This time last year there was a debate in Washington about how severe a new round of sanctions sanctions targeting Iran should be. Led by the efforts of Sens. Mark Kirk and Robert Mendenez, this debate culminated in the passing of section 1245 of the National Defense Appropriations and Authorization Act (“NDAA”). The sanctions imposed by the NDAA were fairly devastating and blocked all Iranian financial institutions, including the Central Bank of Iran. Spurred, in part, by the passing of Section 1245, the value of Iran’s currency, the Rial, began to drop and since the passing of the NDAA has reportedly dropped nearly 70%. Now it is approximately one year later and a new round of sanctions legislation targeting Iran is being offered. Once again, Senator Kirk is one of the leading proponents of the new sanctions. Below is a short summary of what this next round of sanctions might include:

1. Targeting of Financial Services Providers: This new round of sanctions would allow the President to impose sanctions against financial service providers such as SWIFT and Clearstream if they continue to provide services to Iranian financial institutions, and their directors and officers. Moreover, the new sanctions measures would require services providers such as those mentioned above to disclose to the United States Department of the Treasury what Iranian assets are under their management and what services are being offered to clients holding Iranian assets.

2. Expansion of CISADA: The provisions of the Comprehensive Iran Sanctions Accountability, and Divestment Act of 2010 (“CISADA”) would be expanded to include all Iranian financial institutions, not just those blocked pursuant to Executive Orders 13224 (Terrorism) and 13382 (Proliferation of Weapons of Mass Destruction). This would mean that the U.S. could cut off the correspondent banking relationships with the U.S. financial system of any foreign financial institutions who maintain correspondent banking relationships with any Iranian financial institution. It would also require international financial institutions that maintain correspondent accounts in the United States to biannually disclose to the Treasury Department its dealings with Iranian financial institutions. Such disclosures would have to be published publicly on Treasury’s website within 72 hours of being received.

3. Targeting Iran’s Energy Sector: Sanctions would be imposed on any entities conducting business with Iranian entities involved in the development of Iranian production, extraction, transportation or financing of petroleum, refined petroleum products, natural gas, or petrochemical products. This includes those who provide goods, services, and technology to such entities. Moreover, Iran would be designated as a “Zone of Proliferation Concern.”

4. “Zone of Electronic Repression”:New sanctions measures would also label Iran as a “Zone of Electronic Repression”. This would have the effect of imposing sanctions on any entities conducting business with Iranian entities involved in the development, manufacturing, provision, maintenance, repair, installation, construction, supply or transportation of telecommunications or other technology. This includes those who provide goods, services, and technology to such entities. However, those licensed to conduct such business by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), would be exempted from this provision.

5. Technical Revision: This new legislation also seeks to correct a misinterpretation by the Obama administration that the President could waive sanctions for countries reducing their imports of Iranian crude oil, so not to impact those countries’ financial institutions involvement in any type of transaction with Iran, whether that transaction was related to oil or not. The section of the NDAA which led to this misinterpretation would be revised to make it clear that such waiver could only apply for oil related transactions.

There are a number of other provisions contained in the proposed legislation that target the insurance sector, as well as divestment by state and local governments. However, for purposes of this article, the above mentioned provisions serve as the bulk of the forthcoming Iran sanctions. It appears that Congress has taken a liking to the use of the term “zones” and is now attempting to expand the secondary boycotting provisions of CISADA, and the Iran Sanctions Act to all of Iran, for a large range of activities, and a larger range of entities. This could have a very sharp impact on the willingness of international firms to carry out any business with any Iranian entities. In short, if Senator Kirk gets his way Iran will be come a “Zone of Non-Business Operation”.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.