Today the president signed a new Executive Order (E.O.) announcing expanded primary and secondary sanctions on Iran, focused on the construction, mining, manufacturing, and textile industries. OFAC also sanctioned a significant segment of the Iranian metals industry today, targeting the largest iron, steel, aluminum, and copper producers in Iran under an existing sanctions authority focused on the metals industry. The actions are the latest move by the United States to expand sanctions on Iran and present new risks for global companies that conduct business in the metals, construction, mining, manufacturing, and textile industries in Iran, particularly given heightened tensions between Iran and the United States.
First, the new E.O. authorizes the Office of Foreign Assets Control (OFAC) to designate as an Specially Designated National (SDN) any person that operates in the construction, mining, manufacturing, or textiles sectors of the Iranian economy. The E.O. also authorizes OFAC to sanction any person – including those outside of Iran – that that engages in a transaction for the sale, supply, or transfer of significant goods or services to or from Iran used in connection with the Iranian construction, mining, manufacturing, or textile industries. In other words, non-U.S. companies that engage in significant transactions related to these sectors of the Iranian economy are at risk of being sanctioned by the United States. U.S. persons, including other companies and U.S. banks, cannot do business with SDN’s. Moreover, many global banks will not do business with SDN’s, even if U.S. sanctions jurisdiction does not apply to the particular transaction. When a person or entity is designated as an SDN, bank accounts and other assets in the U.S. are blocked – essentially frozen.
Section 2 of the E.O. authorizes correspondent account and payable-through account restrictions on non-U.S. financial institutions that process or facilitate significant transactions related to these sectors. The E.O. also allows OFAC to expand the list of industries subject to sanctions under the E.O.
Second, OFAC designated the 13 largest steel and iron manufactures in Iran and the largest copper and aluminum manufacturers in Iran as SDNs today, a major step in imposing sanctions on the metals sector in Iran. Under E.O. 13871, non-U.S. companies that conduct significant transactions with any of these new SDNs could be subject to sanctions from OFAC.
Today OFAC also sanctioned two Chinese entities for engaging in significant transactions related to the Iranian metals industry, including the purchase of substantial quantities of steel from Iran, the sale of carbon blocks, cathode blocks, and graphite electrodes to Iran for use in metals production, and the facilitation of sales of Iranian-origin copper to a customer in China. The designation of the Chinese entities is an example of OFAC’s authority to sanction non-U.S. firms that conduct significant business involving Iran.
Please contact us with any questions on these developments.