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The U.S.'s Latest Proposed Iranian Sanction Legislation: What Does It Really Mean?

Proposed legislation is currently pending in Congress which, if signed into law, will amend and expand the Iran Sanctions Act of 1996, and impose sanctions on domestic and foreign individuals and companies aiding Iran in developing petroleum resources and products. The Comprehensive Iran Sanctions, Accountability and Divestment Act (S.2799) was passed by the Senate on January 28, 2010 and will now be referred to a committee in the House of Representatives before the full House will vote on the Bill. The Iran Refined Petroleum Sanctions Act (H.R. 2194), a companion bill that was passed in the House of Representatives in December 2009, has now been referred to the Senate Committee on Banking, Housing and Urban Affairs. The House and the Senate must now vote on the proposed bills previously passed in the other chamber of the U.S. Congress. Thereafter, the similar (but not identical) bills must be reconciled and passed by both in identical form before the uniform bill is presented to President Obama to be signed into law. Similar bills, which were introduced in previous sessions of Congress, have never made it beyond the committee stage.

The Iran Sanctions Act (originally the "Iran and Libya Sanctions Act of 1996") was first passed by Congress in 1996, and provided for the imposition of financial sanctions on persons who, with actual knowledge, made an investment of $40,000,000 or more that "directly and significantly contributed to the enhancement of Iran's ability to develop petroleum resources of Iran." That Act provided for such sanctions to include prohibitions on export-important bank assistance for exports to any sanctioned person; prohibitions on obtaining licensing or authority to export goods or technology by any sanctioned person; and prohibitions on obtaining loans totaling more than $10,000,000 from United States financial institutions. The Act set forth additional prohibitions to be imposed against a sanctioned financial institution.

The two (2) pending versions of the latest proposed legislation, although not identical, each provide for similar amendments to be made to the Iran Sanctions Act. Each bill sanctions individuals or companies that have knowingly made investments of only $20,000,000 or more that "directly and significantly contributes" to the enhancement of Iran's ability to develop petroleum resources. While the Senate bill requires "actual knowledge" of the sanctionable conduct, the House Bill defines "knowingly" more broadly to include both actual knowledge and "constructive knowledge deemed to be possessed by a reasonable individual who acts under similar circumstances."

In addition, each of the proposed bills provide for financial sanctions against individuals who "knowingly" sell, lease or provide to Iran any goods, services, technology, information or support worth USD 200,000 or more which would allow Iran to maintain/expand its domestic production of refined petroleum products. The Senate bill also targets goods/services/information having an aggregate fair market value of $1,000,000 or more during a 12-month period, while the House Bill seeks to sanction activities exceeding $500,000 in any 12-month period. The proposed bills would also apply to any individual or company underwriting or otherwise providing insurance or reinsurance for such goods, services, etc.; who finances or brokers the sale, lease or provision of such goods or services; provides ships or shipping services to deliver refined petroleum products to Iran. The House bill specifically expands the definition of "person" to include any "financial institution, insurer underwriter, guarantor, any other business organization, including any foreign subsidiary, parent or affiliate of such a business organization." The definitions of petroleum products and resources are also expanded by the bills to include petroleum, refined petroleum products, oil or liquefied natural gas, natural gas resources, oil or liquefied natural gas tankers, and products used to construct or maintain pipelines used to transport oil or compressed or liquefied natural gas. Finally, the Senate Bill prohibits the importing of any article of Iranian origin into the United States, as well as the export of any article of U.S. origin directly or indirectly to Iran.

Although many in the shipping and marine insurance industry have expressed concern over the potential effects of the proposed U.S. legislation, there is a good deal of fear revolving around potential criminal penalties for those who run afoul of the legislation. Such fears appear to be unsupported, as neither version of the proposed legislation provides for any criminal penalties. Rather, the sanctions that could be imposed include prohibition of any transactions in foreign exchange by the sanctioned person; prohibition of any banking transactions involving any interest of the sanctioned person; and prohibition of any person from entering into any transactions with respect to any property in which the sanctioned person has an interest. Both versions of the proposed legislation allow the President to waive the imposition of sanctions if exercising such waiver authority is "vital" or "necessary" to the national interest of the United States upon consideration of the significance of the person's conduct in contributing to Iran's ability to, inter alia, develop its petroleum resources, produce refined petroleum products, import refined petroleum products and/or to acquire or develop weapons of mass destruction.

If ultimately signed into law, the House bill provides for the sanctions to apply retroactively to any person engaged in the prohibited activity on or after October 28, 2009. The Senate bill would apply prospectively only. The legislation will remain in effect through 2016.

Read a copy of HR.2194 - Iran Refined Petroleum Sanctions Act of 2009

Read a copy of S.2799 - Comprehensive Iran Sanctions Accountability and Divestment Act

For more information, please do not hesitate to contact Chalos & Co, P.C. at info@chaloslaw.com

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