June 27, 2013
On June 3, 2013, President Obama signed Executive Order 13645 ("E.O."), "Authorizing the Implementation of Certain Sanctions Set Forth in the Iran Freedom and Counter-Proliferation Act of 2012 and Additional Sanctions with Respect to Iran." (Available here.) Concurrently with the issuance of the E.O., the Office of Foreign Assets Control ("OFAC") published Frequently Asked Questions about the E.O. (Available here.) This E.O. is the latest in a series of economic sanctions designed to thwart Iran’s nuclear proliferation program. In addition to implementing certain provisions of the Iran Freedom and Counter-Proliferation Act of 2012 ("IFCA"), which was signed into law on January 2, 2013, the E.O. provides for new sanctions that target transactions involving the Iranian rial, Iran’s automotive sector, and persons providing material assistance to certain persons blocked under the laws and regulations pertaining to Iranian sanctions. The provisions of both IFCA and the E.O. are scheduled to go into effect on July 1, 2013.
Implementation of IFCA
The E.O. implements parts of IFCA, including Sections 1247 and 1249. It also expands the scope of authorized sanctions for transactions and activities covered by IFCA.
First, the E.O. tightens financial sanctions against foreign financial institutions ("FFIs") under Section 1247 of IFCA. Specifically, under Section 3(a)(i) of the E.O., FFIs may be sanctioned for knowingly conducting or facilitating a significant financial transaction on behalf of (i) an Iranian person on OFAC’s Specially Designated Nationals and Blocked Persons List (the "SDN List"), or (ii) certain other persons on the SDN List whose property and interests in property are blocked pursuant to Executive Order 13599 or the E.O. Authorized sanctions include prohibition or restrictions on the opening or maintaining of correspondent accounts or payable-through accounts in the United States.
There are a number of exceptions to this provision, including:
In addition to implementing parts of IFCA, the E.O. authorizes sanctions against three new types of transactions or activities – the Iranian rial, the Iranian automotive sector, and the provision of material assistance to persons blocked under the laws and regulations pertaining to Iranian sanctions. The following prohibitions apply except to the extent provided by statutes, regulations, orders, directives, or licenses issued pursuant to the E.O. They apply to any contract entered into or any license or permit granted prior to the effective date of this order, i.e. July 1, 2013.
Material Assistance to Blocked Persons
Similar to Section 3’s prohibition of FFIs transacting on behalf of blocked persons, Section 2 of the E.O. authorizes the blocking of the property and interests in property of persons providing material assistance to (i) Iranian persons listed on the SDN List, or (ii) certain other persons whose property and property interests are blocked pursuant to Executive Order 13599 or the E.O. OFAC has declared that exceptions will be made for the provision of humanitarian aid and basic services such as telecommunications. Certain activities pertaining to the natural gas pipeline from the Shah Deniz gas field in Azerbaijan to Europe and Turkey are also excepted.
OFAC anticipates publishing an online list to help identify Iranian persons included on the SDN List.
Section 1 of the E.O. directly targets Iran’s currency, the rial, by authorizing sanctions against FFIs that:
OFAC will determine, on a case-by-case basis, whether a transaction is "significant" based on a broad list of factors set forth in the Iranian Financial Sanctions Regulations. Applicable sanctions include a prohibition or restriction on a FFI’s opening or maintaining of a correspondent or payable-through account in the United States, as well as blocking a FFI’s property and property interests that are subject to the jurisdiction of the United States.
Section 1244 of IFCA targets Iran’s energy, shipping, and shipbuilding sectors in an effort to diminish the revenue that the Iranian government can generate in support of nuclear proliferation activities. The E.O. adds the automotive sector as a target of sanctions under two separate provisions – Section 3(a)(ii) and Section 5.
Section 3(a)(ii) prohibits a FFI from knowingly conducting or facilitating a significant financial transaction "for the sale, supply, or transfer to Iran of significant goods or services connected to Iran’s automotive sector." This provision authorizes the same sanctions as those authorized for a FFI’s acting on behalf of a blocked person – a prohibition or restriction on the opening and maintaining in the United States of a FFI’s correspondent or payable-through accounts.
Section 5 of the E.O. authorizes the imposition of sanctions on a person that knowingly engages in a significant transaction "for the sale, supply, or transfer to Iran of significant goods or services connected to the automotive sector of Iran."
"Automotive sector of Iran" is defined in Section 14(a) of the E.O. as "the manufacturing or assembling in Iran of light and heavy vehicles including passenger cars, trucks, buses, minibuses, pick-up trucks, and motorcycles, as well as original equipment manufacturing and after-market parts manufacturing relating to such vehicles." OFAC expects that coming regulations will specifically "include goods or services that contribute to (i) Iran’s ability to research, develop, manufacture, and assemble light and heavy vehicles, and (ii) the manufacturing or assembling of original equipment and after-market parts used in Iran’s automotive industry."
Sections 6 and 7 of the E.O. set forth a broad range of authorized sanctions for persons engaging in prohibited transactions involving the Iranian automotive sector, including:
In addition to implementing parts of IFCA, the E.O. adds sanctions targeting the Iranian rial, the Iranian automotive sector, and persons materially assisting blocked persons. These provisions will go into effect on July 1, 2013. As there are no general exceptions for contracts entered into prior to this effective date, global companies should take immediate steps to ensure compliance.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments. Please contact the Gibson Dunn lawyer with whom you work or any of the following members of the International Trade Regulation and Compliance Practice Group:
Judith A. Lee – Washington, D.C. (202-887-3591, firstname.lastname@example.org)
Marcellus A. McRae – Los Angeles (213-229-7675, email@example.com)
Jim Doody – Washington, D.C. (202-887-3716, firstname.lastname@example.org)
Andrea Farr – Washington, D.C. (202-955-8680, email@example.com)
Michael Willes – Los Angeles (213-229-7094, firstname.lastname@example.org)
Annie Yan – Washington, D.C. (202-887-3547, email@example.com)
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