New U.S. Legislation Targeting Activities of Non-U.S. Firms in Iran Has Broad International Implications

The United States has enacted legislation that amends and significantly expands the Iran Sanctions Act of 1996 (the "ISA").

What Is New

The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 amends the ISA to create additional categories of activities that could subject non-U.S. firms to sanctions, and it creates new types of sanctions that can be imposed on such firms. The new activities subject to sanctions include those that support the production of refined petroleum products in Iran and the importation of refined petroleum products into Iran. Also, the new legislation targets foreign financial institutions that facilitate Iran's nuclear program, its support for terrorism, or the activities of Iran's Islamic Revolutionary Guard Corps.

The Context

Iran has faced longstanding criticism and economic sanctions from the United States as both a state sponsor of terrorism and for its alleged nuclear weapons program. Since 1995, the United States has maintained comprehensive sanctions against Iran that prohibit U.S. companies and persons from exporting to, importing from, or investing in Iran. Many Iranian entities are also targeted under U.S. economic sanctions against persons involved in the proliferation of weapons of mass destruction. The United States has consistently sought to convince the international community to strengthen these multilateral sanctions, and these efforts have recently borne fruit in new measures in the UN Security Council and the European Union. ( Click here to read O'Melveny's June 22 alert on this matter.) Independently of such developments in the international community, the new amendments to the ISA seek to further isolate Iran.

The Implications

While U.S. companies have long been significantly restricted as to activities in Iran, the new restrictions could affect their operations through non-U.S. subsidiaries or affiliates and non-U.S. business partners and competitors. The legislation categorizes additional activities as sanctionable, adds new types of sanctions, mandates investigations into credible reports of sanctionable activity, and constrains the President's authority to waive sanctions.

Further Information Concerning the New Legislation

The ISA applies to any person, including non-U.S. persons, but primarily targets non-U.S. persons because U.S. persons are already prohibited from investing or trading with Iran under other U.S. economic sanctions programs. Under the ISA, sanctions are imposed if an investigation concludes that prohibited...