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On June 11, 2012, President Obama issued a new determination under Section 1245(d)(4) of the
National Defense Authorization Act for Fiscal Year 2012 (NDAA) that
a "sufficient supply" of petroleum and petroleum products
from countries other than Iran continues to exist. This
determination paves the way for the President to impose sanctions
on foreign financial institutions, both private and those that are
government-owned or controlled, that engage in significant
financial transactions involving Iranian petroleum or petroleum
products with the Central Bank of Iran or certain
specially-designated Iranian financial institutions. The
President issued a similar finding on March 30, 2012.
Following the June 11, 2012 determination, the US Department of
State announced additional exceptions from the Iranian sanctions
mandated by the NDAA. The State Department determined that
seven countries had "significantly reduced" their volume
of crude oil purchases from Iran: India, Malaysia, South Korea,
South Africa, Sri Lanka, Turkey, and Taiwan. They join 11 countries
announced in March: Belgium, the Czech Republic, France, Germany,
Greece, Italy, Japan, the Netherlands, Poland, Spain, and the
United Kingdom. Although there is no specific definition of
what constitutes a "significant reduction" of the
purchase of Iranian petroleum products, media reports suggest that
the excepted countries have reduced their purchases by an estimated
20 percent. Financial institutions in the countries that
received waivers will have a six-month reprise from the threat of
US sanctions, as the NDAA mandates that the President review the
waivers every 180 days. Under the NDAA, these countries must
continue to reduce their volume of crude oil purchases from Iran to
remain eligible for an exception.
Non-government-owned foreign financial institutions located in
countries that have not received an exception can be sanctioned if
they conduct or facilitate significant financial transactions with
the Central Bank of Iran or other designated Iranian financial
institutions, involving (a) the purchase of Iranian petroleum or
petroleum products or (b) any other transaction that would meet the
significant financial transaction criteria set forth in the Iranian
Financial Sanctions Regulations. Government-owned foreign
financial institutions in non-exempt countries can be sanctioned
for conducting or facilitating significant financial transactions
involving the purchase or sale of Iranian petroleum or petroleum
products only. Sanctions can include the prohibition or the
imposition of "strict conditions" on the maintenance of
correspondent or payable-through accounts at US financial
institutions. However, sanctions are unlikely to be imposed
immediately, as the US Government must gather evidence to support
sanctions against foreign financial institutions that have engaged
in sanctionable activity. Additionally, we understand that
the US Government's priority is to convince foreign financial
institutions to stop or curtail such business significantly rather
than to impose sanctions.
The new exceptions bring the total number of countries that have
"significantly reduced" their Iranian petroleum products
purchases to 18, including major importers, such as India, Japan,
South Africa, South Korea, and Turkey. This announcement leaves
China and Singapore as the remaining major importers of Iranian
crude oil whose financial institutions could face US sanctions,
although the former has signaled a reduction in Iranian petroleum
product purchases. The announcement also demonstrates the
determination of the United States to reduce Iranian income derived
from its energy sector, largely in an effort to persuade Iran to
commence negotiations with respect to its nuclear program.
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