Maximum Pressure Squared: President Trump Turns His Iran Sanctions Amplifier Up to Eleven
On Friday, January 10, President Trump issued Executive Order (EO) 13902, which places additional large swaths of the Iranian economy – and those outside Iran who support it – in the crosshairs of US sanctions.
What does the new Executive Order do?
The EO threatens blocking sanctions on any individual or entity that Treasury subsequently determines is operating in or knowingly engaged on or after January 10 in a significant transaction with the construction, mining, manufacturing, or textiles sectors of the Iranian economy. The Secretary of Treasury also can identify additional sectors of the Iranian economy (if there are any left) that will become subject to the same provisions.
The EO further authorizes the prohibition of correspondent accounts for any foreign financial institution determined to have knowingly facilitated a significant financial transaction related to one of the identified sectors. The names of individuals or entities identified in the future for sanctions under the EO will be made public on one of the sanctions lists maintained by 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 EO is targeted on wholly non-US companies in third countries in an attempt to further isolate and economically imperil Iran.
What is meant by the construction, mining, manufacturing, or textiles sectors?
Unfortunately, the overworked and understaffed folks at Treasury (as well as Justice, State, and the National Security Council) appear to have been given too little time by the crush of recent events to roll out this EO with all of the normal bells and whistles needed for the public to digest and implement its provisions.
We expect OFAC will issue FAQs in the near future that will define these critical terms, particularly the possibly gargantuan manufacturing sector. In the meantime, it behooves non-US individuals and entities to reconsider the risks of providing any goods or services to Iran that are consumed in the process of creating consumer or industrial goods.
How do I know if my transactions are “significant” ones?
The exact text of the EO 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 May 8, 2019, EO that sanctioned Iran’s metals sectors, the FAQ issued for that EO 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, among other things, the size, number, frequency, nature, pattern, and impact of the transactions, the level of management awareness, and whether there were attempts to obscure the nature of the transactions to evade sanctions, etc.
In other words, pretty much anything goes. This makes sense, of course, because the Administration’s goal here is to cut off business with Iran and not to provide any level of comfort to those continuing to do business with these sectors.
Is there a wind-down period provided like there was with the metals EO last year?
Unfortunately, no, or at least not yet. One can only hope that the rushed but careful drafting of the EO left no time for considering a wind-down period and that, by the time you are reading this alert, OFAC will have announced a 90-day wind-down period consistent with what OFAC did for the metals sectors EO in May 2019. But there is no guarantee here.
It may be that the Administration seeks to see immediate effects from the current EO, especially given the escalation of tensions with Iran and the unfortunate specter of domestic politics. Even if a wind-down period is not provided, however, OFAC has the flexibility to determine what entities to target, and OFAC is likely to focus on entities clearly continuing or increasing significant business with the Iranian sectors and not those making attempts to terminate that business.
What about agricultural and medical-related business with Iran?
Thankfully, the EO 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 EO, but the same is not necessarily true for related exports to Iran’s manufacturing sector (such as for use in Iran’s manufacture of its own food or medicine) or imports of agricultural or medical commodities or items from Iran.
How likely is it for OFAC to take action under the new EO?
In what could be a warning shot, on the same day the new EO was issued, OFAC took its first significant actions under the May 2019 metals sectors EO, including blocking a few non-Iranian entities. If this is a hint of what’s 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 EO.
Is there anything else worth noting about this EO?
Although this is likely to matter to only very few in the private sector, the EO includes a carve-out for the official business of the United Nations, but it fails to provide a similar carve-out for the official business of the US Government. That is a surprising omission, particularly because last year’s metals EO 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 U.S. government in matters involving Iran should take heed of this detail.
Who knows? Even though it always seems that there is nothing left to sanction with respect to Iran, President Trump’s Iran sanctions amplifier probably goes way past eleven, so stay tuned.