An Overview of U.S. Sanctions Against and the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”)

Melvin S. Schwechter Dewey & LeBoeuf LLP

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1301 Avenue of the Americas New York, NY 10019 212-259-8676 Dewey & LeBoeuf LLP [email protected] dl.com The U.S. Embargo Of Iran

● A comprehensive U.S. embargo of Iran has been in place since 1995. It is principally based on the statutory authority of the International Emergency Economic Powers Act (“IEEPA”), pursuant to which the President has issued a number of Executive Orders imposing the embargo. ● The embargo is principally administered by the Office of Foreign Assets Control (OFAC), a part of the Treasury Department, under the Iranian Transactions Regulations (“ITR”).

Dewey & LeBoeuf LLP | 1 The U.S. Embargo Of Iran

● The ITR apply principally to “U.S. persons”. In addition, they apply to foreign persons who reexport certain U.S.-origin goods, technology and software to Iran, or who send transactions through the U.S. financial system on behalf of Iranian customers. ● “U.S. persons” are: – U.S. citizens and permanent resident aliens, wherever they are located, and for whomever they are employed; – Anyone physically in the United States and U.S. branches of foreign companies; and – U.S.-organized entities, including their foreign branches.

Dewey & LeBoeuf LLP | 2 The U.S. Embargo Of Iran ● The ITR include a wide variety of prohibitions. Among the most significant are the following: – U.S. imports of Iranian products and services – Almost all U.S. exports/reexports (including goods, technology, software and services) by U.S. persons to Iran (OFAC licenses may be requested for exports of agricultural commodities, medicine and medical devices; a General License was recently issued for certain exports of most foods); reexports by foreign persons of certain U.S.-origin goods, technology and software – Any dealing by U.S. persons (whether inside or outside the United States) in Iranian-origin goods or services, or with the Government of Iran (includes entities identified as part of the Government of Iran, no matter where in the world they are located) – Investments by U.S. persons in Iran and loans or other extensions of credit to Iran – Sending transactions through the U.S. financial system on behalf of Iranian customers (exporting “financial services” from the United States) – Trading by U.S. persons in Iranian oil or products refined in Iran, and financing such trading – U.S. persons providing services for the benefit of the Iranian oil industry – The “facilitation” prohibition - U.S. persons cannot approve, finance, guarantee or otherwise facilitate transactions by foreign persons that would be prohibited if performed directly by U.S. persons Dewey & LeBoeuf LLP | 3 The U.S. Embargo Of Iran

● OFAC has also identified as Specially Designated Nationals (“SDNs” or “Blocked Persons”) a wide variety of Iranian persons, entities, and vessels involved in terrorism, WMD proliferation, and human rights abuses, including the Islamic Republic of Iran Shipping Lines (“IRISL”) and its vessels, approximately 40 Iranian banks, and Iran’s Revolutionary Guard Corps and about 60 of their front companies/affiliates. Many of those designated are coincident with designations under U.N. resolutions. ● In addition to the ITR restrictions, any property of an SDN that comes into the possession or control of U.S. persons must be blocked. In addition, all U.S. person transactions with SDNs are prohibited.

Dewey & LeBoeuf LLP | 4 Sanctions Against the Islamic Republic of Iran Shipping Lines (“IRISL”)

● Since first being identified as an SDN in 2008, OFAC has added many renamed IRISL vessels to the SDN List. ● March 31, 2011 – OFAC issues an advisory to the trade community regarding evasive practices used by IRISL and companies acting on its behalf to evade U.S. and international economic sanctions. These include: – using container prefixes registered to another carrier, e.g., “IRSU”, “XBIU”, “SBAU” and “HDXU”; – omitting or listing invalid, incomplete or false container prefixes in shipping container numbers, e.g., “ALXU”; and/or – naming non-existent ocean vessels in shipping documents. ● Enhanced due diligence is recommended by OFAC – Be alert to the presentation of fabricated vessel names in trade documents, check the bona fides of unfamiliar entities issuing shipping documents, and verify the accuracy of container numbers (can be done on the internet). Dewey & LeBoeuf LLP | 5 OFAC Enforcement

