On January 10, 2020, President Trump issued Executive Order (E.O.) 13902, which authorized the imposition of sanctions on any person determined “to operate in the construction, mining, manufacturing, or textiles sector of the Iranian economy, or any other sector of the Iranian economy as may be determined by the Secretary of Treasury.” On October 8, 2020, the Secretary of Treasury determined that the financial sector of the Iranian economy would also become subject to E.O. 13902, calling it “an additional avenue that funds the Iranian government’s malign activities.”
As a result, non-U.S. persons will be exposed to a risk of sanctions if they engage in certain transactions with financial institutions sanctioned pursuant to E.O. 13902 or the financial sector more generally. The executive order authorizes the imposition of sanctions on non-U.S. persons who knowingly engage in “a significant transaction for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with” the financial sector of Iran. These sanctions target “significant transactions” with the Iranian financial sector, even if the specific financial institution involved in the transaction is not actually named on the Specially Designated Nationals and Blocked Persons List (SDN List). Additionally, E.O. 13902 authorizes the imposition of sanctions on any person determined “to have materially assisted, sponsored or provided financial, material, or technological support for, or goods or services to or in support of any person” to whom the blocking sanctions under the terms of the executive order apply, including the 17 financial institutions that were sanctioned as part of this action. Importantly, the sanctions imposed pursuant to E.O. 13902 maintain the existing exemptions for transactions related to food, medicine and other humanitarian goods.
In conjunction with these new sanctions, OFAC issued General License L, allowing all transactions and activities that are authorized, exempt, or otherwise not prohibited under the Iranian Transactions and Sanctions Regulations. In addition to the exemptions for the sale of food, agricultural commodities, medicine and medical devices to Iran, those regulations exempt certain transactions related to informational materials, personal communications and travel.
There is a 45-day wind-down period (ending November 22, 2020) during which non-U.S. persons can wind down transactions with sanctioned financial institutions and the Iranian financial sector without a risk of sanctions. After November 22, non-U.S. persons will be exposed to a risk of sanctions if they engage in a transaction with the Iranian financial sector or a designated bank that is not otherwise subject to an exemption. During the wind-down period, OFAC intends to issue guidance on what constitutes a “significant” transaction for purposes of E.O. 13902.
In a statement, U.S. Secretary of State Mike Pompeo said that the new financial sanctions would further deprive Iran of funds for “terrorist activities and nuclear extortion” and that the United States’ “maximum economic pressure campaign will continue until Iran is willing to conclude a comprehensive negotiation that addresses the regime’s malign behavior.” Critics, including the Iranian Foreign Minister, Mohammad Javad Zarif, called the new sanctions a “crime against humanity” that would “blow up” Iran’s remaining channels to purchase food and medicine. Ultimately, while those exemptions remain in place, companies may find considerable headwind from international financial institutions when trying to process even exempted Iranian transactions. At a minimum, extensive due diligence on Iranian counterparties, as well as any financial institution involved in the chain of transactions, will be required.
Client Alert 2020-562
