Tough US Sanctions on Iran Hit Monday

Sanctions on Iran by the U.S. signed into law in January, and implemented and expanded via executive order in early Junecome into effect on Monday.

The sanctions affect a vast array of interests engaging the Iranian economy, just weeks after a presidential election in the Persian Gulf country. Senior Obama administration officials said earlier this month the expanded authority will capture a significantly larger number of potential people and companies.

“These actions demonstrate that the U.S. is continuing to constrict the Iranian economy and will flex its extraterritorial muscles to do so,” said a recent client alert from Norton Rose Fulbright. “A growing number of international actors should be concerned about their potential exposure under the Iran sanctions.”

The law, signed in January as part of the annual national defense authorization act, targets the Iranian energy, shipping and shipbuilding sectors, barring the sale, supply or transfer of “significant” goods or services by non-U.S. companies. (A list of what constitutes the banned goods and services is here.)

They’re retaliatory measures against foreign companies that carry the threat of being designated for sanctions by the U.S. Treasury Department, said Richard Matheny, a partner at Goodwin Procter.

“It can be an existential [threat] to be listed as a specially designated national,” Mr. Matheny said in an interview. “Effectively everyone stops doing business with you.”

The legislation also restricts trade with Iran in precious metals, graphite, aluminum and steel, metallurgical coal and software for integrating industrial processes.

But the executive order goes even further than that.

It targets the Iranian rial, giving the U.S. the power to place sanctions on foreign financial institutions conducting “significant” transactions involving the currency. The goal, senior administration officials said in June, was to make the rial useless outside of Iran.

Individuals or foreign financial institutions found providing material support to anyone already under sanctions against Iran are themselves subject to sanctions, the order says.

“This will expand greatly the extraterritorial application of sanctions to transactions with Iranian government-owned entities,” said Jonathan Epstein, a partner with Holland & Knight, in a client alert earlier in June.

The order authorizes sanctions against those who sell, supply or transfer to Iran goods or services that aid in making light and heavy vehicles such as passenger cars, trucks, buses, minibuses, pick-up trucks and motorcycles. The sanctions focused on the auto sector also target foreign financial institutions.

There is no general exception for payments, sales, deliveries or transfers arising out of contracts entered into prior to Monday, Treasury said in a frequently-asked-question document.

“Global companies should take immediate steps to ensure compliance,” said a client alert issued Thursday by Gibson Dunn.