On August 10, 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012 (the "Act"). The Act tightens still further U.S. sanctions against Iran, particularly in the energy, shipping, financial services, and insurance sectors. The Act has a broad extraterritorial reach that subjects to U.S. sanctions many activities undertaken by non-U.S. persons outside the United States involving Iran or Iranian clients, even if those activities have no nexus to the United States.
This Alert addresses those aspects of the Act that might apply to professional services firms other than financial service providers.1 As a result of the Act, non-U.S. professional services firms may need to consider much more closely professional engagements on behalf of Iranian clients, or on behalf of non-Iranian clients in support of certain activities in or with Iran. Because the potential application of the Act to any particular transaction requires an analysis of the facts of the transaction, this note focuses on the more important general provisions of the Act that could apply to activities of non-U.S. professional services providers.
1. Expansion of Iran Sanctions Act
The Act broadens the scope of activities reached by the Iran Sanctions Act ("ISA").2 In summary term, prior to passage of the Act, the ISA (as amended by the Comprehensive Iran Sanctions, Accountability, and Disinvestment Act of 20103 ("CISADA")) required that, if specified conditions were met, the President would be required to impose specified sanctions on non-U.S. persons who were determined to have made certain investments in the development of Iran's petroleum and natural gas resources, or who provided products and services to Iran to facilitate Iran's ability to refine petroleum. The President, however, could waive the imposition of the sanctions if he determined that a waiver was "important" to the U.S. national interest.
The Act adds to the ISA several more sanctionable activities, increases the number of sanctions that can be imposed (from nine to twelve) for violations, increases the minimum number of sanctions that must be imposed from the list of twelve (from three to five), and reduces still further the President's discretion not to impose sanctions. (As amended by the Act, the President must find that waiver of sanctions is not just necessary to the national interest, but is "essential" to U.S. national security.)
Among the additional activities by non-U.S. persons that now can attract ISA sanctions are those listed below. The provision of any audit or consulting services directly or indirectly in support of projects described below could be reached by these new provisions.
If a violation is found, the Act adds the three new sanctions to the existing ISA list of possible sanctions4:
2. Iranian Debt and Other Activities
The Act also identifies a group of activities that can result in the imposition of sanctions beyond those covered by the ISA, including activities by a foreign person who purchases, subscribes to, or facilitates the issuance of, Iranian sovereign debt, or the debt of any entity owned or controlled by the Government of Iran. While not made part of the ISA, such activities would be subject to the same sanctions as are available under the ISA (again, five or more out of the 12). Any role by an accounting firm in support of the issuance - even with no U.S. firm involvement - of such debt could trigger this sanction.
The Act also codifies into law all Executive Branch action taken under specified Executive Orders targeting Iran. One of those, Executive Order ("EO") 13608 (issued on May 1, 2012), broadly allows the imposition of sanctions against foreign persons that evade, conspire to violate, or cause a violation of U.S. sanctions against Iran or Syria, or that facilitate deceptive practices on behalf of any person that is subject to U.S. sanctions on Iran or Syria. Sanctions for violating the May 1, 2012 EO include prohibiting all U.S. transactions that involve the foreign person, including a prohibition on the import, export, brokering, facilitation, financing, etc. of any goods or services to or from the sanctioned person.
3. Foreign Subsidiaries of U.S. Persons and Filers with the U.S. Securities and Exchange Commission
The Act imposes two entirely new restrictions on non-U.S. persons.
4. Use of IEEPA Authorities
The Act authorizes the President to exercise certain of his authorities under IEEPA with respect to specifically listed provisions of the Act. These IEEPA authorities include the authority to block assets of a sanctioned person. The following activities are among those that can be subject to this provision of the Act.
5. Executive Order 13622
On July 30, 2012, at the same time as Congress passed the Act, President Obama issued another Executive Order targeting Iran. Among other things, this EO allows for the imposition of sanctions against any person (including a non-U.S. person) that materially assists, sponsors, or provides financial, material, or technological support for, or goods and services in support of, the National Iranian Oil Company, Naftiran Intertrade Company (NICO), or the Central Bank of Iran. Sanctions can include the blocking of assets of the foreign person - i.e., being placed on the SDN list.