New Sanctions on Iran Target Automotive Industry

On June 3, 2013, President Obama issued Executive Order 13645, increasing the obligation on foreign financial institutions to further isolate Iran's economy and placing new restrictions on persons involved in the automotive industry.

The President's expansion of the Iran sanctions program to the automotive sector is meant to be two-fold: to target an industry accounting for almost 10 percent of Iran's economy and to restrict Iranian automotive companies that the White House believes are a front for the country's nuclear program. U.S. individuals, U.S. companies and their foreign subsidiaries are already prohibited from engaging in transactions of goods and services used in the automotive industry in Iran, but E.O. 13645 extends the ban to foreign entities in the automotive industry that rely on U.S. government services or benefit from the U.S. economy. Foreign companies that violate the new executive order may face a number of sanctions, including denial of U.S. export licenses, prohibition on importing goods into the U.S., denial of U.S. government contracts or procurement, restrictions on transactions with U.S. financial institutions, and denial of U.S. visas. These sanctions apply both to a foreign entity that commits a violation and individually to that entity's executive officers.

Restrictions on foreign financial institutions have also been extended. Those institutions now may not (i) knowingly conduct or facilitate transactions in Iranian rials, (ii) maintain accounts dominated in Iranian rials located outside of Iran, or (iii) knowingly conduct or facilitate any significant financial transactions for the sale, supply or transfer to Iran of significant goods or services used in connection with the automotive sector of Iran. Foreign financial institutions that violate these restrictions are prohibited from opening and maintaining correspondent or payable-through accounts in the U.S. and may have their U.S.-based property blocked.

Although E.O. 13645 does not establish new restrictions on U.S. persons, it extends the jurisdictional reach of U.S. law to apply to foreign companies in the automotive industry. As a result, U.S. companies in the automotive sector may now see some of their foreign contacts appear on the Specially Designated Nationals List and other prohibited parties lists maintained by U.S. export control agencies. U.S. companies should be sure to check their foreign contacts against the prohibited parties lists following the July 1^st effective date of E.O. 13645 in order to ensure compliance.