On July 28, 2017, the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) designated four (4) Iranian entities owned or controlled by Shahid Hemmat Industrial Group (“SHIG”), an Iranian entity alleged to be “central to Iran’s ballistic missile program” and designated in the Annex to Executive Order 13382, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters.” OFAC’s designation was responsive to Iran’s “launch of the Simorgh space launch vehicle,” which the United States views as “inconsistent” with Nations Security Council Resolution 2231. As a result of the designation, U.S. persons are required to block the property and interests in property of the designated Iranian entities and are generally prohibited from engaging in transactions with or involving such entities. Moreover, foreign banks risk being subject to correspondent or payable-through account secondary sanctions for knowingly facilitating a significant financial transaction on behalf of the designated Iranian entities.
As with other recent OFAC designation actions involving Iran, the practical effect of the new OFAC designations appears to be limited. Under OFAC’s 50 Percent Rule, “any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person…regardless of whether the entity itself is listed in the annex to an Executive Order or otherwise placed on OFAC’s [SDN List].” Further, even where “one or more blocked persons  control [an entity] by means other than a majority ownership interest,” that entity “may be the subject of future designation or enforcement action by OFAC.” As a result, OFAC urges “caution when considering a transaction with [such] a non-blocked entity…”
All four Iranian entities designated pursuant to OFAC’s recent action are alleged to be “owned or controlled” by SHIG, a designated Iranian entity, and may already have been constructively blocked under OFAC’s 50 Percent Rule. Furthermore, under 31 C.F.R. § 561.201, foreign banks risk being the subject of correspondent or payable-through account secondary sanctions if they facilitate a significant transaction or provide significant financial services for a person whose property and interests in property are blocked pursuant to Executive Order 13382 in connection with Iran’s proliferation of WMD or delivery systems for WMD. If the designated Iranian entities were constructively blocked as a result of SHIG’s designation, then the effect of OFAC’s recent action would have been a virtual nullity. Even if SHIG did not have a majority ownership interest, the fact that the designated Iranian entities were “subordinates” of SHIG, according to OFAC, would have cautioned U.S. persons and foreign banks from dealing with such entities.
Perhaps OFAC is intent on signaling U.S. displeasure with Iranian missile or space vehicle launches, which – arguably – the designation actions are successful in communicating. OFAC’s recent designations continue to have limited practical effect, however, for U.S. sanctions compliance, and U.S. and foreign persons should be aware that OFAC’s actions remain consistent with U.S. commitments under the Joint Comprehensive Plan of Action (“JCPOA), the nuclear accord between the U.S., other major world powers, and Iran.