On November 21, 2011, the Department of the Treasury (the “Treasury Department”) and the Department of State (the “State Department”) announced a series of actions taken by the United States which they said were to confront the threat posed by the Islamic Republic of Iran’s refusal to comply with its international obligations, to increase its international isolation, and to address concerns about the development of its nuclear program.
In connection with these threats, on November 19, 2011, President Obama signed Executive Order 13590 (the “Order”) which expands existing sanctions on Iran’s oil and gas business while, for the first time, specifically targeting Iran’s petrochemical industry. The State and Treasury Departments designated numerous individuals with alleged connections to Iran’s nuclear procurement network under Executive Order 13382 (“E.O. 13382”); and the Treasury Department identified Iran as a jurisdiction of “Primary Money Laundering Concern” under Section 311 of the USA PATRIOT Act.
In a coordinated effort to increase international pressure on Iran, the United Kingdom and Canada took similar actions on November 21.
Executive Order 13590
The Order expands sanctions imposed by the United States on Iran’s energy industry by authorizing sanctions to be placed upon persons that knowingly provide goods, services, technology, or support for the development of petroleum resources or for the maintenance or expansion of Iran’s petrochemical sector.1
The Order is significant for two reasons. First, it expands the sanctions on Iran’s oil and gas business that are already in place under the Iran Sanctions Act of 1996 (the “ISA”), as amended by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”), in an effort to make it more difficult for Iran to work around the sanctions regime and halt Iran’s efforts to maintain and develop its oil and gas resources. Specifically, the Order authorizes sanctions for any person who “knowingly…sells, leases, or provides to Iran goods, services, technology, or support that has a fair market value of $1,000,000 or more or that, during a 12-month period, has an aggregate fair market value of $5,000,000 or more, and that could directly and significantly contribute to the maintenance or enhancement of Iran’s ability to develop petroleum resources located in Iran.”
Notably, the monetary threshold associated with sanctionable investments in the exploration and development of oil and gas in Iran has been drastically cut from $20 million (under CISADA) to $5 million (under the Order). Additionally, the Order authorizes sanctions on any person who provides goods, services and technology for the development of oil and gas in Iran. During a background briefing on the evening of November 21 (the “Briefing”), the State Department provided additional detail with regard to the Order, noting that although the provision of goods and services to upstream Iranian oil and gas activities, including exploration, development and extraction, were already prohibited under previous sanctions programs, these more specific prohibitions will prevent further capitalization and development of the declining Iranian oil production industry.2
Second, the U.S. specifically targets in the Order Iran’s petrochemical industry, which is a significant source of Iran’s export revenues and which the U.S. says has developed into a cover for the importation of sanctioned products. It authorizes sanctions for any person who “knowingly…sells, leases or provides to Iran goods, services, technology, or support that has a fair market value of $250,000 or more or that, during a 12-month period, has an aggregate fair market value of $1,000,000 or more, and that could directly and significantly contribute to the maintenance or expansion of Iran’s domestic production of petrochemical products.”
The express language of the Order falls short of sanctioning any person who knowingly participates in the exportation of petrochemical products. However, the State Department indicated during the Briefing that the U.S. is beginning a worldwide diplomatic campaign to encourage governments and companies that purchase petrochemicals from Iran to switch to other sources of supply to further reduce Iran’s export earnings.
The Order provides the Secretary of State with authority to impose a variety of sanctions on a person found to have violated the Order, including prohibitions on:
1. Foreign exchange transactions;
2. Banking transactions;
3. Property transactions in the United States;
4. U.S. Export-Import Bank financing;
5. U.S. export licenses; and
6. Imports into the United States.
U.S. persons will also be subject to sanctions in the event that they are a successor, own or control a person, or are owned or controlled by a person who is found to have violated the Order. U.S. persons may be subject to sanctions not only for violating the prohibitions set forth the Order, but also for attempting to evade or avoid the prohibitions, or for engaging in a conspiracy to violate the prohibitions set forth in the Order.
Designations Under Executive Order 13382
The Treasury and State Departments each took further action on November 21 by together designating 11 Iranian persons and entities under E.O. 13382 for their activities with respect to Iran’s nuclear program. E.O. 13382, signed by President George W. Bush on June 28, 2005, blocks the property of proliferators of weapons of mass destruction and their supporters. U.S. persons are prohibited from engaging in any transactions with those designated under E.O. 13382, and any assets of designees under U.S. jurisdiction may be frozen.
The State Department has designated the following entities and individuals for their role in Iran’s nuclear procurement network: Nuclear Reactors Fuel Company; Noor Afzar Gostar Company; Fulmen Group; and Yasa Part.
The Treasury Department has designated the following entities and individuals as well: Modern Industries Technique Company (MITEC); Javad Rahiqi; The Iran Centrifuge Technology Company (TESA); Parto Sanat; Paya Partov; Neka Novin; Sismatic Development Co.
Identification of Iran as a Jurisdiction of Primary Money Laundering Concern
As an additional measure, based on Iran’s support of terrorism including sponsorship of an assassination attempt on the Saudi ambassador to the United States, pursuit of weapons of mass destruction, and reliance on state-owned or controlled agencies for the proliferation of nuclear weapons, and the illicit and deceptive acts of Iranian financial institutions, the Treasury Department has identified Iran as a jurisdiction of “Primary Money Laundering Concern” under Section 311 of the USA PATRIOT Act. This marks the first time that the Treasury Department has identified the entire Iranian financial sector-including the Central Bank of Iran, private banks, branches, and subsidiaries of Iranian banks operating outside of Iran as posing illicit risks to the entire financial system. However, the U.S. has stopped short of sanctioning Iran’s Central Bank.
If you have any questions or concerns about U.S. sanctions against Iran, please contact one of the attorneys listed below.
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1 The Order includes the following defined terms:
“Knowingly”: with respect to a conduct, a circumstance, or a result, means that the person had actual knowledge, or should have known, of the conduct, the circumstance, or the result.
“To Develop”: to explore for, or to extract, refine, or transport by pipeline petroleum resources.
“Petroleum Resources”: petroleum, oil, natural gas, liquefied natural gas, and refined petroleum products.
“Petrochemical Products”: any aromatic, olefin, and synthesis gas, and any of their derivatives, including ethylene, propylene, butadiene, benzene, toluene, xylene, ammonia, methanol, and urea.
“Refined Petroleum Products”: diesel, gasoline, jet fuel (including naptha-type and kerosene-type jet fuel), and aviation gasoline.
2 The State Department has not yet issued formal guidance on the Order.
