August 16, 2012 –
Tighter restrictions in place on indirect dealings with Iran

On Friday, August 10, President Barack Obama signed the Iran Threat Reduction and Syria Human Rights Act of 2012 (the “Act”), which significantly expands existing Iran sanctions.

Most notably, the Act places tighter restrictions on U.S. companies that indirectly transact business with Iran through foreign subsidiaries and adds disclosure obligations on public companies that violate Iran sanctions.

Section 218 of the Act expands the reach of sanctioned activity under the International Emergency Economic Powers Act (“IEEPA”), as it directs the president to prohibit foreign subsidiaries of U.S. companies 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 under the IEEPA if the transaction were conducted by a U.S. person or in the United States.”

The language of the Act makes the Iran sanctions similar to those in place with respect to Cuba, where foreign subsidiaries are prohibited from engaging in prohibited transactions with Cuba.

The Act allows for the imposition of civil penalties on U.S. parent companies if their foreign subsidiaries enter into a transaction prohibited under the Act.

However, the Act provides a safe harbor by allowing U.S. parent companies to escape liability if they divest or terminate their business with the foreign subsidiary within 180 days of enactment (i.e., February 6, 2013).

Consequently, all U.S. companies, corporations, partnerships, etc. engaged in international trade should review their organizational structure and determine if any of their foreign affiliates may be involved in prohibited activities.

The Act also amends section 13 of the Securities Exchange Act of 1934 (the “Exchange Act”) to require an issuer that knowingly engaged in a prohibited transaction involving blocked persons (e.g., terrorist organization or the government of Iran), the proliferation of weapons of mass destruction, or substantial involvement in the Iranian petroleum industry, to disclose such violation in its quarterly and annual reports.

The disclosure will require a detailed description of the type and extent of the activity, the gross revenues and net profits from the activity, and whether the company or any of its affiliates intends to continue the activity. In addition to the disclosure required in the issuer’s annual and quarterly reports, the same information must be submitted to the Securities and Exchange Commission (“SEC”) in a separate report which the SEC is required to forward to the president and Congress and to post on its website.