U.S. Sanctions Update: New U.S. Sanctions Expand Targeting of Non-U.S. Companies Doing Business with Iran

[Editor’s Note: The following update is authored by Kirkland & Ellis LLP]

U.S. sanctions targeting non-U.S. companies’ business with Iran have greatly expanded in recent years, but have focused in significant respects on Iran’s energy sector, including, in particular, Iran’s petroleum and petrochemical sectors. Non-U.S. companies engaged in activities involving other sectors of the Iranian economy have felt somewhat secure from the reach of U.S. sanctions. Effective July 1, 2013, a new Executive Order and law may put an end to the sense of security of many such non- U.S. companies. Moreover, U.S. companies may be affected by these expanded sanctions because of the risk that their non-U.S. business partners could be sanctioned and become parties with which U.S. companies are prohibited from dealing. Companies, including those in the automotive, maritime and insurance industries, engaged in business activities involving Iran, as well as foreign financial institutions that may support such transactions, should be aware of these expanded sanctions and evaluate whether their activities could now be sanctionable.

Summary of Expanded U.S. Sanctions on Iran

On June 3, 2013, the President issued Executive Order (“E.O. 13645” or the “Order”), which implements certain provisions of the Iran Freedom and Counter- Proliferation Act of 2012 (“IFCA”)1 and imposes additional sanctions on Iran. The IFCA and E.O. 13645, both of which, with certain exceptions, become effective July 1, 2013, substantially expand the types of activities by non-U.S. companies and foreign financial institutions that could result in the imposition of sanctions. Any entity or person that is designated as a result of these sanctions becomes a “blocked” person or entity with which U.S. persons are prohibited from dealing and, further, U.S. persons are required to block, or freeze and report, any property or “interest in property” (which is broadly defined) of such designated persons or entities. A summary of some of the most significant of the expanded sanctionable activities follows. Foreign financial institutions that finance, conduct or facilitate certain of the activities described below also may be subject to sanctions.

Energy, Shipping, and Shipbuilding Sectors of Iran

Non-U.S. companies or persons that provide goods or services related to Iran’s production or purchase of oil, gas, petrochemicals or otherwise related to the energy sector of Iran, or that own or operate vessels involved in the shipment of goods to Iran, or otherwise provide services or goods in connection with Iran’s shipping or shipbuilding sectors, should evaluate whether such activities could be subject to sanctions.

The Order authorizes the “blocking” of all dealings with U.S. persons by any person that: (i) is part of the energy, shipping or shipbuilding sectors of Iran; (ii) operates a port in Iran; or (iii) knowingly provides significant support to anyone falling within (i) or (ii), or to an Iranian person included on the list of Specially Designated Nationals and Blocked Persons (“SDN List”), administered by the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”)2 (other than certain Iranian financial institutions).3 In addition, subject to certain limitations and exceptions, the Order authorizes the imposition of sanctions on any person that knowingly sells, supplies or transfers to or from Iran significant goods or services used in connection with the energy, shipping or shipbuilding sectors of Iran.4 Such sanctions include: (i) a prohibition on U.S. financial institutions from making loans or extending credit above certain monetary thresholds to the sanctioned party; (ii) a prohibition on transactions in foreign exchange subject to the jurisdiction of the United States; (iii) a prohibition on transfers of credit or payments between U.S. financial institutions involving the sanctioned party; (iv) blocking of and a prohibition on certain dealings by U.S. persons with the sanctioned party; and (v) a restriction on imports into the United States from the sanctioned person.

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