The Iran Threat Reduction Act

On August 10, 2012, President Obama signed into law H.R. 1905, the Iran Threat Reduction and Syria Human Rights Act ("ITRA")1. Following months of negotiations between and among the House, the Senate, and the Administration, both chambers of Congress reached agreement on a reconciled bill2, which the House passed by a vote of 421-6 on August 1, and the Senate passed by voice vote later that same day.

The enactment of this new sanctions legislation comes amid a flurry of activity related to Iran sanctions, including several new US Executive Orders and enforcement actions3 designed to intensify the scope of US sanctions against Iran, as well as the European Union's recent embargo on imports of Iranian oil and prohibition on the provision of financial services by European individuals and entities for Iranian oil exports to third parties4. The ITRA marks the third law with a focus on Iran sanctions in the last two years: the Comprehensive Iran Sanctions, Accountability and Divestment Act ("CISADA"), which took effect in July 2010,5 and the National Defense Authorization Act for Fiscal Year 2012 (P.L. 112-81). Section 1245 of that NDAA ("Section 1245 sanctions") imposes sanctions on foreign financial institutions that knowingly conduct or facilitate any significant financial transaction with the Central Bank of Iran or with any other Iranian financial institution that has been designated6 by the United States for inclusion on the list of Specially Designated Nationals ("SDN list") subject to sanctions.

The ITRA is intended to further strengthen the existing US sanctions against Iran's energy and financial sectors, with the stated objective of cutting off Iran's access to the international energy markets and the global financial system. While "US persons"7 have been prohibited from doing business with Iran for nearly two decades, the ITRA expands the scope of activities by foreign (non-US) persons that are subject to extraterritorial sanctions under the Iran Sanctions Act, the baseline legislation that first imposed US penalties on foreign persons who provide certain types of support for Iran's energy sector. CISADA expanded the Iran Sanctions Act to cover additional types of commerce involving Iran, and to impose greater restrictions on sanctionable conduct. The ITRA further expands the Iran Sanctions Act beyond CISADA as noted below.

The ITRA intensifies US sanctions against the Iranian Revolutionary Guard Corps ("IRGC"), which over time has expanded into a major political, economic, and commercial presence in Iran from its beginnings as a security service for the Iranian government. The ITRA expands US sanctions designed to identify and penalize both the IRGC and IRGC front companies engaged in efforts to circumvent international sanctions.

The ITRA also is also designed to leverage the extraordinary and sustained focus by government regulators, policymakers, law enforcement, the media, and various stakeholder groups to pressure companies that continue to do business with Iran, however indirectly, to curtail those business activities. The ITRA requires several new public reports naming and/or exposing firms that transact business with Iran. The ITRA also includes language that, for the first time, makes US parent companies liable for the sanctionable activities of their foreign subsidiaries. Additionally, the ITRA includes language that creates a new US Securities and Exchange Commission ("SEC") disclosure obligation for companies who directly, or through their affiliates, knowingly8 engage in certain types of business with Iran.

Set forth below are highlights of some key provisions of the ITRA.

Expansion of Sanctions Against Iran's Energy Sector (Section 201) Sanctions for Transportation of Iranian Crude and Evasions of Sanctions by Shipping Companies (Section 202) Expansion of Sanctions Available Under the Iran Sanctions Act for Energy Sanctions Violators (Section 204) Expansion of Definitions under the Iran Sanctions Act , Including Clarification of What Constitutes "Credible Information" (Section 207) Sanctions on Shipping and Shipping Services, Including Insurance, In Connection with Transport of WMD or Terrorist Activities (Section 211) Sanctions on Provision of Underwriting Services or Insurance or Reinsurance for the National Iranian Oil Company (NIOC) and the National Iranian Tanker Company (NITC) (Section 212) Sanctions on Transactions Facilitating Issuance of Iranian Sovereign Debt (Section 213) Expansion of CISADA Sanctions on Financial Institutions (Section 216) Statutory Basis for Continuation of Certain Sanctions Previously Contained in Executive Orders (Section 217) Liability of Parent Companies for Sanctions Violations by their Foreign Subsidiaries (Section 218) New SEC Disclosure Obligations (Section 219) Framework for Sanctions on SWIFT, the International Specialized Financial Messaging Service (Section 220) Sanctions on Foreign Persons Supporting the IRGC or UN-sanctioned persons (Section 302) Sanctions on Foreign Government Agencies Supporting the IRGC or UN-sanctioned persons (Section 303) US Government Procurement: Contractor Certification of No Knowing Involvement in IRGC Transactions (Section 311) Sanctions Determinations Regarding Whether NIOC and NITC Are IRGC Agents or Affiliates (Section 312) Expansion of the NDAA Section 1245 Sanctions (Section 504) Report on Iran's Natural Gas Exports (Section 505) Expansion of Sanctions Against Iran's Energy Sector (Section 201)

The ITRA expands and intensifies the nature of US extraterritorial sanctions on Iran's energy sector under the Iran Sanctions Act, as amended by CISADA and other legislation. Previously, these sanctions were largely focused on persons who provided certain types and levels of financial or other support for Iran's ability to develop petroleum resources or Iran's ability to produce or export refined petroleum.

The ITRA expands US sanctions to a wider range of Iran's energy sector activities by extending sanctions to persons who participate in petroleum joint ventures (established on or after January 1, 2002) in which the Government of Iran is a substantial partner or investor. In response to Iran's ongoing efforts to increase its exports of petrochemical products, the ITRA broadens US energy sanctions to cover support for Iran's domestic production of petrochemical products. The ITRA also imposes sanctions on persons who provide assistance with respect to the construction of Iran's transportation infrastructure whose primary use is to support the delivery of refined petroleum products.

In addition to expanding the range of activities that are subject to sanctions, the ITRA also enhances the minimum penalty for engaging in sanctionable conduct. Section 201 increases from three to five the number of mandatory penalties required to be imposed upon any person determined by the President to have violated the energy sector sanctions.9

Sanctions for Transportation of Iranian Crude and Evasions of Sanctions by Shipping Companies (Section 202)

Section 202 authorizes the imposition of extraterritorial sanctions on any person who owns, controls, operates, or insures a vessel that transports crude oil from Iran to...