EO 13902, in a significant transaction for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with the New Sectors.
- Have materially assisted, sponsored, or provided 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 EO 13902.
- Be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to EO 13902.
On January 16, 2020, OFAC issued FAQ 816 which states that persons engaged in transactions that could be sanctioned under EO 13902 with respect to the construction, mining, manufacturing, and textiles sectors of the Iranian economy have a 90-day period after the issuance of EO 13902 to wind down those transactions without exposure to sanctions under EO 13902. Such persons should take the necessary steps to wind down transactions by the end of the 90-day wind-down period to avoid exposure to sanctions, and be aware that entering into new business that would be sanctionable under the EO on or after January 10, 2020 will not be considered wind-down activity and could be sanctioned even during the wind-down period. The wind-down period with respect to the construction, mining, manufacturing, and textiles sectors expires on April 9, 2020.
New designations under existing executive orders
On the same day, the Treasury Department's Office of Foreign Assets Control (OFAC) designated additional persons and entities pursuant to previously issued Iran-related executive orders. Pursuant to Executive Order 13876, OFAC designated eight senior Iranian regime officials who are alleged to have advanced the regime's destabilizing objectives, including Ali Shamkhani, the Secretary of Iran's Supreme National Security Council; Mohammad Reza Ashtiani, the Deputy Chief of Staff of the Iranian Armed Forces; and Gholamreza Soleimani, the head of the Basij militia of the Islamic Revolutionary Guards Corps (IRGC) (a different figure from Qasem Soleimani, the head of the Quds Force, a unit within IRGC, who was killed by a US drone strike on January 3). OFAC also designated, pursuant to Executive Order 13871, the largest companies operating in Iran's steel, iron, aluminum, and copper sectors – see a list of the designated entities.
Further, and pursuant to Executive Order 13871, OFAC designated entities based in China and the Seychelles, and a related vessel, for the purchase, sale, and transfer of Iranian metals products and for providing metals production components to Iranian metal producers. Pamchel Trading Beijing Co. Ltd. (Pamchel) was designated for selling metals production materials to Khalagh Tadbir Pars Co. (Khalagh, an Iranian minerals trading firm), facilitating Khalagh's purchase of such components from Chinese manufacturers, and coordinating the sale of Iranian copper concentrates to a Chinese purchaser for Khalagh. Due to Pamchel utilizing a Seychelles-based firm, Power Anchor Limited, to conceal the Iranian end-user for the metal parts shipped to Iran and to facilitate payments from Iranian steel companies, Power Anchor Limited was also designated for being owned or controlled by or having acted on behalf of Pamchel. Pamchel used a vessel, the Hong Xun, to transport the purchased steel from Iran to China; and Hongyuan Marine Co. Ltd is the vessel's registered owner as well as the vessel's manager. Accordingly, both the Hong Xun and Hongyuan Marine Co. Ltd have also been designated by OFAC.
Both of the existing executive orders under which the above additional designations have been made contain similar wording to EO 13902, such that the Secretary of the Treasury, in consultation with the Secretary of State, is authorized to impose sanctions against persons (including non-US persons) determined to have materially assisted, sponsored, or provided 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 those executive orders.
The above has obvious implications for US persons or any trade that involves a US nexus. However, given the existing practical embargo on US persons with respect to Iranian trade, the additional practical effects for such trade are likely to be minimal, except with respect to transactions involving the newly designated parties. EO 13902 and additional designations may have significant consequences for any non-US person engaging in any activity in the New Sectors as outlined in EO 13902 or involving any of the designated entities, including the non-Iranian entities and vessel designated. Non-US persons should note the secondary sanctions aspects and Specially Designated Nationals (SDN) designation risk that arises from EO 13902 and additional designations under existing executive orders. The imposition of secondary sanctions can result in possible limitations on access to, or even exclusion from, the US financial system and marketplace. SDN designation obviously has wide reaching ramifications for trade with both US and non-US entities.
Importantly, non-US financial institutions should note that EO 13902 specifically authorizes sanctions on foreign financial institutions that 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 New Sectors.
- For or on behalf of any person whose property and interests in property are blocked pursuant to EO 13902.
If a foreign financial institution engages in the above, the Secretary of the Treasury may 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 the foreign financial institution.
Meaning of "significant"
We assume OFAC will interpret "significant" in the same way as it has previously, whereby it may consider the "totality of the facts and circumstances" and a broad set of factors, including the following:
(a) The size, number, and frequency of the transactions, financial services, or financial transactions.
(b) The nature of the transactions, financial services, or financial transactions, including their type, complexity, and commercial purpose.
(c) The level of awareness of management and whether the transactions are part of a pattern of conduct.
(d) The nexus of the transactions, financial services, and financial transactions and blocked persons.
(e) The impact of the transactions, financial services, and financial transactions on statutory objectives.
(f) Whether the transactions, financial services, and financial transactions involve deceptive practices.
(g) Other relevant factors that the Secretary of the Treasury deems relevant.
The above actions by the US further increase the risks of conducting business transactions in and involving Iran. However, most importantly, these actions confirm the need for non-US businesses to ensure they are aware of, and take into account in risk assessments, US sanctions related to Iran, even when their trade does not involve a US nexus. Further, the above additional designations highlight the need for all businesses to adopt screening processes that are not limited to individuals, entities, and vessels from what are traditionally known as "sanctioned countries." Finally, all businesses, but especially non-US businesses and financial institutions should keep abreast of any designations made pursuant to EO 13902.
We will continue to monitor for developments and issue updates, as needed.