● OFAC violations are subject to both criminal and civil penalties. Potential civil penalties under IEEPA have increased dramatically in recent years. – Before March 9, 2006 – Civil penalties of up to $11,000, per violation. – March 9, 2006 – Civil penalties of up to $50,000, per violation. – October 16, 2007 – Civil penalties, per violation, of up to the greater of $250,000, or an amount that is twice the amount of the transaction that is the basis of the violation with respect to which the penalty is imposed. – OFAC takes a “strict liability” approach to civil violations, although having a compliance program in place can mitigate the severity of any penalties that might otherwise be imposed. – Potential criminal penalties can be as high as a fine of $1 million, imprisonment for up to 20 years, or both. – Some very significant Iran-related enforcement cases against financial institutions, in recent years, have involved Credit Suisse ($536 million), ABN AMRO Bank (now RBS) ($500 million), Lloyds TSB Bank plc ($350 million), Barclays Bank PLC ($298 million), and JP Morgan Chase Bank N.A. ($88.3 million).

Dewey & LeBoeuf LLP | 6 The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”) – Enacted July 1, 2010

● Substantially amended, expanded, and extended the 1996 Iran Sanctions Act (“ISA “) ● Enacted, in statutory form, the principal aspects of the U.S. import/export embargo of Iran that were previously based on Presidential Executive Orders and the ITR ● Provides for new sanctions against banks and other foreign financial institutions that engage in certain transactions with Iran ● Increased and harmonized criminal penalties for a variety of laws regulating foreign trade ● Allows state and local governments to divest their assets from, or prohibit investments of such assets in, foreign companies engaging in certain sanctionable activities with Iran ● Provides for measures to address diversion of shipments of U.S. products from third countries to Iran

Dewey & LeBoeuf LLP | 7 The ISA (Prior to enactment of CISADA)

● As originally enacted, the ISA provided for the imposition of two out of a menu of six possible sanctions against foreign companies: (i) investing, with actual knowledge, $20 million or more (or a combination of investments of at least $5 million each, totaling $20 million in a 12 month period) in the development of Iran’s energy sector, or (ii) providing Iran with WMD technology, or destabilizing numbers and types of advanced conventional weapons. ● The original six sanctions options were: – prohibition on Export-Import Bank financing for exports to a sanctioned person; – denial of export licenses for shipments to the sanctioned entity; – denial of U.S. bank loans/credits exceeding $10 million in any 12 month period to the sanctioned entity; – Prohibition on a financial institution serving as a primary dealer in U.S. Government bonds; and/or a prohibition on its serving as a repository for U.S. Government funds (each counts as one sanction); – prohibition on U.S. Government procurement from the sanctioned entity; and – restriction on imports from the sanctioned entity.

Dewey & LeBoeuf LLP | 8 Amendments to the ISA – Three New Possible Sanctions

● CISADA added three new possible sanctions to the menu of available sanctions. The new sanctions are prohibitions on transactions subject to U.S. jurisdiction and in which the sanctioned person has any interest involving: – foreign exchange, – transfers of credit or payments between financial institutions, or by, through, or to, any financial institution, and – the acquiring, holding, withholding, using, transferring, withdrawing, transporting, importing or exporting any property subject to U.S. jurisdiction and with respect to which the sanctioned person has any interest, or dealing in or exercising any right, power or privilege with respect to such property.

Dewey & LeBoeuf LLP | 9 Amendments to the ISA - Persons Against Whom Sanctions May Be Imposed

● Sanctions became imposable not only against the person engaging in the sanctionable activity, but also against: – That person’s parent company if that parent had actual knowledge or should have known of the subsidiary’s activity, or – An affiliate or subsidiary of a person found to be engaged in sanctionable activities if the affiliate or subsidiary knowingly engaged in sanctionable activities.

