International Law Advisory - Treasury Designates Shipping Companies and Vessels for Supporting the Proliferation of WMD

The Department of the Treasury, Office of Foreign Assets Control (“OFAC”), recently published in the Federal Register a notice designating several shipping companies and vessels under Executive Order 13382. See 74 Fed. Reg. 8 at 1763-1768 (January 13, 2009).

Executive Order 13382, issued in 2005, permits the Treasury Department to block the property of weapons of mass destruction proliferators and their supporters.  The Treasury Department’s recent designation includes several shipping companies and related vessels determined to be linked to the proliferation of weapons of mass destruction. It freezes any assets of the designees that are in the possession of U.S. persons or subject to U.S. jurisdiction and prohibits virtually all transactions between designees and any U.S. persons, including (i) the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any designated entity or person; and (ii) the receipt of any contribution, funds, goods, services, etc. from designated entities or persons.  While it appears that many of the shipping companies named have links to Iran, many of the companies listed are located in countries with which the United States maintains normal trading relations.  Moreover, all of the vessels designated are owned by the Islamic Republic of Iran Shipping Lines (IRISL), but many operate under the flags of countries friendly to the United States.

When Iranian entities are included among designees under the Executive Order, as they are in the recent notice, the Executive Order has the effect of adding a “blocking” provision to the Iranian Transactions Regulations (31 C.F.R. Part 560), which already impose comprehensive restrictions on U.S. companies and persons doing any business in or with Iran. This means that while the designations do not materially change the compliance posture for U.S. parties, they do require that if parties come into possession of property in which these designated entities have an interest, the acquisition of such property must be reported to OFAC, and the property generally cannot be dealt with further without specific OFAC authorization.

The recent designations underscore that screening all parties to a transaction - including shipping companies, freight forwarders, and vessels, even if located in friendly third countries - is a prudent practice to avoid accidental infractions arising from the use of transportation service providers. 

We will continue to keep you apprised of sanctions and export control developments. If you have any questions regarding today’s notice or any related topic, please contact Ed Krauland at 202-429-8083 or ekrauland@steptoe.com or Meredith Rathbone at 202-429-6437 or mrathbone@steptoe.com in our Washington, DC office.