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Iran deals: The devil's in the details

Firms contemplating business in the country must still cross a minefield of complex US regulations

In January 2016, after the nuclear deal, the US lifted many sanctions on Iran, allowing non-US companies and foreign subsidiaries of US firms to resume business there. Some firms have found eager Iranian buyers for their products, particularly in the petrochemical and extractive industries. But many have ignored mandatory US Securities and Exchange Commission (SEC) reporting requirements that can be triggered by legal dealings with Iran.

The lifting of sanctions didn't mean carte blanche authorisation for all Iran business. Non-US companies can still be penalised by the US if they transact with blacklisted Specially Designated National (SDN) Iranian firms, entities, or individuals. This requires screening customers and their owners against US lists. Foreign subsidiaries of US companies are subject to additional restrictions pursuant to General License H, a waiver of some sanctions rules issued by the US Treasury's Office of Foreign Assets Control (OFAC).

Involving companies, persons or goods subject to US jurisdiction in Iran-related business remains prohibited and can generate substantial legal liability for all parties involvedUS and non-US. Partly for this reason, legally permissible trade with Iran generally cannot be denominated in US dollars because such transactions often indirectly involve US financial institutions.

Once you're sure that a transaction complies with US and other applicable sanctions you must determine whether it would be subject to SEC reporting rules, if reporting is required, and the implications of public disclosure for your company.

The SEC's rules apply to "issuers" of publicly traded securities in the US, including US and foreign filers (companies that file Form 10-K and Form 20-F), and to those companies' global affiliates. So, if your company, your parent or sister company, or your subsidiary is an issuer of US securities, then its Iran-related activities may be subject to the reporting requirements. Don't just assume that your firm isn't an issuer or an affiliate of an issuer.

The SEC's reporting rules, found in Section 13(r) of the Securities Exchange Act of 1934, are complex. To determine which activities must be reported, companies must refer to the SEC regulations and many cross-referenced sanctions statutes, regulations, executive orders, and prohibited party lists. The rules capture three broad types of activities: transactions of significant value involving the energy industry; dealings related to illicit activities like sales of weapons and transactions with blacklisted parties; and transactions with the Iranian government and companies owned or controlled by it.

Energy-sector restrictions

SEC rules mandate the disclosure of transactions involving an array of activities linked to the Iranian energy industry, including the development or production of petroleum resources or refined products in Iran, certain energy-related joint ventures, the development or purchase of petrochemical products, and activities related to the transportation or export of crude oil and refined petroleum productsincluding pipelines, tankers, and infrastructure projects. Whether the transactions must be reported to the SEC depends primarily on whether the activity exceeds specified fair market valuesindividually or in the aggregate over a 12-month period.

Blacklisted parties

Leaving aside transactions related to illicit activities, the SEC rules on blacklisted parties mandate that issuers and affiliates report transactions they know or should know are with or benefiting Iranian individuals or bodies on the US SDN list or involving the Islamic Revolutionary Guard Corps. Conducting such transactions can subject your company to potential US sanctions. So it's a good idea to conduct due diligence on Iranian entities, including their ownership, to ensure that your company does not trigger US penalties and is not forced to disclose a transaction with a listed party (or a listed owner) that will damage your firm's reputation and potentially expose it to legal liability.

Transactions with state owned or controlled companies

Subsidiaries of US companies are exempt from the last category-transactions with state-owned or controlled companiesfor technical reasons under the SEC rules and OFAC's General License H. Non-US affiliates of issuers or foreign filers, on the other hand, must report transactions involving the Iranian government, including all entities and companies that it directly or indirectly controls. There's no fair market value threshold for this category, so virtually any transaction that involves an Iranian state company requires disclosure to the SEC. This broad requirement would capture most significant energy-related transactions involving Iran.

If your company is subject to the rules and conducts a transaction described in Section 13(r), it must disclose the activity in its quarterly and annual reports.

The SEC reporting requirements are far broader than many companies conducting or considering business in Iran believe. The rules are also complex. If you think your company might be subject to these reporting requirements, we urge you to seek competent advice. PE

ERIC MCCLAFFERTY chairs the International Trade practice group at law firm Kelley Drye & Warren

LLP. ROBERT SLACK is an associate in the International Trade Practice Group

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