On 28 January 2010 the US senate passed a bill that provides for the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2009 strengthening the Iran Sanctions Act of 1996 (S. 2799). This bill stipulates that U.S. parent companies can be held liable for acts of non-US subsidiaries that engage in certain transactions with Iran. Moreover, the act imposes new sanctions on entities involved in the development of petroleum resources of Iran, production of refined petroleum products in Iran and exportation of refined petroleum products to Iran. Other issues include, amongst others, economic sanctions, authorisation of divestment in persons engaging in investment activities in the energy sector of Iran and new licensing requirements for certain exports to “destinations of diversion concern”.
Liability of parent companies for violations of sanctions by foreign subsidiaries
Section 104 of S.2799 provides for liability of parent companies for violations of sanctions by foreign subsidiaries that engage in certain transactions with Iran. This liability includes that US persons are liable for violations if the US person establishes or maintains a subsidiary outside the US for the purpose of circumventing the applicable provisions and that subsidiary engages in an act that if committed in the US or by a US person would violate such provisions. Section 104 foresees in a waiver of the US president for this. Furthermore, an exception applies for acts by subsidiaries owned or controlled by a US person and those acts commenced before the date of the enactment and such acts continue on or after such date of enactment, if the US person divests or terminates its business with the subsidiary not later than 90 days after the date of the enactment of the Act.
Refined products and development of petroleum resources
Section 102 of the Senate Bill introduces new sanctions on entities involved in providing refined products to Iran and support of goods, services, technology, information or support that could facilitate the maintenance or expansion of Iran’s domestic production of refined petroleum products as well as those that could contribute to the enhancement of Iran’s ability to import refined petroleum products. The sanctions also relate to entities that are involved in the development of petroleum resources in Iran, such as making certain defined investments.
Section 103 of the Senate Bill prohibits imports of goods originating from Iran, either directly or indirectly, with the exception of information and informational materials. Moreover, no article of US origin may be exported directly or indirectly to Iran, exempting certain goods such as agricultural commodities, food and medical devices.
Divestment from certain companies that invest in the energy sector of Iran
Section 202 of the Senate Bill authorises State or local government that divest from or prohibits the investment of assets of the State or local government in a person that engages in investment activities in the energy sector of Iran as long as Iran is subject to economic sanctions imposed by the US.
New licensing requirements for certain exports to “destinations of diversion concern”.
Section 303 of the Senate Bill introduces new licensing requirements for certain exports to “destinations of diversion concern”. “Destinations of diversion concern” are countries for which it has been determined that the government of that country allows substantial transhipment, re-exportation, or diversion of items that originate in the US to end-users whose identities cannot be verified or to entities to Iran. Also countries will be designated by the Secretary of Commerce as “destinations of possible diversion concern” if that country has failed 12 months after it has been designated as “destination of possible diversion concern” to co-operate with government-to government activities initiated by the US or, based on certain criteria, to adequately strengthen the export control systems of the country. For countries designated as “destinations of possible diversion concern”, government-to-government activities will be initiated to strengthen the export control systems of that country.
Status Amendment US Iran Sanctions Act of 1996
Both the Senate and the House of Representatives have adopted a bill to amend the US Iran Sanctions Act of 1996. The House Bill (H.R. 2194) provides for a more limited package of sanctions. There are significant differences between the House and the Senate Bill. Before the amended Iran Sanctions Act will enter into force, the Senate and the House Bill have to be reconciled into one bill which will be submitted to the US president for signature. It is expected that Congress will act in next month. Therefore, the coming period is essential for companies that wish to carry out lobbying activities. This may be of special interest for European companies that are subsidiaries of US persons as they could be affected by the Iran Sanctions Act because of the proposed extra-territorial application of the US sanctions regime against Iran.