In response to growing multilateral concern over Iran’s nuclear ambitions, President Obama is scheduled to sign into law later today a new round of U.S. sanctions aimed at restricting Iran.  The Comprehensive Iran Sanctions, Accountability, and Divestment Act was passed by Congress on June 24th and further strengthens United Nations Security Council Resolution 1929, which was approved on June 9, 2010.  The new legislation when signed today by President Obama will restrict investment in Iran’s energy sector, sales of refined petroleum, financial transactions, and trans-shipment of controlled technology. The new Act amends the Iran Sanctions Act (ISA) and includes three new sanctions that may be imposed for violating the ISA, all of which are of interest to the U.S. business community.

An in-depth analysis of the new legislation and its impact is provided below courtesy of a member of the Business Council’s Legal Affairs Sub-Committee.  We hope this will help clarify some of the complexities involved in the new legislation.

UPDATE ON IRAN SANCTIONS
On June 24, 2010, Congress passed H.R. 2194, the Comprehensive Iran Sanctions, Accountability, and Divestment Act (the Act).  The House passed the Act on a vote of 408-8.   The Senate vote was 99-0.   President Barack Obama is expected to sign the Act into law soon.

These new U.S. sanctions come on the heels of action by the United Nations and the European Union.  On June 9, the UN Security Council approved multilateral sanctions pursuant to Resolution 1929 by a vote of 12-2.  On June 17, the European Council issued a directive establishing guidelines regarding restrictions on Iran banking transactions, as well as new investment, technical assistance, and technology transfers to Iran’s gas and oil industry, particularly for refining and liquefied natural gas.

Below is a summary of the Act and a discussion of how it relates to the recently instituted UN sanctions.

Summary of New UN Sanctions

The recent UN resolution is the fourth round of sanctions the world body has imposed on Iran.  Prior UN sanctions banned trade in sensitive nuclear materials and froze the assets of Iranian individuals and companies linked with the nuclear program; gave Iran a deadline to suspend uranium enrichment, which Iran ignored; restricted certain arms sales; and imposed an asset freeze and travel ban on listed individuals and entities engaged in or supporting sensitive nuclear work or development of ballistic missiles, including the state-run Bank Sepah and firms controlled by the Revolutionary Guard.

The new resolution has the following elements:

• it expands the existing arms embargo to cover battle tanks, combat aircraft, and missiles;
• it urges UN Members to cooperate in more aggressive inspections of cargo on the high seas or in ports if there are “reasonable grounds” to believe the cargo could contribute to Iranian nuclear activities;
• it urges Members to block financial transactions and to ban licensing of Iranian banks if there are “reasonable grounds” to believe they contribute to Iranian nuclear activities; and
• it expands the existing asset freeze and travel ban against additional listed entities and persons linked to the Revolutionary Guard and to Iran’s nuclear and missile programs.

The resolution does not restrict Iran’s oil trade or investment in Iran’s energy sector; impose a comprehensive arms embargo; impose a comprehensive ban on financial dealings with Iran or the Revolution Guard; or require Iran to allow foreign navies to inspect its vessels.

Summary of the New U.S. Sanctions

The sanctions just passed by Congress go far beyond UN Resolution 1929, restricting investment in Iran’s energy sector and sales of refined petroleum to Iran, as well as restricting certain financial transactions and trans-shipment of controlled technology, among other things.  The Act is lengthy and complicated.  What appears below are elements of the Act that may be of particular interest to businesses.

New Sanctions Related to Iran’s Energy Sector.  The Act amends the current Iran Sanctions Act (“ISA”) by requiring imposition of at least 3 of 9 possible sanctions against parties that:

• make investments of $20,000,000 or more in Iran’s energy sector, or a combination of investments in a 12 month period of $5,000,000 each if they reach $20,000,000 in aggregate;
• sell, lease, or provide goods, services, technology, information or support valued at $1,000,000 or more, or with an aggregate value of $5,000,000 in a 12 month period, that facilitate the maintenance or expansion of Iran’s refined petroleum production capability; or
• sell or provide refined petroleum products valued at $1,000,000 or more, or with an aggregate value of $5,000,000 in a 12 month period, or goods, services, technology, information, or support that facilitates Iran’s ability to import (the provision of goods, services, technology, information, or support under this part of the Act may include insurance, reinsurance, and underwriting, as well as financing, brokering; and shipping services).