Dewey & LeBoeuf LLP | 10 Amendments to the ISA – Newly Sanctionable Activity

● The new legislation requires the imposition of three or more out of the nine authorized sanctions against foreign companies that knowingly (actual knowledge or “should have known” standard): – sell, lease or provide to Iran goods, services, technology, information or support with a fair market value of $1 million or more, or which, during a 12 month period, have an aggregate fair market value of $5 million or more, that could directly and significantly facilitate the maintenance or expansion of Iran’s domestic production of refined petroleum products (defined as diesel, gasoline, jet fuel (including naphtha-type and kerosene-type jet fuel), and aviation gasoline), including any direct and significant assistance with respect to the construction, modernization, or repair of petroleum refineries. – sell, lease or provide to Iran refined petroleum products in the amounts set forth above, or

Dewey & LeBoeuf LLP | 11 continued > Amendments to the ISA – Newly Sanctionable Activity

– sell, lease or provide to Iran goods, services, technology, information or support in the amounts set forth above, that could directly and significantly contribute to the enhancement of Iran’s ability to import refined petroleum products. Specifically included as sanctionable activities are: (i) underwriting/insuring/reinsuring the sale, lease, or provision of such goods (including refined petroleum products), technology, information or support to Iran, (ii) the financing or brokering of such sale, lease or provision, and (iii)providing ships or shipping services to deliver refined petroleum products to Iran. ● A due diligence exception provided for (re)insurers. ● The “should have known” standard now also applies to sanctionable investments in Iran’s energy sector.

Dewey & LeBoeuf LLP | 12 Sanctions Imposed Under the ISA/CISADA

● No sanctions were imposed under the ISA between its enactment in 1996 and the enactment of CISADA in July 2010. ● Following enactment of CISADA, the Obama Administration has moved three times to sanction foreign companies under the ISA/CISADA. ● The first company to be sanctioned was Naftiran Intertrade Company () (“NICO”) for making sanctionable Iranian energy investments – October 13, 2010 ● The second company to be sanctioned (also for making sanctionable Iranian energy investments) was Belarusneft (Belarus) – April 5, 2011 ● These companies were either previously banned from U.S. activities, or had no U.S. operations.

Dewey & LeBoeuf LLP | 13 Sanctions Imposed Under the ISA/CISADA

● The third set of sanctions was imposed in May 2011 against a number of companies: – Allvale Maritime Inc. (Liberia) – a ship owning company (replacing the Ofer Brothers Group (Israel)), for providing a tanker to IRISL. – Associated Shipbrokering (Monaco), including 50%, or more, owned subsidiaries (for providing a tanker to IRISL). – Commercial Company International (“PCCI”) (Jersey/Iran), including 50%, or more, owned subsidiaries, for supplying refined petroleum products to Iran. – Petroleos de Venezuela S.A. (Venezuela) for delivering two cargoes of reformate (a blending component that improves gasoline quality) to Iran. – Royal Oster Group (UAE), including 50%, or more, owned subsidiaries, for supplying refined petroleum products to Iran. – Société Anonyme Monegasque D’Administration Maritime Et Aeriene (SAMAMA) (Monaco) – lead ship manager for Allvale, for providing a tanker to IRISL. – Speedy Ship (UAE/Iran), including 50%, or more, owned subsidiaries, for supplying refined petroleum products to Iran. – Tanker Pacific Management (Singapore) Pte. Ltd. (Singapore) for providing a tanker to IRISL. Dewey & LeBoeuf LLP | 14 Sanctions Imposed Under the ISA

● The sanctions imposed have included varying combinations of the following from the menu of available sanctions: – The U.S. Export-Import Bank is prohibited from providing financing in connection with the export of any goods or services to the sanctioned entities. – No licenses are to be issued for the export of goods or technology to the sanctioned entities. – United States financial institutions are prohibited from making loans or providing credits totaling more than $10 million in any 12-month period, unless they are for the purpose of relieving human suffering. – The United States Government is not to procure any goods or services from the sanctioned entities. – A ban on engaging in foreign exchange transactions. – A ban on banking transactions. – Blocking of property subject to U.S. jurisdiction.

