By Erich Ferrari
July 29, 2010, Washington, D.C. -The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA or “the Act”) was passed by Congress on June 24, 2010, with a vote of 99-0 in the Senate and 408-8 in the House of Representatives. The Act expands upon the restrictions of the Iran Sanctions Act of 1996 (“ISA”) and the Iranian Transaction Regulations (“ITR”) administered by the Department of Treasury’s Office of Foreign Assets Control (OFAC). On July 1, 2010 President Obama signed this Act into law.
CISADA is a major expansion of U.S. economic sanctions against Iran and contains many new restrictions on companies considering business activities related to Iran. This article will provide an overview of the primary provisions of CISADA, with a particular focus on those sections that will most directly affect the average Iranian American.
I. New Prohibitions on Business
First, one of the most striking provisions of CISADA is the definition of “person.” The definition of “person” has been expanded to include financial institutions, insurers, underwriters, guarantors, and all other business organizations; this is in addition to those individuals and entities already deemed as persons under both the ISA and the ITR. In addition, CISADA extends liability for violations to the successors of entities, parent companies, affiliates, and subsidiaries of an entity that formerly engaged in prohibited transactions under the U.S. economic sanctions. In the past, parent companies were liable only if they had approved of and/or facilitated prohibited transactions. Now, a parent company may be subject to sanctions if they knew, or should have known, that their subsidiary was engaging in prohibited transactions. This is a major enhancement from previous sanctions.
a. Sanctions Related to Iran’s Petroleum Industry
CISADA serves to expand U.S. sanctions against Iran by prohibiting foreign companies from engaging in the sale, lease or provision of any goods, services, technology, information, or support that would facilitate the maintenance and/or expansion of Iran’s petroleum refineries. Furthermore, those foreign entities supplying refined petroleum products to Iran would also be subject to sanctions. Effectively, these new prohibitions seek to bar a variety of different sectors, including financial services, telecommunications, logistical, and consulting and business services from supporting Iran’s petroleum refineries.
CISADA also imposes sanctions on a number of other activities related to Iran’s petroleum activities. It permits the President to impose minimum sanctions against entities that knowingly invest $20 million or more that contributes to the development of Iran’s petroleum and natural gas resources. Furthermore, the Act requires prospective U.S. government contractors to self-certify that they do not engage in any of the restricted petroleum-related activities described above. Parties that submit false certification will have their contracts terminated and are subject to debarment for a period of up to three years.
b. Government Procurement Contracts
Another interesting section of CISADA that might be of particular interest to the Iranian American business community is that which deals with companies seeking U.S. government procurement contracts. Those companies are now required to self-certify that they do not engage in activities that would be prohibited under the sanctions. This means companies will have to conduct an internal evaluation of their activities under CISADA and determine whether they have violated the law. Those engaged in such activities will not be eligible to receive U.S. government procurement contracts.
c. Effect on Financial Institutions
CISADA also imposes new restrictions on financial institutions that are independent of the petroleum-related sanctions described above. The new restrictions apply to both “domestic” and “foreign.”
One example of these new restrictions is found in the requirement of regulations to be imposed that would prohibit the holding of payable-through accounts in the United States by foreign financial institutions engaged in specified activities. These activities include:
Facilitating the efforts of the Government of Iran to acquire weapons of mass destruction and/or delivery systems for such weapons, or the provision of support for acts of international terrorism;
Facilitating the activities of a person subject to financial sanctions pursuant to United Nations Security Council Resolutions;
Engaging in money laundering to facilitate the activities described above;
Facilitating efforts by the Central Bank of Iran or any other Iranian financial institution to carry out activities above; and
Facilitating significant transactions or providing significant financial services for the Government of Iran or any of its agents whose property is blocked under the International Emergency Economics Powers Act (IEEPA) or for a financial institution whose property is blocked in connection with Iran’s weapons activities or support for international terrorism.
