U.S. Expands Secondary Sanctions to Iran’s Industrial Sectors

On January 10, 2020, the United States imposed additional sanctions on Iran in the wake of recent tensions between the countries and the continuing broader “maximum pressure” campaign on Iran. Specifically, President Trump signed Executive Order 13902 (E.O. 13902) authorizing the imposition of secondary sanctions on certain transactions involving Iran’s construction, mining, manufacturing, and textiles industries. This follows Executive Order 13871 from May 2019, which authorized secondary sanctions on Iran’s iron, steel, aluminum and copper sectors. Concurrently with the issuance of E.O. 13902, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) added to the Specially Designated Nationals and Blocked Persons List (SDN List) several major Iran-related metal and mining companies, Chinese and Seychelles entities plus a related vessel involved in the Iranian metals trade, and Iranian regime officials.

New Secondary Sanctions
E.O. 13902 also authorizes the U.S. Secretary of the Treasury to impose secondary sanctions against non-U.S. persons operating in targeted sectors of the Iranian economy. Specifically, it authorizes sanctions on persons that:

• Operate in the construction, mining, manufacturing, or textile sectors of the Iranian economy, or any other to-be-determined sector of the Iranian economy; or
• Knowingly engaged, on or after the date of E.O. 13902, in a significant transaction for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with one of these sectors of the Iranian economy or other sector specified pursuant to E.O. 13902.

Additionally, commercial activity with persons designated under the E.O. and companies they own or control can also expose non-U.S. persons to secondary sanctions. E.O. 13902 provides an exception for any person conducting or facilitating a transaction for the provision (including any sale) of agricultural commodities, food, medicine, or medical devices to Iran.

Separately, E.O. 13902 authorizes the Treasury Secretary to prohibit the opening or maintaining correspondent or payable-through accounts in the United States for non-U.S. financial institutions that knowingly conduct or facilitate any “significant financial transaction”:

• For the sale, supply, or transfer to or from Iran of significant goods or services used in connection with a sector of the Iranian economy specified in or determined pursuant to E.O. 13902; or
• For or on behalf of any person blocked pursuant to E.O. 13902.

The U.S. Government determines whether a transaction is “significant” on a case-by-case basis, considering a number of factors, as described in OFAC FAQ 671.

OFAC announced that there will be a 90-day wind down period until April 9, 2020 for E.O. 13902. (See FAQ 816.) Non-U.S. persons taking steps to wind down existing transactions relating to Iran’s construction, mining, manufacturing, or textile sectors will not face exposure to secondary sanctions during that period, although any new business may be immediately subject to secondary sanctions enforcement.

Impact on Non-U.S. Companies and Banks
Together, E.O. 13902, along with existing secondary sanctions on the Iranian energy sector and E.O. 13781 which applies to the Iranian metals sector, cover over a third of the Iranian economy according to the CIA World Fact Book. The secondary sanctions that can apply to transactions with the Iranian Revolutionary Guards Corps (IRGC), related groups and their broad commercial network in Iran also create secondary sanctions risk for additional parts of the economy.

As a result, non-U.S. financial institutions engaging in banking activity in Iran or with Iranian banks face increased risk of U.S. secondary sanctions and loss of access to the U.S. banking system. There are now substantially fewer areas of the Iranian economy that are not subject to U.S. secondary sanctions.

New Additions to the SDN List
On January 10, 2020, OFAC imposed secondary sanctions pursuant to E.O. 13871, adding to the SDN List a network of three China- and Seychelles-based entities (Pamchel Trading Beijing Co. Ltd., Power Anchor Limited, and Hongyuan Marine Co. Ltd.) and a vessel. The companies were designated as foreign purchasers and transporters of Iranian steel and providers of critical materials needed for Iranian metal production. Hongyuan Marine is the registered owner and ship management/commercial manager of the vessel designated for use to transport Iranian steel slabs.

OFAC also designated 16 Iranian steel, aluminum, copper and iron manufacturers in Iran, plus an affiliated company in Oman. These include a number of large producers that collectively generate billions of dollars annually according to the Treasury Department press release.

Finally, OFAC added to the SDN List eight senior Iranian regime officials “who have advanced the regime’s destabilizing objectives,” including the Secretary of Iran’s Supreme National Security Council, the Deputy Chief of Staff of Iranian armed forces, and the head of the Basij militia of the Islamic Revolutionary Guards Corps pursuant to E.O. 13876.

A full list of the newly designated entities is available here.