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21 February 2020
What does Executive Order 13902 do?
What is meant by 'construction, mining, manufacturing or textiles sectors'?
What are 'significant' transactions?
What about agricultural and medical-related business with Iran?
Will OFAC take action under new executive order?
Is there anything else worth noting about this executive order?
On 10 January 2020 President Trump issued Executive Order 13902, which places additional large swaths of the Iranian economy – and those outside Iran which support it – in the crosshairs of US sanctions. Third-country companies doing business with Iran's construction, mining, manufacturing or textiles sectors are now at greater risk of being sanctioned.
The executive order threatens blocking sanctions on any individual or entity that the Treasury subsequently determines is operating in or knowingly engaged on or in a significant transaction with the construction, mining, manufacturing or textiles sectors of the Iranian economy. The secretary of the Treasury can also identify additional sectors of the Iranian economy (if there are any left) that will become subject to the same provisions.
The executive order further authorises the prohibition of correspondent accounts for any foreign financial institution determined to have knowingly facilitated a significant financial transaction relating to one of the identified sectors. The names of individuals or entities identified in future for sanctions under the executive order will be made public on one of the sanctions lists maintained by the Office of Foreign Assets Control (OFAC).
Because all US individuals and entities, as well as US-owned or controlled overseas entities, are already prohibited from doing virtually any business with anyone in Iran, this executive order is targeted at wholly non-US companies in third countries in an attempt to further isolate and economically imperil Iran.
The Treasury has released little guidance on this executive order, which makes it difficult for the public to digest and implement its provisions.
OFAC is expected to issue FAQs shortly that will define these critical terms, particularly the possibly gargantuan 'manufacturing sector'. In the meantime, non-US individuals and entities should reconsider the risks of providing goods or services to Iran that are consumed in the process of creating consumer or industrial goods.
The executive order targets "significant transaction[s] for the sale, supply, or transfer to or from Iran of significant goods and services used in connection with" one of the identified sectors. Although OFAC has yet to issue FAQs on the matter, given how similar this language is to the 8 May 2019 executive order that sanctioned Iran's metals sectors (for further details please see "New sanctions on non-US companies doing business in Iran's iron, steel, aluminium and copper sectors"), the FAQ issued for that executive order should be a good guide. That FAQ explained that in determining whether transactions are significant, OFAC will consider the totality of the facts and circumstances, including:
Thus, pretty much anything goes. This makes sense because the administration's goal is to cut off business with Iran and not provide any comfort to those continuing to do business with these sectors.
To date, no wind-down period like that of the 2019 metals executive order has been provided. The rushed but careful drafting of Executive Order 13902 left no time for considering such wind-down period. However, OFAC will hopefully announce a 90-day wind-down period consistent with what it did for the metals sectors executive order. However, there is no guarantee.
It may be that the administration seeks to see immediate effects from the current executive order, especially given the escalation of tensions with Iran and the unfortunate spectre of domestic politics. However, even if a wind-down period is not provided, OFAC can determine what entities to target and is likely to focus on entities clearly continuing or increasing significant business with the Iranian sectors and not those making attempts to terminate such business.
The executive order includes a thoughtful humanitarian exemption for conducting or facilitating transactions for the provision of agricultural commodities, food, medicine or medical devices to Iran.
Such exports to Iran are not targeted under this executive order, but the same is not necessarily true for related exports to Iran's manufacturing sector (eg, for use in Iran's manufacture of its own food or medicine) or imports of agricultural or medical commodities or items from Iran.
In what could be a warning shot, on the same day that the new executive order was issued, OFAC took its first significant actions under the 2019 metals sectors executive order, including blocking some non-Iranian entities. If this is a hint of what is to come, there is a strong possibility that OFAC may soon begin building cases against third-country companies that continue to engage in transactions covered by the new executive order.
The executive order includes a carve-out for the official business of the United Nations, but fails to provide a similar carve-out for the official business of the US government. This is a surprising omission, particularly because the 2019 metals executive order included such an exemption.
Perhaps this was an oversight due to the speed of drafting or perhaps this was a thought-out decision. Either way, those contracting with the US government in matters involving Iran should take heed of this detail.
Who knows. Even though it seems that there is nothing left to sanction with respect to Iran, Trump's Iran sanctions amplifier probably goes way past 11, so stay tuned.
For further information on this topic please contact Matthew Tuchband or Kay C Georgi at Arent Fox LLP's Washington DC office by telephone (+1 202 857 6000) or email (firstname.lastname@example.org or email@example.com). Alternatively, contact Marwa M Hassoun at Arent Fox LLP's Los Angeles office by telephone (+1 213 629 7400) or email (firstname.lastname@example.org). The Arent Fox LLP website can be accessed at www.arentfox.com.
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