New EO on Iran Sanctions, Guides on Insurance, Petrol Shippers, Etc.

(In addition to the provisions of the ISA and CISADA, additional restrictions apply to U.S. persons and transactions subject to U.S. jurisdiction. United States persons are prohibited from almost all business with Iran, under the Iranian Transactions Regulations (ITR). United States persons and others conducting transactions subject to U.S. jurisdiction should consult the ITR, administered by the Department of Treasury’s Office of Foreign Assets Control, before providing, directly or indirectly, goods, technology, or services to Iran.)

Highlights of these documents follow:

EO on Certain CISADA Sanctions

The EO states it will further the implementation of CISADA for the sanctions selected, imposed, and maintained on a person with respect to:

• restricting or prohibiting imports of goods, technology, or services, directly or indirectly, into the United States from the person;
• prohibiting any United States financial institution from making loans or providing credits to the person consistent;
• prohibiting any transactions in foreign exchange that are subject to the jurisdiction of the United States and in which the person has any interest;
• prohibiting any transfers of credit or payments between financial institutions or by, through, or to any financial institution, to the extent that such transfers or payments are subject to the jurisdiction of the United States and involve any interest of the person; or
• blocking all property and interests in property that are in the United States or under its control.

Donations. The EO also prohibits the donation (funds, goods, or services) of certain articles for the benefit of a sanctioned person whose property is blocked.

Evading transactions. In addition, the EO prohibits any transaction by a U.S. person or with the U.S., that evades or avoids, or attempts to do so, etc., any of the prohibitions in this order.

Delegated authorities. The EO delegates to the Secretary of the Treasury the authority, in consultation with the Secretary of State, to take such actions, including the promulgation of rules and regulations, etc. to carry out the purposes of the order. All executive agencies of the United States Government are directed to take all appropriate measures within their authority to carry out the provisions of the order.

(Prior to this EO, Executive Order 12957 declared a national emergency and imposed prohibitions on certain transactions with respect to the development of Iranian petroleum resources. To further respond to that threat, Executive Order 12959 imposed comprehensive trade and financial sanctions on Iran. Executive Order 13059 consolidated and clarified the previous orders. Executive Order 13553 was issued to take additional steps and to implement section 105(a) of CISADA, to impose sanctions on certain officials of the Government of Iran and other persons determined to be responsible for or complicit in certain serious human rights abuses.)

Shipping and Maritime Insurance Guidelines

The State Department has issued guidelines urging companies, including those in the shipping and insurance sectors, to minimize their exposure to the Iranian energy sector and to exercise as much due diligence as possible in doing business, directly or indirectly, with Iranian entities.

Scope. Any party that, among other activities, knowingly sells, leases, or provides goods, services, technology, information, or support that could "directly and significantly" contribute to the enhancement of Iran’s ability to import refined petroleum or facilitate the maintenance or expansion of Iran’s domestic production of refined petroleum products could be subject to sanctions under ISA as amended.

Sanctions to be case-by-case. Whether goods or services could have a direct and significant contribution to Iran’s ability to import refined petroleum will be evaluated on a case-by-case basis.

Monetary threshold. Sanctions may apply to goods or services provided they have a fair market value of at least $1 million or aggregate of at least $5 million in twelve months.

Sanctionable activities. Potentially sanctionable activities, as explicitly described in ISA, include: underwriting or entering into a contract to provide insurance or reinsurance for the sale, lease, or provision of such goods, services, technology, information, or support; financing or brokering such sale, lease, or provision; or providing ships or shipping services to deliver refined petroleum products to Iran.

Other potentially sanctionable activities could include, for example, maritime transport (ship owners and charters) and related ship services (operators and technical managers), ship brokering (sale, charter, and container), ship suppliers (for sale of ships both used and new), and financial services related to maritime transportation services (including insurance and reinsurance).

Cargo insurance and reinsurance, protection and indemnity (P&I) insurance and reinsurance, hull insurance and reinsurance, contract frustration insurance and reinsurance, and any other insurance or reinsurance associated with the shipment of refined petroleum products to Iran may also be sanctionable.

