This year saw a substantial extension of U.S. sanctions on Iran, particularly as they apply to the activities of non-U.S. persons acting outside the U.S. Whether this trend continues or is slowly reversed depends on how the interim nuclear deal with Iran plays out, and of course, how the U.S. Congress is feeling in 2014.
2013 began with the full implementation of key provisions of the Iran Threat Reduction and Syria Human Rights Act of 2012 (TRA). The TRA included a mandate that, starting in 2013, companies include a detailed report of certain activities involving Iran in their annual reports to the Securities and Exchange Commission (SEC). The reporting requirement was broad, capturing activities by non-U.S. affiliates and was retroactive, applying to activities prior to the enactment of the TRA. To date, almost 500 reports have been filed. The second big change under the TRA was the full implementation of the law’s prohibition on subsidiaries of U.S. companies doing virtually any business in or with Iran. The temporary general license authorizing subsidiaries of U.S. companies to wind down their activities in Iran expired in the first quarter, effectively converting non-U.S. subsidiaries of U.S. companies into U.S. persons for the purposes of U.S. sanctions laws.
Mid-year, a second set of sanctions targeting non-U.S. companies came into effect pursuant to the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA) and Executive Order 13645. The sanctions expanded on the approach adopted by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA) by targeting companies’ involvement in certain sectors of the Iranian economy. Among other measures, IFCA requires the president to impose sanctions on companies that are determined to be involved in certain activities linked to the energy, shipbuilding, or shipping sectors of the Iranian economy. Involvement in activities linked to trade in precious metals, graphite, certain industrial materials and software, and automotive items could also expose companies to sanctions pursuant to IFCA and Executive Order 13645. Other new measures included sanctions on activities related to insurance and reinsurance, dealings in Iranian currency, diversion of goods, and petrochemical exports from Iran. Under IFCA, non-U.S. companies can also be subject to sanctions by U.S. authorities if they materially assist, sponsor, or provide financial, material, or technological support to Specially Designated Nationals (SDNs) or entities involved in the Iranian energy, shipping, or shipbuilding sectors. These sanctions substantially altered the calculus for many non-U.S. firms doing business in Iran, including many European automakers.
After a period of historic, high-level negotiations between the U.S., Iran, and other world powers, the U.S. agreed to temporarily roll back certain sanctions on Iran as part of a joint plan of action regarding Iran’s nuclear program on November 24. In exchange for restrictions on Iran’s nuclear program, the U.S. agreed to suspend sanctions associated with insurance and transportation of crude oil sales by Iran, the Iranian auto industry, certain petrochemical exports, and trade in gold and precious metals. The U.S. also promised to authorize shipments of parts and related services related to civil aviation safety and allow the repatriation of a limited set of currently blocked funds. The details of the temporary suspension have yet to be hammered out by regulators, but they will primarily benefit non-U.S. companies. Many U.S. and non-U.S. companies are taking a justifiably conservative approach and waiting for further clarity from U.S. regulators before resuming business with Iran.
What comes next is an open question. The climate in DC suggests that if the nuclear deal falls apart, Congress will demand new sanctions on the Iranian economy. Political pressure is also growing in Congress to pass new sanctions legislation now to pressure Iran to comply with the joint action plan and agree to a more comprehensive deal. The White House has urged restraint in the short term, fearing that any new sanctions could derail further negotiations. In any case, only so much can be done by the White House to ease sanctions on Iran. Much of the current sanctions regime is mandated by Congress, providing the executive branch with few opportunities to meaningfully scale back sanctions without Congressional action, particularly as they apply to U.S.-based companies. Based on recent pronouncements from the Hill, it’s anyone’s guess whether the body will be willing to reward Iran for good behavior should a final deal be hammered out with Tehran.