International Trade Update

U.S. and International Trade Sanctions Against Iran Expanded

The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) recently added certain entities associated with Iranian weapons proliferation to the Specially Designated Nationals and Blocked Persons List (“SDN List”) and issued a final rule amending the Iranian Transactions Regulations (“ITR”), 31 C.F.R. Part 560. OFAC’s actions are in response to, and build upon, the United Nations Security Council Resolution 1929 (“U.N. Sanctions”), which extended the scope of the U.N.’s existing arms embargo and restrictions on financial and shipping companies involved in Iran’s continued nuclear and missile proliferation activities. The new measures adopted by the U.N. and OFAC may pose challenges for companies that are involved in the shipping, finance and energy sectors.

1. New SDN List Entries and the Final Rule Issued by OFAC

OFAC has designated certain Iranian entities as proliferators of weapons of mass destruction and placed these organizations on the SDN List. As a result of this action, U.S. persons are prohibited from engaging in transactions involving any of these entities. The entities include (1) the Post Bank of Iran, for providing financial services to, and acting on behalf of, Bank Sepah, (2) the Islamic Revolutionary Guards Corps (“IRGC”), which controls Iran’s nuclear program and (3) front companies associated with Islamic Republic of Iran Shipping Lines (“IRISL”), which is involved in the smuggling of weapons in violation of the U.N.’s embargo prohibiting the export of arms from Iran.

OFAC also added 27 new vessels connected to IRISL to its SDN List and updated the entries for 71 already-blocked IRISL vessels to identify new names given to these vessels by IRISL as part of the company’s efforts to evade sanctions. Published reports indicate that the IRISL had been undermining previous sanctions by changing the names, flags, operators and managers of its vessels. These steps have made it more difficult for U.S. companies to screen vessel names against the SDN List. We note, however, that despite recent name changes, IRISL is generally unable to change the International Maritime Organization number that is permanently assigned to each of its vessels and generally located in the vessel’s certificate. The SDN List includes the vessel registration identification number for each vessel.

In addition to updating the SDN List, OFAC issued a final rule amending the scope of Appendix A to Part 560 to encompass any person determined by OFAC to be the “Government of Iran.” Appendix A is a list of entities determined to be owned or controlled by the Government of Iran, and is intended to assist U.S. persons in complying with the ITR’s prohibition against certain transactions with the Iranian Government and its associated entities. The ITR define the “Government of Iran” to include:

(a) The state and the Government of Iran, as well as any political subdivision, agency or instrumentality thereof;

(b) Any entity owned or controlled directly or indirectly by the foregoing; and

(c) Any person to the extent that such person is, or has been, or to the extent that there is reasonable cause to believe that such person is, or has been, . . . acting or purporting to act directly or indirectly on behalf of any of the foregoing . . .

The final rule emphasizes that if a specific entity is not listed in Appendix A, but such entity falls under the definition of the term “Government of Iran,” transactions with that entity are subject to the same prohibitions for transactions with entities specifically listed under Appendix A.

The final rule also added 22 persons in the insurance, petroleum and petrochemical industries to Appendix A. Please note that several of these companies are based in the United Kingdom or Singapore.

Treasury’s announcement regarding this final rule is located here.

2. The U.N. Security Council Sanctions

The U.N. Sanctions, which were passed by the Security Council on June 9, 2010, are primarily targeted at military purchases, trade and financial transactions carried out by the IRGC. Under the U.N. Sanctions, all Member States of the U.N. are required to take the following steps with respect to activities involving Iran:

• prohibit Iranian investment abroad in any commercial activity involving uranium mining, production or use of nuclear materials and technology, in particular uranium enrichment and reprocessing activities, all heavy-water activities or technology related to ballistic missiles capable of delivering nuclear weapons;
  
• prevent the direct or indirect supply, sale or transfer to Iran of any battle tanks, armored combat vehicles, large-calibre artillery systems, combat aircraft, attack helicopters, warships, missiles or missile systems;
  
• prevent the provision to Iran of technical training, financial resources or services, advice, other services or assistance related to the supply, sale, transfer, provision, manufacture, maintenance or use of any battle tanks, armored combat vehicles, large-calibre artillery systems, combat aircraft, attack helicopters, warships, missiles or missile systems;
  
• inspect all cargo to and from Iran, in a Member State’s territory, including seaports and airports, if there are reasonable grounds to believe the cargo contains items the supply, sale, transfer or export of which is prohibited;
  
• prohibit the provision of bunkering services, such as providing fuel or supplies, or other servicing of vessels, to Iranian-owned or Iranian-contracted vessels, including chartered vessels, if there are reasonable grounds to believe the vessels are carrying items the supply, sale, transfer or export of which is prohibited;
  
• take steps to prevent the entry into or transit of certain individuals who are involved in nuclear or ballistic missile activities through Member States and freeze the assets of those individuals;
  
• exercise increased vigilance when doing business with certain named entities incorporated in Iran or subject to Iran’s jurisdiction, including those of the IRGC and IRISL and any individuals or entities acting on their behalf or at their direction, and entities owned or controlled by them;
  
• communicate to the Security Council any information relating to activities that the IRISL or Iran Air’s cargo division have undertaken to evade these sanctions or to contribute to Iran’s nuclear proliferation activities;
  
• prevent the provision of financial services, including insurance or re-insurance, or the transfer to, through or from a Member State, or to or by their nationals or entities organized under their laws (including branches abroad), or persons or financial institutions in their territory, of any financial or other assets if there are reasonable grounds to believe that such services, assets or resources could contribute to Iran’s proliferation-sensitive nuclear activities, or the development of nuclear weapon delivery systems; and
  
• prohibit the opening of new branches, subsidiaries or representative offices of Iranian banks in Member States, and also prohibit Iranian banks from establishing new joint ventures, taking an ownership interest in or establishing or maintaining correspondent relationships with banks if there are reasonable grounds to believe that these activities could contribute to Iran’s proliferation-sensitive nuclear activities or the development of nuclear weapon delivery systems.

The announcement of the U.N. Sanctions is located here.