This is an update to our April 8, 2010 client alert concerning then pending legislation in the U.S. Congress regarding Iran sanctions. On July 1, 2010, President Obama signed into law the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (the “Act”). The Act amends the existing Iran Sanctions Act of 1996 (“ISA”), in part by imposing new economic penalties, and both reinforces and goes beyond the recently-enacted U.N. Sanctions. Below is a summary of some of the Act’s significant provisions.

Effective Date

The Act generally became effective on July 1, 2010 and applies to investments commenced on or after July 1, 2010. An investment that was made before July 1, 2010 and that continues after July 1, 2010 is generally subject to the ISA as it existed prior to its amendment by the Act.

Subject Persons
Unlike most of the U.S. sanctions regime, the Act applies to any “persons,” not just U.S. persons. Such “persons” are specifically defined to include financial institutions, insurers, underwriters, guarantors and any other business organizations.

Prohibited Conduct

The Act prohibits certain “knowing” conduct relating to Iran’s petroleum resources¹: The Act defines knowledge as actual knowledge or constructive knowledge (i.e., should have known). Specifically, the Act prohibits:

• knowingly making an investment of $20 million or more (or any combination of investments of at least $5 million each, which in the aggregate equals or exceeds $20 million in any 12-month period) that directly and significantly contributed to the enhancement of Iran’s ability to develop petroleum resources.
• knowingly selling, leasing, or providing to Iran goods, services, technology, information, or support, any of which has a fair market value of at least $1 million or, during a twelve-month period, has an aggregate fair value of at least $5 million. The goods, services, technology or support referred to are “goods, services, technology, information, or support that could directly and significantly facilitate the expansion of Iran’s domestic production of refined petroleum products, including any direct and significant assistance with respect to the construction, modernization, or repair of petroleum refineries.”
• knowingly selling or providing to Iran refined petroleum products that have a fair market value of at least $1 million or, during a twelve-month period, have an aggregate value of at least $5 million.
• knowingly selling , leasing, or providing to Iran goods, services, technology, information, or support, any of which has a fair value of at least $1 million or, during a twelve-month period, an aggregate fair market value of at least $5 million. The goods, services, technology, information, or support described are “goods, services, technology, information, or support that could directly and significantly contribute to the enhancement of Iran’s ability to import refined petroleum products, including direct and significant assistance with respect to the connect ion, modernization, or repair of petroleum refineries.” These activities include:
  • “underwriting or entering into a contract to provide insurance or reinsurance for the sale, lease, or provision of such goods, services, technology information or support.”
  • “financing or brokering such sale, lease, or provision”
  • “providing ships or shipping services to deliver refined petroleum products to Iran.”

Notably, there is a due diligence exception for underwriters and insurers or reinsurers where the person has exercised due diligence in establishing and enforcing official policies, procedures, and controls to ensure that it did not violate the Act.

Sanctions

Pursuant to the Act, at least three of the following sanctions must be imposed on any person found to have violated the Act’s provisions:

1. denial of any guarantee, insurance, or extension of credit from the U.S. Export-Import Bank;
2. denial of licenses for the U.S. export of military or militarily-useful technology to the person;
3. denial of U.S. bank loans exceeding $10 million in one year to the person;
4. if the person is a financial institution, a prohibition on its service as a primary dealer in U.S. government bonds and/or a prohibition on its serving as a repository for U.S. government funds (each counts as one sanction);
5. prohibition on U.S. government procurement from the person;
6. restriction on imports from the person, in accordance with the International Emergency Economic Powers Act (IEEPA, 50 U.S.C. 1701).
7. prohibitions on any transactions in foreign exchange that are subject to U.S. jurisdiction and in which a sanctioned person has any interest;
8. prohibitions on any transfers of credit or payments between, by, through, or to any financial institution, to the extent such transfers or payments are subject to U.S. jurisdiction and involve any interest of the sanctioned person; and
9. restrictions on property transactions in which a sanctioned person has any interest.

The Act also carries the possibility for criminal penalties.

These sanctions are serious and have consequences for non-U.S. businesses. If you have any questions or concerns about the proposed legislation, please contact Bruce G. Paulsen (212-574-1533).

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¹ The Act also contains specific prohibitions with respect to nuclear materials.