• New Iran Sanctions Legislation Would Target Mining and Construction Sectors
  • January 13, 2014
  • Law Firm: Holland Hart LLP - Denver Office
  • 2014 may prove to be a landmark year for diplomacy with Iran. Negotiators appear to be putting the final technical touches on the framework agreement reached between Iran and the "P5+1"1 in November that would require Iran to take a number of steps with respect to its nuclear program, in exchange for some relief from Western sanctions.2 It is widely expected that the agreement will come into effect in late January, potentially beginning a new period of increased engagement and eased sanctions, if there is meaningful implementation.

    Despite this progress—or perhaps as a result of it—new sanctions legislation was introduced in the U.S. Senate in late December. Among other provisions, section 103 of the Nuclear Weapon Free Iran Act of 20133 would specifically add the mining, construction, and engineering sectors to the list of strategic Iranian economic sectors previously established for sanctions targeting by the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA).4 The legislation contains a provision that would delay its implementation by at least a year in order to allow for continued diplomatic engagement, although that delay could be altered if Iran violates its commitments or the diplomatic process along the way.

    If passed (as discussed below, this is a bigger "if" than usual) and implemented by the Administration in the same manner as the sanctions on other sectors identified by IFCA, then any company providing "significant goods or services" in support of that sector would find itself potentially eligible for a range of "secondary sanctions," usually issued by the State Department.

    "Secondary sanctions" are measures focused primarily on non-U.S. businesses5 that are not themselves engaged in any unlawful activities or subject to U.S. jurisdiction.6 A company identified as subject to these sanctions can be restricted from accessing the U.S. financial system or receiving investment from any U.S. person, prevented from exporting to the United States, or be subject to a range of other measures.7

    When a sector is targeted in this manner, companies engaged in these areas need to consider the potential impact of these sanctions when evaluating continuing existing operations in Iran or taking on any new business in Iran or with Iranian entities. In many cases, companies involved in these sectors will choose to suspend activities, or wind down entirely.

    It is not clear that this legislation will actually pass. Progress on the diplomatic front has resulted in the Obama Administration, a number of leading Senate Democrats, and outside experts to push back on the effort, arguing that new sanctions jeopardize these international efforts and would violate the spirit, if not the letter, of the agreement.8 As of this writing, there are 48 co-sponsors, a low number when compared with the number of co-sponsors seen with previous Iran legislation. The coming weeks of concluding negotiations and initial implementation of the agreement should determine the bill's fate.

    Even if this bill does not move forward, the draft text will almost certainly provide fodder for Iran-related legislation that might be introduced in the future. Companies should begin reviewing their activities and relationships now to be prepared if mining should become a focus of secondary sanctions.

    1The "P5+1" refers to the five permanent members of the United Nations Security Council, United States, China, Russia, France, and the United Kingdom, plus Germany.
    2See, e.g., http://www.reuters.com/article/2013/12/31/us-iran-nuclear-idUSBRE9BU07E20131231.
    3The text of this legislation, which may also be referred to as S. 1881, may be found at http://beta.congress.gov/bill/113th/senate-bill/1881/text?q={"search":["iran"]}.
    4The IFCA text is available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/pl112&under;239.pdf.
    5For purposes of Iran sanctions, foreign subsidiaries of U.S. companies are subject to the same sanctions as the U.S. parent.
    6In contrast, "primary sanctions" are aimed at Iran, Iranian companies, or their surrogates. Although U.S. companies are potentially subject to secondary sanctions as well, the nature and extent of primary sanctions on Iran that are already applicable to U.S. companies and their foreign subsidiaries are such that, as a practical matter, few U.S. companies would be involved in activities in Iran that would bring them within the scope of secondary sanctions.
    7As set forth in section 1244(d) of IFCA, this would require the imposition of at least five of the sanctions set forth in section 6(a) of the Iran Sanctions Act of 1996 (Pub. L. 104-172). The text of the Iran Sanctions Act of 1996 may be found at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/isa&under;1996.pdf/.
    8This concern was borne out in mid-December, when the Iranian government walked away from technical negotiations reportedly to protest the U.S. government's naming of a number of Iranian entities to the Treasury Department's Specially Designated Nationals List. See, e.g., http://www.reuters.com/article/2013/12/13/us-iran-nuclear-sanctions-idUSBRE9BC0CY20131213.