Between Scylla and Charybdis: Identifying and Managing Secondary Sanctions Risks Arising from Commercial Relationships with Iran

Article excerpt

Introduction

In recent years, the United States has significantly expanded economic sanctions against Iran in an effort to persuade non-US persons to curtail a range of business activities with Iran. The imposition of such measures, which this article refers to as 'secondary' sanctions, has emerged as a preferred tool for the US Government in exerting economic pressure on Iran with respect to its nuclear programme.

For companies and individuals ('persons') not familiar with the details of US economic sanctions and the underlying US Government enforcement processes, navigating these secondary sanctions can be challenging. In the face of potential risks arising from these sanctions, a non-US company's initial inclination may be to withdraw from all Iran-related business out of an abundance of caution. While this could be the appropriate decision under certain circumstances, there are a host of potential consequences to consider, including breach of contract claims, litigation in Iranian courts and elsewhere, impact on employment and productive assets outside Iran, risks to personnel and assets in Iran and steps to eliminate such risks, damage to commercial reputation, impact on relations with a company's own host government and even consistency with US 'smart sanctions' policy objectives vis-à-vis the Iranian population.

This article provides a brief overview of the US sanctions against Iran as they have evolved to the present time, with a focus on how these sanctions can affect non-US persons and entities given their increasingly extraterritorial reach and complexity. The article also identifies other examples of jurisdictions applying sanctions against Iran, but by comparison those sanctions tend to be more 'national' or 'territorial' in scope. The discussion concludes by noting some of the adverse consequences arising from 'conservative compliance', and suggests steps to be considered to achieve compliance without taking on undue commercial or other regulatory risks.

Overview of US secondary sanctions against Iran

Until 2010, US sanctions on Iran mostly focused on US persons, as well as foreign persons that supplied US-origin items to Iran. The one narrow exception to this was the Iran and Libya Sanctions Act of 1996, retitled the Iran Sanctions Act (ISA) in 2004, which authorised the President to impose secondary sanctions on non-US persons investing in the Iranian hydrocarbon industry. No such sanctions were imposed under the ISA prior to its amendment in 2010.

Since 2010, Congress and the Obama administration have aggressively expanded secondary sanctions against Iran. Congress has expanded the scope and severity of the ISA twice, through enactment of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA) and the Iran Threat Reduction and Syria Human Rights Act of 2011 (ITRA). Congress provided for further secondary sanctions through section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA 2012) and the Iran Freedom and Counter-Proliferation Act of 2013 (IFCA). Finally, President Obama has issued several executive orders clarifying or expanding secondary sanctions, including Executive Orders 13606, 13608, 13622 and 13645.

US secondary sanctions against Iran now target a wide range of activities by non-US persons, including, but not limited to:

* making certain investments relating to Iran's development of its petroleum resources;

* providing refined petroleum products to Iran;

* providing goods, services or support to Iran relating to Iran's domestic petroleum-refining capabilities and associated infrastructure, including port facilities, railways and roads;

* providing goods, services or support to Iran relating to Iran's ability to develop domestic petroleum resources;

* providing goods, services or support to Iran relating to Iran's domestic production of petrochemical products;

* purchasing, subscribing to or facilitating the issue of Iranian sovereign debt or the debt of any entity owned or controlled by the Government of Iran (GOI);

* engaging in a significant transaction for the purchase, acquisition, sale, marketing or transport of petroleum, petroleum products or petrochemical products from Iran;

* providing significant support to:

- Iranian persons listed as Specially Designated Nationals (SDNs);

- members of the Iranian energy, shipping and shipbuilding sectors; and

- Iranian port operators;

* providing significant goods or services used in connection with the Iranian energy, shipping, shipbuilding or automotive sectors;

* providing certain metals to Iran;

* providing insurance, reinsurance and underwriting services for any activity for which sanctions have been imposed under US law;

* conducting or facilitating significant financial transactions with the Central Bank of Iran; Iranian banks that have been designated as SDNs; the National Iranian Oil Company; and Naftiran Intertrade Company;

* facilitating deceptive transactions on behalf of persons subject to Iran sanctions; and

* providing goods, services or technology likely to assist the GOI in committing serious human rights abuses through the use of computer or network monitoring or disruption. …