Sanctions Update: Public Companies Must Disclose Iran-Related Activities In SEC Reports

One of the key provisions in the Iran Threat Reduction and Syria Human Rights Act of 2012 is a new SEC reporting requirement regarding certain Iran-related activities. From law firm Loeb & Loeb:

“Beginning February 6, 2013, public companies must disclose in annual or quarterly reports to the Securities and Exchange Commission whether the companies or any of their affiliates engaged in proscribed transactions with Iran. Any company disclosing this type of activity also must file a notice with the SEC to that effect, which notice will trigger a federal investigation.”

It’s a broad rule that goes into effect today and applies to most public companies listed in the United States, write Curtis Dombek and Louis Lehot of Sheppard Mullin:

“The requirements apply to issuers that are required to file annual or quarterly reports under Section 13(a) of the Exchange Act. This includes foreign companies that file such reports by virtue of issuing securities in the United States. In addition, any ‘affiliate’ of the issuer is also covered by the new disclosure requirement.”

How should companies respond to the new requirement? Four suggestions from Heath Tripp and Benji Jones of law firm Smith Anderson:

  1. “… reporting companies should consider whether any of their businesses, or the business or foreign entities they own or control, involves sanctionable activities that require disclosure under Section 219. This will require updates to periodic disclosure controls and procedures to ensure quarterly and annual reporting requirements can be met.
  2. “… companies could consider adding a risk factor related to the new disclosure requirements, particularly if it becomes necessary to make any affirmative disclosure under the Section 13(r) reporting requirements.”
  3. “U.S. companies could implement OFAC compliance software into their systems to confirm they do not engage in transactions with ‘blocked persons.’”
  4. “In addition to updating internal procedures, U.S. companies should also consider expanding compliance and training programs to cover foreign subsidiaries and other affiliates to ensure they understand the scope of the prohibitions that now apply to them.”

For your reference, here’s a look at some of the more significant type of activities that must be reported under the rule (for a complete list, see the updates listed below):

  • Making an investment, or within 12 months making a combination of investments of at least $5,000,000 each, totaling in excess of $20,000,000 in goods, services, technology, information, or support that could directly and significantly facilitate maintenance or expansion of Iran’s domestic production of refined petroleum products, including any direct, significant assistance respecting construction, modernization, or repair of oil refineries” (Loeb & Loeb)
  • Providing to Iran goods, services, or technology that would contribute materially to Iran’s ability to acquire or develop chemical, biological, or nuclear weapons or providing related technologies or destabilizing numbers and types of advanced conventional weapons” (Proskauer)
  • Production of refined petroleum products or support for the development of petroleum resources and refined petroleum products in Iran through sale, lease or provision to Iran of goods, services, technology, information or support by the issuer or its affiliate, any of which has a fair market value of $1 million or more, or which during a 12-month period have an aggregate fair market value of $5 million or more” (Sheppard Mullin)
  • Activities of a non-U.S. financial institution that facilitate the efforts of the Government of Iran or any Iranian financial institution relating to the acquisition or development of weapons of mass destruction or the support of terrorism-related organizations, or that facilitate the activities of a person subject to United Nations financial sanctions with respect to Iran” (Proskauer)
  • Transferring to Iran firearms, ammunition, certain nonlethal or crowd-control weapons, surveillance technology, or ‘sensitive’ equipment; facilitating this transfer; or providing services with respect to these items” (Loeb & Loeb)
  • Ownership, operation, control or insurance of a vessel used after November 8, 2012 to transport crude oil from Iran to another country” (Sheppard Mullin)

The updates:

Read additional updates and analysis on Iran Sanctions>>