Congress Toughens Sanctions against Iran, Provides Waivers Sought by Business Groups

June 30, 2010

On June 24, 2010, the U.S. Congress overwhelming approved the Iran Refined Petroleum Sanction Act. Though the Act does install tough new sanctions against Iran, it represents a compromise with the administration and business groups.

Congress had originally sought to curtail the President’s ability to delay initiating investigations into possible violations of the sanctions. However, the final legislation allows the President to refrain from initiating investigations under two conditions: (1) the president must certify to congressional committees that the firm is no longer engaging in the activity or has taken significant steps toward ending the sanctionable activity, or; (2) the President has received “reliable assurances that the person will not knowingly engage” in sanctionable activity.   The waivers will likely exempt many European firms who are entangled in old investments in Iran.

The final text also contains a case-by-case waiver from the sanctions for companies from trading partners that are certified to be closely cooperating with the U.S. in its efforts to curtail Iran’s nuclear enrichment program, but only after an investigation has found sanctionable activities. The bill also refrains from holding U.S. parent companies liable for activities of their foreign subsidiaries as had originally been proposed.

Despite the exemptions mention above, the legislation greatly increases the range of sanctions that could be placed on firms that do business with Iran and the scope of activities covered. Previously, U.S. sanctions mainly targeted investments of $20 million or more in Iran’s energy sector. The new bill would ban U.S. banks from engaging in financial transactions with foreign banks that do business with the Iranian Revolutionary Guard Corps.

The new bill will also target countries transshipping dual-use goods to Iran by defining countries of diversion, such as Malaysia and the United Arab Emirates. Under the new legislation, shipments of dual use goods to these countries will require export control licenses with a presumption of denial for select items.