Iran Sanctions Now Apply to Foreign Subsidiaries of U.S. Corporations

On October 9, President Obama issued an Executive Order that makes foreign subsidiaries of U.S. corporations subject to sanctions on doing business with Iran. From law firm King & Spalding:

“Under Section 4 [of the Iran Threat Reduction and Syria Human Rights Act], no entity that is owned or controlled by a U.S. person and established or maintained outside the United States may ‘knowingly engage in any transaction, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran’ if the transaction would be prohibited if performed by a U.S. person or a person in the United States.”

For your reference, five takeaways from the Executive Order:

1. Foreign subsidiaries must now obey U.S. law:

“[T] he Act provides that non-U.S. companies that are incorporated, organized, and operating outside of the United States and are owned or controlled by U.S. parent companies must comply with all U.S. laws and regulations related to transacting business in or with Iran, as if they were themselves U.S. companies.” (Morgan Lewis)

2. Foreign subs need their own licenses to engage in prohibited transactions:

“Licenses granted to a foreign subsidiary’s U.S. parent may not necessarily cover the foreign subsidiary, unless the terms of the specific licenses and the scope of the authorized activities clearly include the activities of the foreign subsidiary as well.” (King & Spalding)

3. U.S. parents will be punished for violations committed by their subsidiaries:

“Section 218 of the Act provides that a U.S. parent company can be directly sanctioned by OFAC for the violations committed by its foreign subsidiary. (Morgan Lewis)

4. Liability may be avoided by selling the foreign subsidiary:

“The civil penalties for each transaction can be up to $250,000 or twice the amount of the transaction. However, penalties for violations by the foreign subsidiary would not apply to the U.S. parent where the U.S. parent ‘divests or terminates its business with the entity’ by February 6, 2013.” (Pillsbury)

5. The president’s order contains a number of other provisions, too:

“The [Executive Order] also addresses several other issues, including blocking of parties who support the Government of Iran in committing human rights abuses (Section 2); blocking of parties who have supported censorship in Iran (Section 3); and providing for penalties to be imposed on persons who improve Iranian petroleum refinement capacities, sell refined petroleum products to Iran, or provide certain enhancements to Iran’s ability to import petroleum products where the value of the activity is over specified thresholds (Sections 5-7).” (Pillsbury)

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