On January 10, 2020, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) named Beijing-based Pamchel Trading Beijing Co. Ltd., its Seychelles-based affiliate, and a Chinese vessel and vessel operator as Specially Designated Nationals (“SDNs”) pursuant to Executive Order (“E.O.”) 13871 of May 8, 2019, for engaging in significant transactions involving Iran’s metals sectors. OFAC also designated 13 Iranian steel and iron manufacturers, an Oman-based supplier, and three Iranian aluminum and copper companies under E.O. 13871. The announcement signaled an increasingly aggressive posture toward Iran’s metals industry and the foreign firms who engage with it.
Concurrently, the U.S. President issued a new E.O. (E.O. 13902) authorizing sanctions on, among others, persons operating in the construction, mining, manufacturing, or textiles sectors of the Iranian economy; persons who knowingly engage “in a significant transaction for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with” those sectors; and persons who have “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of” any person designated as an SDN under the E.O. or entities owned 50% or more by them. Notably, the E.O. also authorizes sanctions on correspondent and payable-through-accounts of foreign financial institutions that have “knowingly conducted or facilitated any significant financial transaction” involving activities targeted by the E.O.
The sanctions designation authority under the E.O. can apply to any foreign person, no matter where acting, incorporated, or domiciled, that is found to have engaged in sanctionable activity involving those Iranian sectors. The inclusion of the construction, mining, manufacturing, and textile sectors represents a potentially significant increase in the scope of U.S. secondary sanctions and could capture a wide range of Iranian activities that previously were not sanctionable. On January 16, 2020, OFAC issued FAQ 816, clarifying that persons engaged in transactions that could be sanctioned under the new E.O. with respect to Iran’s construction, mining, manufacturing, and textiles sectors have a 90-day period to wind down their transactions to avoid sanctions risk under the E.O.
Lastly, in a more symbolic gesture, OFAC designated eight senior Iranian government and national security officials under E.O. 13876 for their roles in advancing “the regime’s destabilizing objectives.”
The designations and E.O., which follow ballistic missile strikes targeting U.S. bases in Iraq, are intended to deny the Iranian government funds for the country’s “nuclear program, missile development, terrorism and terrorist proxy networks, and malign regional influence,” according to a Treasury Department news release.
Since existing U.S. sanctions have for some time largely precluded U.S. persons from engaging in any business with Iran subject to a few exceptions, these new sanctions designations and E.O. are largely directed at deterring non-U.S. persons from engaging in business with Iran even where there is no U.S. jurisdictional link. Non-U.S. financial institutions and non-U.S. companies are now exposed to more risk under U.S. law for business activities in the newly-identified industrial sectors of Iran. This action also underscores the risks to non-U.S. companies of conducting business with SDNs or entities which are owned 50% or more by SDNs.
In particular, the designation of Chinese and other non-Iranian companies may suggest that secondary sanctions will play a greater role in the latest phase of the U.S.-Iran conflict following the targeted killing of Major General Qasem Soleimani in a U.S. drone strike earlier this month.