On Friday, January 10, 2020, President Trump issued a new Executive Order, “Imposing Sanctions With Respect to Additional Sectors of Iran” (“E.O.”), which authorizes the imposition of sanctions against persons operating in or transacting with Iran’s construction, mining, manufacturing or textile sectors. The E.O. also imposes secondary sanctions against foreign financial institutions (“FFIs”) that engage in “significant financial transactions” within these sectors. Concurrently, the US Department of the Treasury, Office of Foreign Assets Control (“OFAC”), designated several Iranian and third-country metal producers and mining companies, a number of senior Iranian officials, and third-country entities that have transacted in the Iranian metal and mining sectors. This Legal Update provides a brief summary of these new sanctions and designations and discusses their impact on US and non-US businesses and financial institutions.
Designations. Concurrently with the E.O., OFAC designated several Iranian and third-country entities, including 17 Iranian metal producers and mining companies (described as the largest metals manufacturers in Iran); an Oman-based steel supplier; a network of three China- and Seychelles-based entities; and a vessel involved in the purchase, sale and transfer of Iranian metals products, as well as in the provision of critical metals production components to Iranian metal producers. OFAC also designated, pursuant to pre-existing authorities, several senior Iranian officials who have “advanced the regime’s destabilizing objectives.”1
New Targeted Sanctions. The E.O. imposes sanctions on the construction, mining, manufacturing and textile sectors of the Iranian economy, expanding on those already imposed on the country’s energy, shipping and financial sectors under Executive Order 13846 (“E.O. 13846”) and the iron, steel, aluminum and copper sectors under Executive Order 13871 (“E.O. 13871”). The aim of the new E.O. is to “deny the Iranian government revenues, including revenues derived from the export of products from key sectors of Iran’s economy, that may be used to fund and support its nuclear program, missile development, terrorism and terrorist proxy networks, and malign regional influence.” The new sanctions come amid rising tensions between the United States and Iran and only days after targeted, tit-for-tat military actions by both countries.
The E.O. authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to block all property and interests in property that are in the United States, or within the possession or control of any US person, belonging to any person (meaning an individual or an entity) determined to:
- be operating in the construction, mining, manufacturing, or textile sectors of the Iranian economy;
- 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 one of the aforementioned sectors of the Iranian economy;
- have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any persons whose property and interests in property are blocked pursuant to the E.O.; or
- 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 the E.O.2
Importantly, the E.O. authorizes the Treasury Department to designate as a Specially Designated National (“SDN”), any “person,” including non-Iranian and non-US persons, who operates in or knowingly engages in a significant transaction in these sectors of the Iranian economy. The E.O. also permits the Treasury Secretary to designate other sectors of the Iranian economy to be subject to sanctions in the future.
Secondary Sanctions on Foreign Financial Institutions. In addition to the targeted sanctions discussed above, the E.O. permits the Secretary of the Treasury, in consultation with the Secretary of State, to impose correspondent account and payable-through-account (“CAPTA”) secondary sanctions on any FFI that, on or after January 10, 2020, knowingly conducts or facilitates any “significant financial transaction”:
- for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with one of the aforementioned sectors of the Iranian economy; or
- for or on behalf of any person whose property and interests in property are blocked pursuant to this order.
CAPTA sanctions “may prohibit the opening, and prohibit or impose strict restrictions on the maintaining” of such accounts in the US by FFIs determined to have engaged in the conduct described in the E.O.
Impact of the New Iranian Sanctions and Related Designations
The E.O. expands on the sanctions already put into place against Iran following the reimposition of secondary sanctions against the country announced in May 2018 and as expanded under E.O. 13846 (sanctions against Iranian energy, shipping and financial sectors) and E.O. 13871 (sanctions against Iranian iron, steel, aluminum and copper sectors).
Under the current sanctions regime, it remains prohibited for US persons—including US-owned or -controlled entities—to engage in virtually any transaction, directly or indirectly, with Iran without OFAC authorization. US persons are further prohibited from transacting without authorization with those persons and entities designated by OFAC and added to the SDN List, including via this recent round of designations.
The new sanctions introduced by the E.O. increase OFAC’s ability to sanction non-US persons, as the E.O. enables the United States to designate and block the property and interests in property of those non-US persons operating in or engaging in significant transactions with the construction, mining, manufacturing or textile sectors of Iran.3 This has the effect of cutting off such non-US persons from the US financial system (and the US market more generally). Businesses with a presence in the European Union may continue to face challenges as they take into account this enhanced sanctions authority in light of the EU blocking statute, which prohibits EU companies from direct or indirect compliance with certain US sanctions laws, including Iranian sanctions.
It remains a secondary sanctions risk for FFIs (and non-US businesses) to knowingly engage in significant transactions involving certain Iranian persons on the SDN List.4 Additionally, as discussed above, CAPTA sanctions may be imposed against FFIs who conduct or facilitate any “significant financial transaction” in one of the sectors of the Iranian economy specified in the E.O., regardless of whether such transactions have a US nexus. FFIs and non-US businesses may now include an evaluation of significant transactions in the Iranian construction, mining, manufacturing or textile sectors as part of their Iran sanctions risk assessments.
While the E.O. does not define either the term “significant transaction” or “significant financial transaction,” we suspect that the Treasury Department will apply a standard similar to previously issued guidance published in relation to E.O. 13871. Accordingly, such a determination will likely be based on a multifactor, totality-of-the-circumstances assessment of a broad range of factors, including the size, number and frequency of the transactions or services; their type, complexity and commercial purpose; and the level of awareness of the institution’s management.5
Since reinstating secondary sanctions in 2018, the United States has only designated non-US entities under secondary sanctions in a few limited circumstances.6 However, this E.O. joins a series of preexisting Iran-related secondary sanctions authorities7 and further extends the extraterritorial reach of the Iran sanctions program to advance US policy objectives.
1 See Press Release, Treasury Targets Iran’s Billion Dollar Metals Industry and Senior Regime Officials (January 10, 2020), available at https://home.treasury.gov/news/press-releases/sm870.
2 The E.O., by its terms, does not apply with respect to any person for conducting or facilitating a transaction for the provision (including any sale) of agricultural commodities, food, medicine, or medical devices to Iran.
3 The blocking provision of the E.O. requires that the property or interests in property comes within the United States or within the possession or control of a US person (e.g., through use of the US financial system in such transactions).
4 See OFAC FAQ 636, available at https://www.treasury.gov/resource-center/faqs/sanctions/pages/faq_iran.aspx.
5 See OFAC FAQ 671, available at https://www.treasury.gov/resource-center/faqs/sanctions/pages/faq_iran.aspx.
6 See, e.g., OFAC, “Iran-related Designations; Issuance of Iran-related Frequently Asked Question,” (Sept. 25, 2019), available at https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20190925.aspx (adding Chinese tanker companies to the SDN list due to their alleged role in transporting Iranian oil).
7 See, e.g., Mayer Brown Legal Update, “US to Reimpose Secondary Sanctions Against Iran Amid EU Opposition” (May 9, 2018), available at https://www.mayerbrown.com/en/perspectives-events/publications/2018/05/us-to-reimpose-secondary-sanctions-against-iran-am; Executive Order 13846, “Reimposing Certain Sanctions With Respect to Iran,” (Aug. 6, 2018).