Dewey & LeBoeuf LLP | 15 Non-CISADA OFAC Settlements Related to Iran Since July 1, 2010

● Trans Pacific National Bank - $12,500* ● Aon International Energy, Inc. - $36,000* ● Wells Fargo Bank N.A. - $67,500* ● Pinnacle Aircraft Parts - $225,000 ● Barclays Bank PLC - $176 million* (the penalty payment was covered by the $298 million settlement that Barclays made with the Department of Justice and the NY County DA’s office). ● Maersk Line - $3,088,400 ● 3M Imtec Corporation - $125,000 ● Aegis Electronic Group - $20,000 ● McGriff, Seibels & Williams of Texas, Inc. - $122,408* ● HCC Insurance Holdings, Inc. - $38,448* ● Robbins Instruments, Inc. - $37,080 ● General Reinsurance Corporation - $59,130* ● Norton Lilly International - $18,750 ● CMA CGM (America) LLC - $374,400 ● Société Générale - $111,359* ● JP Morgan Chase Bank N.A. - $88.3 million* ● Flowserve Corporation - $502,408 (in addition to $2.5 million paid to the Commerce Department’s Bureau of Industry & Security) ● Sunrise Technologies and Trading Corporation - $1,661,672 (in addition, a money judgment of $1.25 million was forfeited) * denotes a financial services company

Dewey & LeBoeuf LLP | 16 Other Foreign Company Actions Resulting From CISADA

● In September/October 2010 Total, Shell, Statoil, , and Inpex avoided the imposition of CISADA sanctions against them by committing to exit Iran’s energy sector (the “Special Rule”). ● Tupras (Turkish refiner) informed the State Department in August 2010 that it had cancelled contracts to supply gasoline to Iran. ● Total, Shell, Kuwait’s Independent Petroleum Group, and India’s Reliance told the State Department that they stopped sales of refined petroleum to Iran in 2010 ● Swiss companies, , , and , committed not to supply refined petroleum products to Iran in March 2010 ● ceased gasoline sales to Iran in April 2010 ● BP and Shell are no longer supplying jet fuel to Iran Air ● has abandoned negotiations with Iran regarding development of the South Pars gas field and committed not to engage in further discussions with Iran ● In July 2010, South Korea’s GS Engineering and Construction cancelled a $1.2 billion gas processing project in Iran ● Lloyd’s of London announced in July 2010 that it would not (re)insure petroleum shipments to Iran ● Hong Kong shipping company NYK Line Ltd. decided to withdraw from trade with Iran

Dewey & LeBoeuf LLP | 17 CISADA Government Procurement Requirements

● Prospective U.S. Government contractors must certify that neither they, nor persons owned or controlled by them, engage in any of the ISA-sanctionable activities. False certifications could result in the head of the relevant agency terminating the contract with that person or debarring/suspending the false certifier from future contracts for up to three years. ● U.S. agencies are prohibited from entering or renewing procurement contracts with persons exporting to Iran technology that can be used to restrict the free flow of unbiased information in Iran or disrupt, monitor or otherwise restrict speech of the people of Iran.

Dewey & LeBoeuf LLP | 18 Possible Additional and More Far-Reaching Iran Sanctions Legislation On The Horizon

● H.R. 1905 (introduced by House Foreign Affairs Committee Chairperson, Ileana Ros-Lehtinen; the bill will be marked up by the Committee on November 2) would amend the ISA to: - require the President to impose a majority of an expanded list of 11 possible sanctions against persons found to have engaged in sanctionable activities (rather than at least three out of nine possible sanctions); - expand the definition of ISA/CISADA sanctionable activities to include the purchasing, subscribing to, or facilitating the issuance of Iranian sovereign debt; - expand the ISA's definition of "financial institutions" to include among companies providing financial services, joint ventures with Iranian entities both inside and outside of Iran and partnerships and investments with Iranian Government-controlled entities or affiliated entities; and - expand the ISA's definition of "investment" to include the provision of goods, services, or technology related to petroleum resources.

