U.S. Targets Additional Iranian Sectors for Sanctions: Broadly Increasing Exposure for Non-U.S. Companies

With new Iran-related sanctions, the U.S. government is making good on threats to give third-country companies a choice – participate in the U.S. market or participate in the Iranian market.

In the wake of the recent United States’ air strike that killed Iranian military leader, Maj. Gen. Qassem Soleimani, and Iran’s retaliatory firing of ballistic missiles at Iraqi military bases housing U.S. troops, the President issued on January 10, 2020 Executive Order 13902, “Imposing Sanctions with Respect to Additional Sectors of Iran” (“E.O. 13902”), targeting persons operating in Iran’s construction, mining, manufacturing and textiles sectors, as well as authorizing the Treasury Department to designate any other sector of the Iranian economy for the imposition of sanctions. E.O. 13902 authorizes the imposition of secondary sanctions on non-Iranian, non-U.S. companies that engage in certain significant transactions relating to any of the designated sectors or materially assist or provide support to persons blocked under E.O. 13902.

Secondary sanctions authorized by E.O. 13902 include blocking sanctions, which block or freeze all property of the sanctioned party in the United States or within the possession or control of U.S. persons, and generally forbid U.S. persons to engage in transactions that directly or indirectly involve such party. Thus, blocking sanctions cut sanctioned parties off from the U.S. market. E.O. 13902 also authorizes financial institution sanctions that restrict U.S. banks’ discretion to administer correspondent and payable-through accounts for sanctioned third-country financial institutions. It does not apply to the provision of agricultural commodities, food, medicine or medical devices to Iran.

The Treasury Department’s Office of Foreign Assets Control (“OFAC”) also imposed blocking sanctions on Iran’s largest steel, aluminum, copper and iron manufacturers, several Chinese and Seychelles-based trading companies and one vessel. Additionally, OFAC imposed blocking sanctions on several senior Iranian government officials due to their relationships with Iran’s Supreme Leader.

Given that U.S. persons generally remain forbidden to deal with anyone in Iran – including newly blocked persons – E.O. 13902 and the new blocking designations are expected mainly to affect non-U.S. persons’ risk under U.S. secondary sanctions measures. As described in our prior alert, since the United States’ withdrawal from the Iran nuclear deal, the Joint Comprehensive Plan of Action, the U.S. government has already targeted the finance and banking, energy, petrochemicals, automotive, shipbuilding, shipping, port operations and precious and other metals sectors of the Iranian economy. By expanding the list of sectors of the Iranian economy subject to U.S. sanctions, E.O. 13902 leaves little room for non-U.S. companies to conduct business with or in Iran without exposing themselves to the risk of U.S. secondary sanctions.

The Treasury Department’s press release announcing the new sanctions is available here.