The United States Further Expands Sanctions Against Iran

On August 10, 2012, President Barack Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012 (the "Act").1 While the Act contains a section imposing sanctions in response to human rights abuses committed against Syrian citizens, its primary focus is on strengthening and expanding an already extensive U.S. sanctions program against Iran. This Commentary highlights three key areas where the Act has substantially altered the landscape of U.S. sanctions related to Iran.

U.S. Parent Companies Liable for Violations of Sanctions by Foreign Subsidiaries

Arguably, the Act's most significant expansion of sanctions against Iran is the inclusion of activities by non-U.S. subsidiaries of U.S. parent companies within the scope of certain sanctions that have been previously imposed against Iran by the United States. The Iranian Transactions Regulations ("ITR"), 31 C.F.R. Part 560, promulgated under the authority of the International Emergency Economic Powers Act ("IEEPA") and administered by the Department of the Treasury's Office of Foreign Assets Control ("OFAC"), have historically prohibited U.S. persons from engaging in most transactions involving Iran. Prior to the Act, the broad prohibitions contained in the ITR generally applied only to "United States persons," defined in the ITR as "any United States citizen, permanent resident alien, entity organized under the laws of the United States (including foreign branches), or any person in the United States." 31 C.F.R. § 560.314.2 Thus, transactions by foreign-incorporated subsidiaries of U.S. parent companies have generally been outside the scope of the ITR, absent any involvement of a United States person. The Act, however, purports to broaden the scope of the ITR by requiring the President to prohibit activities by foreign-incorporated subsidiaries of U.S. parent companies, as well as other types of entities owned or controlled by the U.S. parent company or by "United States persons" in general. Specifically, the Act provides: Not later than 60 days after the date of the enactment of this Act, the President shall prohibit an entity owned or controlled by a United States person and established or maintained outside the United States from knowingly engaging in any transaction directly or indirectly with the Government of Iran or any person subject to the jurisdiction of the Government of Iran that would be prohibited by an order or regulation issued pursuant to the...