Overview
(i) to be operating in the iron, steel, aluminum, or copper sector of Iran, or to be a person that owns, controls, or operates an entity that is part of the iron, steel, aluminum, or copper sector of Iran;
(ii) to have knowingly engaged, on or after the date of this order, in a significant transaction for the sale, supply, or transfer to Iran of significant goods or services used in connection with the iron, steel, aluminum, or copper sectors of Iran;
(iii) to have knowingly engaged, on or after the date of this order, in a significant transaction for the purchase, acquisition, sale, transport, or marketing of iron, iron products, aluminum, aluminum products, steel, steel products, copper, or copper products from Iran;
(iv) to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of any person whose property and interests in property are blocked pursuant to this section; or
(v) to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to this section.
These authorities capture virtually the entire metals sector in Iran, along with its customers and business partners abroad. The EO also authorizes restrictions on access to the US financial system for foreign financial institutions determined to have, on or after May 8, 2019, knowingly conducted or facilitated a significant financial transaction:(i) for the sale, supply, or transfer to Iran of significant goods or services used in connection with the iron, steel, aluminum, or copper sectors of Iran;
(ii) for the purchase, acquisition, sale, transport, or marketing of iron, iron products, aluminum, aluminum products, steel, steel products, copper, or copper products from Iran; or
(iii) for or on behalf of any person whose property and interests in property are blocked pursuant to this order.
OFAC’s guidance on what makes a transaction “significant” is quite broad and leaves considerable discretion with the agency:. . . the Department of the Treasury may consider the totality of the facts and circumstances . . . including: (a) the size, number, and frequency of the transactions . . .; (b) the nature of the transactions . . . , including their type, complexity, and commercial purpose; (c) the level of awareness of management and whether the transactions are part of a pattern of conduct; (d) the nexus of the transactions. . . and blocked persons [e.g., SDNs]; (e) the impact of the transactions . . . on statutory objectives; (f) whether the transactions . . . involve deceptive practices; (g) whether the transactions solely involve the passive holdings of Central Bank of Iran (CBI) reserves or repayment by the CBI of official development assistance or the transfer of funds required as a condition of Iran’s membership in an international financial institution; and (h) other relevant factors that the Secretary of the Treasury deems relevant. . . .
While these sanctions are very broad, they only target activity conducted on or after May 8, 2019. Furthermore, OFAC’s Frequently Asked Questions (FAQs) clarify that there is a 90-day wind-down period that allows for the completion of pre-existing contracts, but that is not a carte blanche and companies still need to be cautious to avoid any new business:Persons engaged in transactions that could be sanctioned under the Executive Order Imposing Sanctions with Respect to the Iron, Steel, Aluminum, and Copper Sectors of Iran of May 8, 2019 will have a 90-day period to wind down those transactions without exposure to sanctions under the E.O. of May 8, 2019. Those persons should take the necessary steps to wind down transactions by the end of the 90-day wind-down period to avoid exposure to sanctions. Entering into new business that would be sanctionable under the E.O. of May 8, 2019 (the effective date of the E.O.) will not be considered wind-down activity and could be sanctioned even during the wind-down period.
This new EO is considerably broader than the pre-existing sanctions on Iran’s industrial metals sector, which have applied since US secondary sanctions on Iran came back into effect last year. Most notably, Section 1245 of the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA) provides for sanctions on a person determined to knowingly sell, supply, or transfer, directly or indirectly, to or from Iran, “raw or semi-finished metals” and software for integrating industrial processes, among other things. However, these IFCA sanctions only applied under certain conditions, such as if the material is to be used in connection with the energy, shipping, or shipbuilding sectors of Iran, or for military/nuclear purposes, or supplied to an SDN. Furthermore, there was an exception for persons exercising due diligence to avoid such sanctionable transactions. The new EO does not contain these limitations or a due diligence exception. Therefore, this new EO appears to be a significant expansion of the scope of these pre-existing IFCA sanctions. Moreover, the issuance of this new EO and the accompanying statements indicate that the metals sector is now a focus of US sanctions enforcement, as a major source of Iran’s hard currency export earnings.