Exception for due diligence. The ISA contains an exception whereby the Secretary of State may not impose sanctions, with respect to activities that contribute to the enhancement of Iran’s ability to import refined petroleum products, on a company that provides underwriting services or insurance or reinsurance if the Secretary determines that the person has exercised due diligence in establishing and enforcing official policies, procedures, and controls to ensure that the person does not underwrite or enter into a contract to provide insurance or reinsurance for the sale, lease, or provision of goods, services, technology, information, or support that could directly and significantly contribute to the enhancement of Iran’s ability to import refined petroleum products.

Companies are strongly encouraged to diligently and strictly implement such official policies, procedures, and controls to avoid any activity that could be subject to sanctions under ISA. Policies, procedures, and controls should be appropriate based on the type of activities in which a company engages.

(See guidelines for preventing sanctionable activity by coverage exclusions, policies and procedures. Also see guidelines for effective date and pre-existing contracts, also for examples of potentially sanctionable activity under CISADA with respect to product and chemical tankers and bulk cargo.)

Jet Fuel Guidelines

According to the State Department’s guidelines on jet fuels, under ISA, as amended, the knowing provision of jet fuel to Iran with a fair market value of $1 million, or $5 million cumulatively over 12 months, is sanctionable.

Santionable activities. The Government of Iran owns six airlines: Iran Air (includes cargo flights), Iran Air Tours, Saha Airlines, Payam Air, Iran Aseman Airlines, and Yas Air (formerly Pars Air).

Providing jet fuel above the monetary thresholds to any of those airlines, or their successors, is sanctionable under the ISA. The sale of jet fuel to privately owned Iranian airlines, such as Mahan Air, might also be sanctionable in certain circumstances.

The State Department urges companies, including jet fuel suppliers, to minimize their exposure to the Iran and to exercise as much due diligence as possible in doing business, directly or indirectly, with Iranian entities. The information in this document will be updated periodically to reflect changes in legislation or industry practice.

Sanctions to be case-by-case Every potentially sanctionable situation will be evaluated on a case-by-case basis.

Monetary threshold. Under the amended ISA, any person or entity who, after July 1, 2010, knowingly "sells or provides" refined petroleum products with a fair market value of $1 million or more, or an aggregate value of $5 million or more over 12 months, to Iran can be sanctioned.

The monetary threshold applies to individual companies. However, these restrictions would also apply to, among other entities, a business association, partnership, society, or any other business organization. In addition, the threshold for jet fuel sales would include the sales of all its branches. For example, if a company sold $3 million in jet fuel to a government of Iran-owned airline in City A, and another $3 million in City B, the total $6 million in sales would be considered to be the total sales of the company pursuant to the ISA.

(CISADA was enacted on July 1, 2010 (Public Law 111 195), and amended ISA of 1996 (Public Law 104 172) (50 U.S.C. 1701 note). Congress passed CISADA as it found that the illicit nuclear activities of the Government of Iran, along with its development of unconventional weapons and ballistic missiles and its support for international terrorism, threaten the security of the United States.

Note that the information in the guidelines will be updated periodically to reflect changes in legislation or industry practice.)

(See ITT’s Online Archives or 05/19/11 news, 11051907, for BP summary of new bill introduced to close Iran sanctions loopholes and mandate enforcement, that was introduced by the lead sponsor of CISADA. See ITT’s Online Archives or 03/29/11 news, 11032913, 06/30/10 news, 10063049 and 09/20/10 news, 10092013 for BP summaries detailing the CISADA sanctions law.)

Presidents' EO 13574 (dated 05/23/11) available here.

White House message to Congress on EO (dated 05/23/11) available here

State Dept Guidelines on Goods and Services, including insurance, to entities that ship refined petrol to Iran under CISADA (dated 05/23/11), available here.

State Dept fact sheet on jet fuel under CISADA (dated 05/23/11) available here.

May 23, 2011 State Dept fact sheet on CISADA available here.

Updated Iran Sanctions information (posted 05/23/11) available here.

State Dept list of shipping and other companies that have reduced their energy-related business with Iran (dated 05/24/11) available here.