New U.S. Iranian Sanction Provisions Require More Diligence on Part of Both Foreign and U.S. Firms, Including Financial Institutions

The U.S. Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) of 2010, which was signed into law on July 1, expands the extraterritorial reach of the prior Iranian sanctions provisions and imposes new responsibilities on U.S. companies, including financial institutions. For example, U.S. companies will now have greater responsibility for monitoring the activities of subsidiaries, or entities under their ownership and control. Given this expanded reach, the enhanced sanctions and new limitations on presidential waivers, companies would be well-advised to re-evaluate their existing due diligence procedures to determine if they are adequate. This article highlights some of these new provisions and heightened responsibilities.

Under U.S. law, U.S. companies are prohibited from doing business in or with Iran, or with the Government of Iran and Iranian nationals or companies under the Iranian Transaction Regulations (the "ITR") enforced by the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC"). The CISADA applies extraterritorially to foreign companies that engage in certain prohibited activity with Iran. As discussed below, under certain circumstances, CISADA also adds new liabilities to U.S. companies that have relationships with these foreign offenders.

Sanctions For Activity Relating To Refined Petroleum

The Iran Sanctions Act of 1996 (ISA) imposed sanctions on foreign persons that invest in the development of Iran's petroleum resources, provided certain monetary thresholds were met.1 CISADA expands the sanctionable activities to sales of refined petroleum to Iran and assistance to Iran for its own domestic refining capacity. Specifically, under CISADA, foreign firms that "knowingly" engage in the following activities are now subject to sanctions:2

1) Facilitating Iran's Domestic Production of Refined Petroleum Products

Selling, leasing, or providing "goods, services, technology, information, or support" to Iran that "could directly and significantly facilitate the maintenance or 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"; or

2) Providing Refined Petroleum Products

Selling or providing refined petroleum products (i.e., diesel, gasoline, jet fuel, and aviation gasoline) to Iran; or

3) Enhancing Iran's Ability to Import Refined Petroleum

Selling, leasing or providing "goods, services, technology, information, or support" to Iran that "could directly and significantly contribute to the enhancement of Iran's ability to import refined petroleum products."3

The new sanctions, with a focus on Iran's domestic refining capacity, are designed to increase pressure on Iran in an area where the country is vulnerable. Despite being one of the world's leading oil producers, Iran's limited domestic refining...