Following up on the previous post, companies seeking to do business in Iran following “Implementation Day” under the JCPOA will need to consider the impact of sanctions that will remain in place, including sanctions against Iran’s Revolutionary Guard Corps (IRGC).  Non-US persons could face sanctions for doing business with the IRGC, which the US Government has described as “Iran’s most powerful economic actor.”

It will be important for companies to consider two factors with regard to the IRGC:

• Need for due diligence. The IRGC will remain subject to sanctions, and as noted above and in the previous post, controls vast swathes of the Iranian economy.  Significantly, non-US persons are subject to sanctions only if they deal with designated IRGC affiliates, and OFAC has made several designations to date.  But companies may want to conduct due diligence to identify potential IRGC involvement with Iranian counterparties.  It is possible that going forward, OFAC will be more vigorous in identifying IRGC affiliates, and companies should prepare for this contingency.
• Legislative/policy developments. Companies should pay close attention to congressional initiatives targeting the IRGC, which are beginning to take shape on Capitol Hill.  Emanuele Ottolenghi recently suggested several possible measures during his testimony before the House Committee on Foreign Affairs, and his proposals seem to have attracted attention from legislators.  His testimony included proposals to:
  • Pass legislation requiring the State Department to designate the IRGC as a Foreign Terrorist Organization (FTO).  Persons that provide material support to FTOs are subject to criminal prosecution under 18 U.S.C. § 2339B—section 303 of the Antiterrorism and Effective Death Penalty Act (AEDPA), as amended—which purports to apply extraterritorially to all persons worldwide.  The extraterritoriality provision is controversial and has been subject to due process challenges, but at least one federal court has upheld the provision.
  • Use future trade agreements to limit the IRGC’s ability to operate in Europe.
  • Significantly increase the number of designations of IRGC affiliates. There is a decent likelihood that OFAC will pursue this course in order to provide clarity, even without legislative action, although this remains to be seen.
  • Require OFAC to lower the ownership threshold for designation as an IRGC-owned entity from 50% to 20%.
  • Require OFAC to create an “IRGC Watch List”. The list would include companies that “that do not reach the threshold for designation but have IRGC involvement,” and would serve as an aid to companies doing business in Iran.
  • Encourage companies to demand an exclusion clause for ending commercial activities with designated or suspected IRGC entities. Through such a clause, companies would require their counterparties to certify that they are not owned or controlled by the IRGC.  Furthermore, Congress could explore means to protect companies that nullify a contract upon discovery that a counterparty is IRGC-affiliated.

The proposal to designate the IRGC as an FTO is especially notable, given the potential extraterritoriality of the AEDPA and the murkiness of what constitutes “material support.”  Senator Ted Cruz recently introduced a bill that would require the State Department to make the designation, and this is an issue to follow closely.

The JCPOA offers the promise of an historic engagement with Iran and entry into Iranian market for non-US companies, but significant challenges will remain in place.  In subsequent posts, we will explore other challenges related to doing business with Iran.