President Obama Signs Order Targeting “Foreign Sanctions Evaders”

June 7, 2012

On May 1, 2012, President Obama signed Executive Order 13608 "Prohibiting Certain Transactions With and Suspending Entry Into the United States of Foreign Sanctions Evaders With Respect to Iran and Syria" ("FSE E.O.").[i] The FSE E.O. targets foreign persons who "violated, attempted to violate, conspired to violate, or caused a violation of any license, order, regulation, or prohibition contained in, or issued pursuant to"[ii] an extensive list of Executive Orders and other sanctions. The FSE E.O. also targets those foreign persons who have "facilitated deceptive transactions for or on behalf of any person subject to United States sanctions concerning Iran or Syria."[iii] Though the Office of Foreign Assets Control ("OFAC") at the U.S. Treasury Department has not yet listed any foreign persons under the FSE E.O., the penalties following a listing may include a prohibition on any direct or indirect transactions with such a person involving, inter alia, purchasing, selling, transporting, financing, or facilitating any good or service intended for the United States or provided to or by a U.S. person, wherever located.[iv]

The FSE E.O. is part of a larger campaign to pressure Iran and Syria on issues relating to weapons of mass destruction, support for terrorism, and human rights violations. Following the imposition of sanctions against Iran’s Central Bank and petroleum industry pursuant to the December 31, 2011 passage of the National Defense Authorization Act for Fiscal Year 2012 ("NDAA"),[v] and a number of recent Executive Orders,[vi] U.S policymakers made a concerted effort to prevent circumvention of this increasingly robust sanctions regime. The FSE E.O. aims to help achieve this goal by filling an enforcement gap where "a foreign person violated U.S. sanctions on Iran or Syria but may not meet criteria for designation under existing Executive Orders."[vii] The FSE E.O. and supporting materials do not explain how the order expands the Treasury Department’s power to target such persons.

Key Provisions

The FSE E.O. impacts foreign persons – defined as individuals or entities and including partnerships, trusts, associations, corporations, etc. – in three primary ways.

First, the FSE E.O. – like the International Emergency Economic Powers Act ("IEEPA") –   imposes penalties on foreign persons who "violated, attempted to violate, conspired to violate, or caused a violation of any license, order, regulation, or prohibition contained in, or issued pursuant to"[viii] an extensive list of Executive Orders and other sanctions.[ix]

Second, the FSE E.O. imposes sanctions on any foreign person who "facilitate[s] deceptive transactions for or on behalf of any person subject to United States sanctions concerning Iran or Syria." A deceptive transaction is "any transaction where the identity of any person subject to United States sanctions concerning Iran or Syria is withheld or obscured from other participants in the transaction or any relevant regulatory authorities." This provision is of significant interest to foreign persons considering facilitating transactions with individuals or entities subject to such sanctions for two reasons. First, it penalizes foreign persons who knowingly facilitate such deceptive transactions. Second, the FSE E.O. language grants the Secretary of the Treasury broad listing powers, in particular the legal ability to identify a foreign company  as a sanctions evader if it facilitates a deceptive transaction, even if it was unaware of the identity of the sanctioned individual or entity. The FSE E.O. therefore imposes a substantial requirement on foreign persons considering conducting any transactions with individuals or entities which are potentially subject to U.S. sanctions. The FSE E.O. also extends to foreign companies owned, controlled by, or acting or purporting to act, directly or indirectly, on behalf of any person meeting the criteria of a foreign sanctions evader. 

Third, pursuant to FSE E.O. authority, the Secretary of the Treasury may impose harsh penalties on foreign persons who violate the sanctions regime or facilitate deceptive transactions with a designated individual or entity. The Secretary may prohibit all direct or indirect transactions or dealings involving such persons, including, inter alia, exporting, importing, selling, purchasing, transporting, financing, facilitating or guaranteeing any goods, services, or technology in or intended for the United States, as well as by or to United States persons, wherever located. These prohibitions apply except where exempted by statute, regulation, or license. Listed foreign sanctions evaders are also prohibited from entering the United States as either immigrants or nonimmigrants. 

Notably, U.S. persons are not required to block the property of foreign persons listed under the FSE E.O.[x] The Treasury Department has not explained this decision concerning blocking even though a number of recent Executive Orders expressly require the blocking of Iranian and Syrian property.[xi]  However, a U.S. person cannot provide or procure goods, services, or technology to or from a listed person without authorization from OFAC or unless the transaction is exempt under the IEEPA.[xii] Similarly, U.S. financial institutions must reject and report to OFAC – though not block – any wire transfers involving a listed person.[xiii] Further, U.S. persons cannot conduct transactions previously licensed by OFAC if such transactions involve foreign persons now listed as foreign sanctions evaders pursuant to FSE E.O. authority. 

Conclusions

Executive Order 13608 complements an increasingly robust sanctions regime imposed on Iran and Syria. The FSE E.O. allows the Secretary of the Treasury to penalize such persons who attempt or conspire to violate such sanctions. The FSE E.O. also introduces a new category of sanctionable activity – facilitating deceptive transactions – which extends penalties to foreign persons who facilitate such transactions for designated individuals or entities, potentially regardless of whether the foreign persons know that the individuals or entities are designated. This legal authority to list sanctions evaders pursuant to the FSE E.O. will provide the Treasury Department with an expanded ability to target individuals and entities which attempt or succeed in helping violate U.S. sanctions.

Though the Secretary of the Treasury has not listed any sanctions evaders under this authority, future identifications seem likely given the increasing strain U.S., European Union, and United Nations sanctions are placing on the Iranian and Syrian economies. As the prospect of the European Union’s petroleum cutoff in July 2012 looms, Iran in particular will likely try to sell petroleum products through illicit channels to supplement its dwindling revenue stream. Such attempts will increase the likelihood that the Treasury Department will list foreign sanctions evaders in an attempt to prevent Iran from successfully pursuing these transactions. Gibson Dunn & Crutcher’s foreign clients and friends should pay close attention to the identities of their business partners with any possible relationship to Iran or Syria, as they could be penalized for conducting or facilitating transactions with such partners even if they were unaware of those partners’ designated statuses.