Don’t look now but combing through SEC filings is about to get a lot more interesting. Under section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRSHRA), all firms which are required to file an annual or quarterly report with the Securities and Exchange Commission (SEC) must include an accounting of their Iran-related activities which fall under the following statutes:

• Section 5(a) or (b) of the Iran Sanctions Act of 1996
• Section 104(c)(2) or (d)(1) of the Comprehensive Iran Sanctions Divestment and Accountability Act of 2010 (CISADA)
• Section 105A(b)(2) of CISADA

Filers are also required to disclose any transactions or dealings with individuals or entities:

• Designated pursuant to Executive Order 13224 (Terrorism)
• Designated pursuant to Executive Order 13382 (Proliferation of Weapons of Mass Destruction)
• Designated as Government of Iran under 31 CFR 560.304, unless the transaction was specifically authorized by a Federal department or agency

This last point is important in that transactions with entities designated as Government of Iran, which includes most of Iran’s major banks, must still be reported if conducted pursuant to a general, rather than a specific license. Following OFAC’s revisions to the Iranian Transactions and Sanctions Regulations of October 22, 2012, this also includes transactions for exports of food and medicine, as well as payments for these goods.

Although the law did not come into effect until February 6, 2013, two firms had already reported their Iran-related activities in their SEC filings.

On January 31, Schlumberger N.V., which describes itself as the “world’s leading supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry,” disclosed a number of activities covered by the ITRSHRA reporting requirements. These include the provision of oilfield services by a non-U.S. subsidiary to the National Iranian Oil Company (NIOC), which netted the firm $208 million in profit. Payments for these services were processed through a variety of designated Iranian financial institutions including Bank Melli, Bank Saderat, and Bank Tejarat. Schlumberger also reported that a grand jury investigation by U.S. law enforcement authorities into its business ties with sanctioned countries is still ongoing. In addition, one week earlier, the Swiss pharmaceutical giant Novartis AG disclosed that its Alcon subsidiary had received a grand jury subpoena out of the Northern District of Texas related to dealings with sanctioned countries, including Iran. Novartis also reported Iran dealings pursuant to the ITRSHRA reporting requirements.

The ITRSHRA also mandates that once disclosures are made, the President is required to initiate an investigation into potential violations and within 180 days issue a determination as to whether sanctions are warranted. As such, while the SEC disclosures may seem to be the equivalent of a public shaming for those companies disclosing information concerning their actions with Iran, it is much more than that. These disclosures can also be an absolute boon for the intelligence and law enforcement communities. This means even more scrutiny and potential liability for those who have been dealing with Iran and may have been doing so in contravention of the sanctions. As a result this combination looks as if it will indeed have the effect of causing even more publicly traded companies, engaged in both legal and illegal trade with Iran, to shy away from those dealings. The net effect is to further isolate Iran and to tighten the squeeze felt by U.S. economic sanctions.

For those who are interested in following these disclosures as they come out, the SEC maintains a searchable database called EDGAR; disclosures made pursuant to ITHRSHRA are filed using the [IRANNOTICE] identifier.

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. This blog posting was co-authored by Samuel Cutler, a policy adviser at Ferrari & Associates, P.C.