On January 10, 2020, in response to rising tensions with Iran, President Trump issued an executive order (E.O.) imposing sanctions that target Iran's construction, mining, manufacturing, and textiles industries. That same day, U.S. Department of the Treasury's Office of Foreign Assets Controls (OFAC) announced sanctions designations for over 20 entities and eight Iranian government officials.
The January 10 E.O. significantly expands the scope of Iran's economic sectors subject to U.S. sanctions and exposes a new range of companies to the threat of sanctions administered by OFAC.
OFAC noted that the sanctions are designed to target "additional sources of revenue used by the Iranian regime to fund and support its nuclear program, missile development, terrorism and terrorist proxy networks, and malign regional influence." Specifically, Treasury Secretary Steven T. Mnuchin stated that "[t]hese sanctions will continue until the regime stops the funding of global terrorism and commits to never having nuclear weapons."
New Sanctions Imposed on Iran's Construction, Mining, Manufacturing, or Textiles Sectors
The January 10 E.O. includes "blocking sanctions," which prevent the property and any property interests of designated persons from being transferred, paid, exported, withdrawn, or otherwise dealt in. Persons subject to the E.O.'s blocking sanctions include those determined by the secretary of treasury in consultation with the secretary of state:
- To operate in the construction, mining, manufacturing, or textiles sectors of the Iranian economy, or other sectors of the Iranian economy;
- To have knowingly engaged, on or after January 10, 2020, in a significant transaction for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with a construction, mining, manufacturing, or textiles sectors (or other designated sectors);
- To have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to this order; or
- To be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to this order.
Financial Institutions
The E.O. also authorizes blocking sanctions on financial institutions that the Secretary determines to have engaged in significant transactions:
- For the sale, supply, or transfer to or from Iran of significant goods or services used in connection with Iran's construction, mining, manufacturing, or textiles sectors (or other sectors as determined by the Secretary of the Treasury, in consultation with the Secretary of State).
Under OFAC regulations, in determining whether a transaction is significant, the agency may consider the totality of the facts and circumstances, as well as a) the size, number, and frequency of transactions or financial services performed; b) the nature of the transaction or financial service; c) the pattern of conduct; d) the nexus between the financial institution and a blocked person; e) the impact of the transaction or financial services on the objectives of the U.S. sanctions regime; and f) whether the transaction or services provided involved deceptive practices.
For financial institutions subject to sanctions, OFAC may prohibit the opening, and prohibit or impose strict conditions on the maintaining of, a U.S. correspondent account or a payable-through account by such foreign financial institution.
Finally, the E.O. imposes restrictions on immigrant and non-immigrant entry for certain designated individuals. It also prohibits donations of funds, goods, or services to any person whose property or interests in property are blocked under the E.O., as well as the receipt of any funds, goods, or services from such person. Transactions structured to evade or avoid detection, as well as any conspiracy to violate the restrictions under the E.O., are also prohibited.
Entities Designated for Sanctions by OFAC
Concurrent with the January 10 E.O., OFAC announced new sanctions designations for over 20 new entities, including 17 Iranian metals producers and mining companies, three China- and Seychelles-based entities, and one vessel involved in the purchase, sale, and transfer of Iranian metal products, as well as eight Iranian government officials.
The sanctioned entities include Iran- and Oman-based entities designated pursuant to E.O. 13871 for knowingly operating in the iron, steel, aluminum, or copper sectors of Iran or acting on behalf of such entities.
OFAC also sanctioned certain non-Iranian entities for allegedly acting as or on behalf of foreign purchasers or transporters of Iranian steel, or for providing critical materials needed for Iranian metal production pursuant to E.O. 13871.
Finally, OFAC also designated eight Iranian government officials pursuant to E.O. 13876 for being persons appointed to a position as a state official of Iran by the Supreme Leader or for having acted or purported to act for or on behalf of, directly or indirectly, the Supreme Leader.
Analysis
While long-standing tensions and a comprehensive sanctions regime have led U.S. businesses and many foreign companies with large U.S. interests to exit the Iranian market, major global businesses still have a presence in Iran. According to Japan's Ministry of Foreign Affairs, as of October 1, 2018, Japanese companies, including Japan's three largest banks, have 30 operational bases in Iran. The biggest players in Iran's textile sector include both Iranian businesses and several large Japanese and European companies with which U.S. companies conduct business outside of Iran. In addition, a French car manufacturer has remained a major player in Iran's automotive sector, despite the exit of many similarly situated foreign car makers and the growing threat of sanctions. And while many foreign firms have recently pulled staff from their Tehran offices in response to Iran's missile attacks against U.S. bases in Iraq, this appears to have been only a temporary measure. The continued operations of foreign businesses in Iran should raise concerns among U.S. and non-U.S. businesses with a U.S. nexus if their business partners are still active in these newly sanctioned sectors.
OFAC's recently announced designations create new and additional risks for many global companies. Under OFAC regulations, all property and interests in property of these persons or entities that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC.
Companies should conduct the necessary due diligence to ensure they understand their own exposure, as well as any significant business partners' exposure to these new sanctions and the newly restricted entities. Please contact us for assistance with assessing and responding to any sanctions risks facing you or your company.