The US continues to impose economic sanctions on trade with respect to a number of countries, including Burma, Cuba, Democratic Republic of Congo, Iran, Iraq, Somalia, Sudan, Syria, Zimbabwe and others. The US also imposes economic sanctions on certain activities that are not country-specific, such as terrorism, narcotics trafficking, and trading in diamonds, and it prohibits dealing with persons and entities identified on OFAC's lengthy list of Specially Designated Nationals and Blocked Persons (the SDN List).

The Comprehensive Iran Sanctions, Accountability and Divestment Act 2010

On 1 July 2010, following on the heels of UN Security Council Resolution 1929, the US enhanced its economic sanctions against Iran through enactment of the Comprehensive Iran Sanctions, Accountability and Divestment Act 2010 (the 2010 Act). The 2010 Act expands the range of sanctions provided in the Iran Sanctions Act of 1996 (the 1996 Act). In particular, the 2010 Act provides for sanctions on anyone - not just US persons and companies - who:

  • Provides goods, services, technology, information or support above a threshold value that could directly and significantly facilitate the maintenance or expansion of Iran's domestic production of refined petroleum products;
  • Provides to Iran refined petroleum products above a threshold value; or
  • Sells, leases, or provides to Iran goods, services, technology, information or support above a threshold value that could directly and significantly contribute to the enhancement of Iran's ability to import refined petroleum products.

Sanctions under the 2010 Act

The 2010 Act provides an increased range of potential sanctions for violators. While the 1996 Act called for imposition of two sanctions from a list of six, the 2010 Act provides for imposition of at least three sanctions out of a list of nine. The new sanctions include:

  • Prohibiting transactions in foreign exchange subject to U.S. jurisdiction in which a sanctioned person has any interest;
  • Prohibiting transfers of credit or payments through financial institutions if such transfers or payments are subject to U.S. jurisdiction and involve an interest of a sanctioned person; and
  • Prohibiting the sanctioned person from acquiring, holding, withholding, using, transferring, withdrawing, transporting, importing, or exporting of any property subject to U.S. jurisdiction. The 2010 Act also reduces the level of knowledge required for sanctions violations. The 1996 Act required that a person have actual knowledge of prohibited conduct. Under the 2010 Act, "knowingly" means that "a person has actual knowledge, or should have known, of the conduct, the circumstance, or the result." This new knowledge standard also applies to corporate parents, subsidiaries, or other affiliates of a company whose actions are subject to sanction. Thus, a parent company may face penalties arising from a subsidiary's conduct if the parent company "should have known" that its subsidiary was engaged in prohibited conduct.

Monitoring and Enforcement

In addition, the 2010 Act provides for more rigorous monitoring and enforcement of the sanctions. While the 1996 Act provided that the US President "should" launch an investigation upon receipt of credible evidence of conduct subject to sanction, the 2010 Act provides that the US President "shall" commence such an investigation. Consistent with the increased focus on enforcement, legislation was introduced in the US Congress on 22 July 2010 to require expanded disclosures in SEC filings regarding corporate investment in Iran. And on 29 July 2010, the US House of Representatives Oversight Committee held a hearing on "Implementation of Iran Sanctions," at which a number of State and Treasury Department officials called for stricter enforcement. As recently as 3 August 2010, additional Iranian persons and entities were added to the ever-growing SDN List.

Insurance/Reinsurance and the 2010 Act

Insurance and reinsurance underwriters are given special attention in the 2010 Act. OFAC has made clear in the past that providing insurance or reinsurance coverage to prohibited transactions is itself prohibited. The 2010 Act provides that underwriters can avoid sanctions, however, if they have "exercised due diligence in establishing and enforcing official policies, procedures, and controls to ensure that the person does not underwrite or enter into a contract to provide insurance or reinsurance for the sale, lease, or provision of goods, services, technology, information, or support" that is prohibited.

On August 16, 2010, OFAC promulgated the Iranian Financial Sanctions Regulations to implement certain provisions of the 2010 Act. These regulations prohibit or restrict US financial institutions (including insurance companies) from maintaining correspondent accounts or payable-through accounts for foreign financial institutions that engage in certain activities, such as facilitating efforts by the Government of Iran or its Revolutionary Guards to obtain weapons of mass destruction or provide support to designated terrorists, or providing "significant financial services" (including insurance) for certain financial institutions whose property is blocked.

While additional regulations and OFAC guidance are expected in the wake of the 2010 Act, it is important to keep in mind that the 2010 Act is in force today. Accordingly, persons and companies that do business globally would be well-advised to take measures now to determine whether they may be subject to the expanded sanctions, and if so, to take appropriate compliance measures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.