On October 31, 2019, the US Department of State further expanded the reach of secondary sanctions on Iran. With this action, the US government now has authority to impose sanctions on any person who sells, supplies or transfers certain goods to Iran for use in connection with the construction sector. In addition, any person who provides certain specified strategic metal goods to Iran will now be subject to sanctions, regardless of the end user or end use of those goods. Foreign financial institutions can also be subject to correspondent and payable-through-account restrictions if they facilitate such transactions.

The State Department paved the way for the new sanctions by issuing findings under Section 1245 of the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA). Section 1245 requires the imposition of sanctions on persons found to have provided certain types of items to Iran for use in connection with "any sector of the Iranian economy determined . . . to be controlled indirectly or directly by Iran's Revolutionary Guard Corps (IRGC)" or "in connection with Iran's nuclear, military, or ballistic missile programs."

The State Department found that the Iranian construction industry is controlled directly or indirectly by the IRGC. It also found that the following types of material are used by Iran in its nuclear, military or ballistic missile programs: stainless steel 304L tubes; MN40 manganese brazing foil; MN70 manganese brazing foil; and stainless steel CrNi60WTi ESR + VAR (chromium, nickel, 60 percent tungsten, titanium, electro-slag remelting, vacuum arc remelting).

Accordingly, any person who knowingly sells, supplies or transfers to or from Iran raw and semi-finished metals, graphite, coal or software for integrating industrial purposes for use in connection with the Iranian construction sector will be exposed to sanctions risk.  Additionally, any person who knowingly sells, supplies or transfers from Iran the four strategic materials listed above, regardless of the materials' end use or end user, will also be subject to potential sanctions.  However, the US may not impose sanctions under IFCA § 1245 on any person if the US government determines that they have exercised due diligence and implemented appropriate internal controls to avoid engaging in (or, in the case of foreign financial institutions, facilitating) sanctionable transactions.

The sanctions authorized under the relevant provisions of Section 1245 of IFCA include measures to:

  • Block the property of a sanctioned person
  • Exclude a targeted party from use of the US financial system and foreign exchange
  • Bar sanctioned persons or entities from receiving US-origin goods or participating in export transactions involving US goods
  • Prohibit US persons from dealing in the debt or equity of a sanctioned person
  • Exclude the sanctioned person from US federal contracting
  • Target the corporate officers and shareholders (including individually with sanctions and exclusion from the US) of the sanctioned person

In light of these new developments, firms that may deal with Iran's construction sector and/or the above-listed materials, and financial institutions that may be involved in such dealings, should carefully reassess their risk profile and implement or strengthen compliance procedures as appropriate to mitigate sanctions risk.

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