CISADA also requires that regulations be imposed to prohibit any entity controlled by a domestic financial institution from knowingly transacting with or benefitting the Government of Iran or any of its agents whose property is blocked under IEEPA. This provision directly expands the scope of the prohibitions to foreign subsidiaries of U.S. companies
II. CISADA’s Practical Effects
Probably the most pertinent section of CISADA to this article is section 103 which addresses the increased restrictions on the import and export of goods, services, and technology between the U.S. and Iran. Specifically the Act seems to eliminate previous general licenses authorizing U.S. imports of pistachios, carpets, caviar and other Iranian products. While OFAC has not yet amended the ITR to reflect the new prohibitions of the CISADA, it seems that the existing regulatory exemptions with respect to certain imports from Iran will be eliminated.
CISADA still provides exceptions, and authorizes licenses, for some exports, although the export of goods, services, and technology has been limited to the following areas: personal communications, information and informational materials; transactions incidental to travel; articles intended to relieve human suffering; agricultural commodities, medicine, medical devices; services and hardware to facilitate internet communications; hardware and software to provide access to the internet; goods, services and technology necessary for the safe operation of commercial aircraft; and goods, services, and technology necessary to support the activities of non-governmental organizations related to the promotion of democracy. Furthermore, there is a catch all provision that exempts the export of any article to Iran that is deemed to be in the national security interests of the United States.
CISADA specifically identifies Iranian diplomats, representatives of other government or military or quasi-governmental institutions, such as Iran’s Revolutionary Guard Corps (IRGC) and its affiliates, and requires the freezing of funds and other assets belonging to these designated persons, as well as transfers to family members or associates acting on the designated person’s behalf. As such, Iranian Americans must be careful in any dealings they have with such individuals.
III. New Authority and Requirements for the Enforcement of Sanctions
CISADA does not only place limitations on the ability of individuals and businesses to carry transaction in relation to Iran, it also expands the authority of federal and state governments to enforce sanctions. A prime example of these new powers is found in the requirement of the President to designate nations that are known for diverting goods, technology, or services to Iran. The Act would impose licensing limitations on regulated exports to those designated countries.
Furthermore, CISADA has provided the President with a host of new tools with which to carry out economic sanctions against Iran. Some of the new prohibitions the President can employ include the following: prohibitions of foreign exchange transactions subject to U.S. jurisdiction that involve sanctioned entities; prohibitions on transfers of credit or payments between, by, through, or to financial institutions that are subject to U.S. jurisdiction and that involve any interest of sanctioned entities; prohibitions on transacting or exercising any right, power, privilege with respect to property subject to the jurisdiction of the U.S. in which a sanctioned entity has an interest.
In addition, the President must designate countries as Destinations of Diversion Control under specified circumstances and list which goods, services, and technologies are being diverted. The effect of such determinations is that all listed goods, services, and technologies exported to designated countries will require licenses, and applications for licenses will be treated with a presumption of denial. The President may also delay the imposition of the licensing requirements in 12-month increments under certain circumstances.
Finally, CISADA permits States to pass divestment laws that would allow the prohibition of investment of public funds in business entities that invest in Iran. What that means for the average Iranian American is that they would no longer be able to obtain state sponsored grants for those businesses who also invest in Iran. Arizona, California, Florida, Minnesota, New Jersey, and Pennsylvania have already enacted laws, such as these, which relate to investments in Iran.
Erich Ferrari is a Partner in the Washington, DC office of McNabb Ferrari, P.C. and a member of the Iranian American Bar Association-Washington, DC Chapter. Erich is an internationally recognized expert in OFAC litigation and U.S. economic sanctions programs; he publishes on related issues and blogs at www.sanctionlaw.com. Nothing in this article should be construed as legal advice as every case is different. If you are impacted by any topic discussed in this article you should consult with an attorney who has expertise in OFAC. If you would like more information about the contents of Erich’s article, you may call him at 202-351-6161 or email firstname.lastname@example.org.