Proposed legislation is currently pending in the U.S. Congress which, if signed into law, would amend and expand the Iran Sanctions Act of 1996. The Senate and the House of Representatives have each passed separate bills on the subject. In December 2009, the House of Representatives passed The Iran Refined Petroleum Sanctions Act (H.R. 2194) (The “House Bill”) and in January 2010, the U.S. Senate passed The Comprehensive Iran Sanctions Accountability and Divestment Act (S.2799) (the “Senate Bill” and, together with the “House Bill”, the “Bills”). A joint committee will need to review and integrate the Bills into one piece of legislation and then present it to President Obama for signature. The timing of the remainder of this process is uncertain as President Obama is currently pressing international sanctions through the United Nations and hopes for a Security Council vote on the proposed sanctions this month. The proposed U.N. sanctions would include asset freezes of designated Iranian entities and individuals, a tool that has long been part of the United States’ sanction regime against Iran.

Both the House and the Senate Bills propose to significantly expand sanctions that could be imposed on companies that engage in certain trade activities with the Republic of Iran. The Bills are particularly notable because they would apply sanctions to foreign entities, where previous sanction programs have typically applied only to U.S. persons or foreign subsidiaries of U.S. persons. Both Bills also generally propose to take effect a certain period after their enactment but each has particular provisions that would apply retroactively. The aim of both Bills is to further discourage any investments, relationships, or transactions that contribute to Iran’s ability to develop its petroleum resources or expand its domestic production of refined petroleum products. The proposed penalties for sanction violations are solely civil and seek to block a violator’s access to the U.S. economic system. Below is a summary of significant provisions of the proposed legislation.

Prohibited Conduct

Pursuant to the proposed Bills, persons undertaking the following conduct would exposed to sanction liability (S. 2799, Sec. 102(a), 104(b), H.R. 2194, Sec. 3(a)):

• A person who knowingly, makes an investment of $20 million or more (or makes a combination of investments in a 12-month period if each such investment is at least $5 million and such investments equal or exceed $20 million in the aggregate) and that investment directly and significantly contributes the enhancement of Iran’s ability to develop petroleum resources.
• A person who knowingly sells, leases, or provides to Iran any good or services, technology, information, or support, worth $200,000 or more or, during a 12-month period, has an aggregate value of $500,000¹ or more, that could directly and significantly facilitate the maintenance or expansion of Iran’s domestic production of refined petroleum products.
• A person who knowingly provides Iran with refined petroleum products worth $200,000 or more or, during a 12-month period, have an aggregate value of $500,000² or more.
• A person who knowingly sells, leases, or provides to Iran any goods, services, technology, information, or support (including underwriting, insurance, reinsurance, financing, brokering, transportation, or transportation-related services) that could directly and significantly contribute to the enhancement of Iran’s ability to import refined petroleum products. These goods, services, technology, information, or support would have a fair market value of $200,000 or more or, during a 12-month period, have an aggregate fair market value of $500,000³ or more.
• In addition, a United States person would be subject to penalty for a violation of the provisions of Executive Order 12959 or Executive Order 13059, or any other prohibition on transactions with respect to Iran imposed under the authority of the International Emergency Economic Powers Act, if that person established or maintained a subsidiary outside of the United States for the purposes of circumventing such provisions and that subsidiary engaged in an act that, if committed in the United States or by a United States person, would violate such provisions.

Effective Dates and Retroactive Application

The Senate Bill would generally become effective 120 days after its enactment and its retroactive application would apply only to conduct by U.S. Persons. S. 2799, Sec. 401(a). The Senate Bill could retroactively impose liability where a United States Person took certain actions in violation of Executive Order 12959, Executive Order 13059, or any other prohibition on transactions with respect to Iran imposed under the authority of the International Emergency Economic Powers Act. S. 2799, Sec. 104. The House Bill would generally become effective sixty days after its enactment, with certain exceptions as incorporated from Sections 5(a)(1), (2), 5(b)(2), and 6(b) of the Iran Sanctions Act of 1996. H.R. 2194, Sec. 4(a)(1).

The Senate Bill also provides for enhanced import and export restrictions, providing, with certain exceptions, that no article of U.S. origin may be exported directly or indirectly to Iran and that no article of Iranian origin may be imported directly or indirectly into the United States. S. 2799, Sec. 103(a), (b). In addition, the Senate Bill permits state and local governments to divest their assets from entities that they determine to have invested $20 million or more in the Iranian energy sector or to have extended $20 million or more in credit to an entity that used the funds to invest in the Iranian energy sector.

Proposed Penalties

Both Bills propose significant additional civil penalties, but neither Bill proposes criminal penalties. Both Bills focus on restricting the sanctioned person’s activity with respect to foreign exchange, banking transactions, and property transactions pursuant to specific rules yet to be promulgated. H.R. 2194, Sec. 3(b)(1); S. 2799, Sec. 102(b)(1).

If you have any questions or concerns about the proposed legislation, please contact Bruce G. Paulsen.

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¹ The Senate Bill proposes a threshold of $1 million.
² The Senate Bill proposes a threshold of $1 million.
³ The Senate Bill proposes a threshold of $1 million.