The Act adds three new sanctions to the menu of potential measures that may be imposed for violation of the ISA.  These include a ban on transactions in foreign exchange subject to U.S. jurisdiction; transfers of credit or payments between financial institutions subject to U.S. jurisdiction that involve the interest of a sanctioned person; and transactions in property subject to U.S. jurisdiction in which a sanctioned person has an interest.[1]
Presidential Waiver Authority.  The Act attempts to make it harder for the President to waive Iran sanctions.  The standard for presidential waiver of Iran sanctions is a finding that a waiver would be “important to the national interest.”  The Act requires the President to find a waiver is “necessary to the national interest.”  In the end, it is left to the President to make the requisite judgment.  Also, the Act provides the President with authority to waive sanctions against a specific party for a period of up to 12 months based on a finding that “the government with primary jurisdiction over the person” is closely cooperating in multilateral efforts to prevent Iran from obtaining biological, chemical or nuclear weapons if the waiver is vital to the national security interests.  Such waivers can be renewed for 12 months once granted.

Preventing Trans-Shipment of Controlled Items.  The Act requires the U.S. Director of National Intelligence develop a list of countries associated with diversion of specified goods, materials or technology to Iran, including items that originate in the United States; materially contribute to Iran’s nuclear proliferation efforts or support of international terrorism; are controlled under the Export Administration Regulations or the International Traffic in Arms Regulations; or  are prohibited for export to Iran under UN Security Council resolutions.  Following development of a list of countries by the Director of National Intelligence, the President must determine which countries on the list allow substantial diversion of goods, services or technology, and report these countries as “Destinations of Diversion Concern” to Congress.  More stringent U.S. export licensing restrictions can apply to designated countries; however, the President may delay action for a 12 month period where the country in question is taking steps to institute an export control system, prevent diversion, and comply with and enforce UN Security Council Resolutions and government-to-government cooperation can strengthen the country’s export control system.
State Divestment.  The Act contains provisions authorizing state and local governments to divest from, or prohibit the investment of state assets in, companies that engage in certain investments in Iran.  Affected investments may include investments of $20 million or more in Iran’s energy sector and extensions of credit worth $20 million for energy sector investments by foreign financial institutions.

Financial Services Sector Provisions.  The Act includes provisions to prohibit or strictly limit accounts in the United States for financial institutions that knowingly facilitate activities of the Government of Iran in developing weapons or supporting terrorist organizations, facilitate activities of a person subject to UN sanctions restrictions, engages in “money laundering” activities that carry out one of the foregoing activities, facilitates such actions of another bank, or facilitates a significant transaction associated with the Iran Revolutionary Guard Corps. U.S. financial institutions that maintain foreign accounts are required to perform audits of such accounts for violations of these sanctions provisions and report transactions or financial services with respect to any violations.

Nuclear Export Licensing Sanctions Restrictions.  In addition to preexisting U.S. Iran sanctions that impose penalties against persons who knowingly aid Iran in developing weapons of mass destruction or other military capabilities, the Act provides for potential restrictions on U.S. authorization for export of nuclear energy sector goods or technology to countries associated with such persons.  The Act provides that no U.S. license may be issued for export and no approval may be given for transfer or retransfer of nuclear materials, components, facilities, or other goods, services, or technology subject to an agreement for cooperation to the country of primary jurisdiction of that sanctioned person in connection with prohibited activities occurring on or after enactment of the Act.  The President can waive this sanction if he notifies Congress that (1) the government of the country does not know or have reason to know of the activity, or (2) the country is taking all reasonable steps to prevent a recurrence and to penalize the sanctioned person.  The President may also individually approve licenses for export if he determines it is vital to the national interest, and issues a report to Congress prior to the approval with justification for the determination.

U.S. Government Procurement Restrictions.  The Act includes requirements for certification from all prospective government contractors that neither they, nor any entity that they own or control, engage in any activity for which sanctions may be imposed under the Act, with provisions for debarment of up to 3 years for false certification. The President can waive the certification requirement on a case by case basis if he certifies in writing to Congress that such action is in the national interest.