Introduction
On May 1, 2012, President Obama issued Executive Order 13608 – Prohibiting Certain Transactions and Suspending Entry into the United States of Foreign Sanctions Evaders with Respect to Iran and Syria (Foreign Sanctions Evaders E.O. or Order). This Order authorizes the Secretary of the Treasury to prohibit a broad array of transactions involving foreign persons (foreign sanctions evaders) who have contravened existing US sanctions against Iran and Syria, or have "facilitated deceptive transactions" with respect to such sanctions.
The Foreign Sanctions Evaders E.O. cites a series of prior executive orders to make clear that the new measures in the Order are meant to address foreign parties that attempt to evade US economic sanctions against Iran and Syria. As further explained in the related fact sheet, the US Government views such activities of foreign parties as undermining important national security and foreign policy efforts to address the Iranian and Syrian governments' weapons proliferation, human rights abuses, and support for terrorism.
Under the Foreign Sanctions Evaders E.O., the Treasury Department has authority to identify such evaders and prohibit US persons from conducting business with them, effectively excluding them from the US economic system. No such persons were designated along with issuance of the Order. Issued less than ten days after Executive Order 13606, Blocking the Property and Suspending Entry into the United States of Certain Persons with Respect to Grave Human Rights Abuses by the Governments of Iran and Syria via Information Technology (the GHRAVITY E.O.), the Foreign Sanctions Evaders E.O. marks the latest step in the United States Government's efforts to impose extraterritorial prohibitions on entities that have economic relations with Iran and Syria.
Parties That Can Be Designated as Foreign Sanctions Evaders
The Order permits the Secretary of the Treasury, in consultation with the Secretary of State, to prohibit transactions or dealings with foreign individuals or entities that: (1) have violated, attempted to violate, conspired to violate, or caused a violation of any existing Iran or Syria sanctions, and, where the conduct relates to property and interests in property "of any person subject to United States sanctions concerning Iran or Syria," any non-proliferation or anti-terrorism sanctions; (2) have facilitated "deceptive transactions" for or on behalf of any person subject to Iran or Syria sanctions; or (3) are owned or controlled by, or acting or "purporting to act" on behalf of such a person or entity.
The Order defines "deceptive transaction" as "any transaction where the identity of any person subject to United States sanctions concerning Iran or Syria is withheld or obscured from other participants in the transaction or any relevant regulatory authorities." In turn, the term "person subject to United States sanctions concerning Iran or Syria" includes (1) any person with whom transactions are restricted pursuant to the various Executive Orders relating to Iran and Syria (expressly including the Governments of Iran and Syria), and (2) persons whose property and interests in property are blocked pursuant to the International Emergency Economic Power Act (IEEPA) in connection with Iran's or Syria's proliferation of weapons of mass destruction or support for international terrorism.
Prohibitions Imposed on Transactions Involving Foreign Sanctions Evaders
Once foreign sanctions evaders are designated, the Order prohibits any transactions or dealings involving designated evaders that are related to goods, services, or technology located in or intended for the United States, or provided by or to any US person wherever located. "Transactions or dealings" includes exporting, reexporting, importing, selling, purchasing, transporting, swapping, brokering, approving, financing, facilitating, or guaranteeing goods, services, or technology. In essence, most commercial dealings with the designated foreign parties will be prohibited if there is a US nexus (involving US territory or a US person). The prohibitions do not involve the blocking of assets of foreign sanctions evaders.
The Order expressly prohibits donations of humanitarian articles such as food, medicine, and clothing to or for the benefit of any foreign sanctions evader. Evaders also are barred from entering the United States.
In addition, the Order prohibits US persons from engaging in transactions that involve evading, avoiding or "causing" a violation of, attempting to violate, or forming conspiracies to violate any prohibition set forth in the Order. The Order does not, however, prohibit transactions that occur within the course of official US Government business, nor does it prohibit transactions permitted by statute, regulations, or license, or undertaken pursuant to a contract, license, or permit, executed prior to the Order.
The Order is silent as to whether individuals or entities can be designated as foreign sanctions evaders for conduct that occurred before May 1, 2012.
Implications
The Foreign Sanctions Evaders E.O. provides the US government with additional leverage to prevent non-US parties from engaging in commercial activity with Iran and Syria where that activity is inconsistent with US economic sanctions, foreign policy, and national security objectives. The Order appears to be the first time the United States has implemented economic sanctions based on the concept of facilitation of "deceptive transactions."
The Order's focus on designation for "causing" a violation or facilitating a "deceptive transaction" – the latter of which includes withholding the identities from counterparties to a transaction of parties that are subject to Iranian or Syrian sanctions – suggests potentially broad applicability. The Order may be designed to discourage, for example, the practice of a non-US company ordering US goods for later distribution to Iran or Syria without informing the US supplier. Similarly, the Order could be read to permit designation of non-US entities that do not inform US parties where Iranian or Syrian entities that are subject to US sanctions may benefit from financial transactions or services. Non-US distributors with incidental or occasional business with Iranian or Syrian customers (and who may not know at the time inventory is purchased the identity of the ultimate customer) may face compliance challenges to ensure that their activities do not fall within the definition of "deceptive transactions" (such as by "withholding" or "obscuring" parties to a transaction who may not yet be known). It is not clear if the concept of a "deceptive transaction" requires an intention to withhold information for a wrongful purpose, as opposed to a normal commercial practice of not supplying information regarding end-users or suppliers (as often is the case in distribution or reseller transactions).
While programs previously implemented under IEEPA already prohibit activities that "cause" a violation, the provisions of this Order are more explicit as to the treatment of deceptive practices by foreign parties. Moreover, the US government may have more flexibility under the Order to designate a foreign party as a foreign sanctions evader than it would in pursuing civil or criminal sanctions violations through ordinary enforcement procedures and channels.
US companies already are faced with a multitude of restricted parties to screen and exclude from transaction, so from a US company compliance perspective, the additional compliance burden is relatively limited. In contrast, the Order creates significant new challenges to non-US companies' compliance efforts. While significant restrictions already apply to the provision of US goods, technology and service to Iran and Syria, under the Order, non-US companies now may have increased impetus to evaluate the existence of US goods, services and technology in their supply chains (or any other US nexus) if they conduct any business with Iran or Syria. Further, non-US companies may face additional compliance efforts to determine when they must identify to other transaction participants or relevant government authorities any parties to a transaction that are subject to US sanctions against Iran or Syria.
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