Dewey & LeBoeuf LLP | 19 Possible Additional and More Far-Reaching Iran Sanctions Legislation On The Horizon

● Other noteworthy provisions of HR 1905 include: - requiring the imposition of ISA sanctions against persons knowingly providing certain services with respect to the exportation of petroleum, oil, or liquefied ("LNG") to be refined or otherwise processed outside of Iran if the Iranian Islamic Revolutionary Guard Corps ("IRGC") or any of its affiliates was directly and significantly involved in their development, extraction, production, transportation, or sale, and the fair market value of the items is $1 million or more (or $5 million or more in a 12-month period). The sanctionable services are: (i) refining or otherwise processing petroleum, oil, or LNG, (ii) the provision of ships or shipping services, or (iii) financing, brokering, underwriting, or providing insurance or reinsurance; - requiring the Secretary of the Treasury, within 90 days of enactment, to prescribe regulations to require persons owned or controlled by a domestic financial institution to provide a positive certification that such person is not engaged in corresponding relations or business activity with a foreign person or financial institution that facilitates transactions from persons and domestic financial institutions that engage in transactions with or benefitting the IRGC or any of its blocked agents or affiliates; and - requiring issuers registered with the SEC to report their engagement in ISA/CISADA-sanctionable or OFAC-prohibited activities involving Iran and the details of such activity. Such information would be publicly disclosed on the SEC website, and the President would be required to initiate an investigation as to whether or not such activities require the imposition of sanctions under the ISA/CISADA or penalties under Iran embargo authorities.

Dewey & LeBoeuf LLP | 20 Possible Additional and More Far-Reaching Iran Sanctions Legislation On The Horizon

● S. 1048, the proposed “Iran, North Korea, and Syria Sanctions Consolidation Act of 2011” would: – add as an ISA-sanctionable activity, the knowing participation in a joint venture with respect to the development of petroleum resources outside of Iran in which Iran is a substantial partner or investor, or through which Iran could receive technological knowledge or equipment that could contribute to the enhancement of its ability to develop petroleum resources in Iran; - make sanctionable the knowing provision of services with respect to the exportation of petroleum, oil or LNG to be refined or otherwise processed outside of Iran where there was involvement by the IRGC/its affiliates. H.R. 1905's value thresholds, services definition, and underwriting/insurance due diligence exception are also included in the Senate bill;

Dewey & LeBoeuf LLP | 21 Possible Additional and More Far-Reaching Iran Sanctions Legislation On The Horizon

- subject to a possible Presidential waiver, persons materially assisting the IRGC or its affiliates, or conducting commercial or financial transactions with it, would need to be identified and sanctioned for at least two years, by the President. - require financial institutions operating in the United States to report to the Treasury Department as to whether they engage in transactions with financial institutions whose property has been blocked as a result of their involvement with Iranian, North Korean, or Syrian WMD or terrorism activities. Subject to a possible Presidential national security interest waiver, failure to submit the report, or engaging in the identified activity could result in a financial institution being prohibited from operating in the United States, and a prohibition on domestic financial institutions from engaging in transactions with it; and - require the imposition of foreign exchange, banking, and property transaction sanctions, and a ban on federal loan guarantees, on persons providing to, or acquiring from, Iran, North Korea, or Syria goods or technologies used or likely to be used for military applications.

Dewey & LeBoeuf LLP | 22 Possible Additional and More Far-Reaching Iran Sanctions Legislation On The Horizon

● Designating the as an SDN is also reportedly being considered in the wake of the alleged assassination attempt against the Saudi Ambassador. Such action could be taken by the President under IEEPA without waiting for Congressional action.

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