Energy Sanctions of CISADA

Summary
On July 1, 2010, President Obama signed into law the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA.) The Act amends the Iran Sanctions Act of 1996 (ISA) which requires sanctions be imposed or waived for companies that are determined to have made certain investments in Iran's energy sector. CISADA expands significantly the energy-related activities that are sanctionable and adds new types of sanctions that can be imposed. These new authorities address the potential connection between Iran's energy sector and its nuclear program that was highlighted in UNSCR 1929. They support an effort to increase pressure on Iran to return constructively to diplomatic negotiations to address the international community's concerns about Iran's non-compliance with its international obligations (including those under the relevant UNSCRs, the Nuclear Non-Proliferation Treaty, and the IAEA Safeguards Agreement.) The United States is resolved to make full use of ISA and the other authorities in CISADA as additional tools in our efforts to convince the Iranian Government to change its strategic calculus, comply with its full range of nuclear obligations, and engage in constructive negotiations on the future of its nuclear program.

Sanctionable Activities under the Iran Sanctions Act, as Amended by CISADA
ISA requires the President to impose sanctions on persons that are determined to have engaged in a wide variety of activities in Iran's energy sector. Activities that can trigger sanctions include:

• Making an investment that directly and significantly contributes to the enhancement of Iran's ability to develop its petroleum resources, of
  
  • $20 million or more; or
  • $5 million per investment, totaling $20 million or more in a 12-month period.
    
• Selling, leasing, or providing goods or services(1) that could directly and significantly facilitate the maintenance or expansion of Iran's domestic production of refined petroleum products,(2) with
  
  • Fair market value of $1 million or more; or
    
  • Aggregate fair market value of $5 million or more in a 12-month period.
    
• Selling or providing Iran with refined petroleum products, with
  
  • Fair market value of $1 million or more; or
    
  • Aggregate fair market value of $5 million or more in a 12-month period.
    
• Providing goods or services that could directly and significantly contribute to the enhancement of Iran's ability to import refined petroleum products, including
  
  • Insurance or reinsurance services;
    
  • Financing or brokering services; or
    
  • Ships and shipping services, with
    
• Fair market value of $1 million or more; or
  
• Aggregate fair market value of $5 million or more in a 12-month period.
  

Sanction Provisions
Three or more out of nine possible sanctions shall be imposed on any person determined to have engaged in sanctionable activities. The nine sanctions would prohibit:

1. Export assistance from the Export-Import Bank of the United States;(3)
2. Licenses for export of U.S. military, "dual use,"(4) or nuclear-related goods or technology;
   
3. Private U.S. bank loans exceeding $10 million in any 12-month period;
   
4. If the sanctioned person is a financial institution, designation as a primary dealer in USG debt instruments or service as a repository of USG funds;
   
5. Procurement contracts with the United States Government;
   
6. Foreign exchange transactions subject to U.S. jurisdiction;
   
7. Financial transactions subject to U.S. jurisdiction;
   
8. Transactions with respect to property subject to U.S. jurisdiction;
   
9. Imports to the United States from the sanctioned person.
   

Waivers
ISA does provide for certain waivers. These waivers may be applied on a case-by-case basis with respect to a sanctionable person depending on the facts and U.S. interests in each case. The President may waive sanctions for either energy or weapons-related activity if the President determines it is "necessary to the national interest." In addition, the President may waive the application of the energy-sanctions provisions with respect to a person for six months if "vital to the national security interests of the United States" or for twelve months if "vital to the national security interests" and the government with primary jurisdiction over the person is closely cooperating with the United States in multilateral efforts to prevent Iran from acquiring weapons of mass destruction or advanced conventional weapons.

Financial Provisions of CISADA
Summary
On Thursday, July 1, 2010, President Obama signed into law the Comprehensive Iran Sanctions, Accountability, and Divestment Act. The Act mandates the imposition of significant new sanctions with respect to foreign financial institutions. The Act builds upon and gives effect to the U.N. Security Council's resolutions on Iran, most notably UNSCR 1929.

Financial Sector Provisions
The law includes mandatory banking sanctions targeted at foreign banks that knowingly facilitate: Iranian WMD transactions; transactions related to Iran's support for terrorism; the activities of persons sanctioned under Iran-related UNSCRs; significant transactions with the IRGC or its affiliates; or significant transactions with Iranian-linked banks designated by the United States.

• Treasury must issue regulations within 90 days to prohibit or impose strict conditions upon U.S. banks' maintenance of correspondent accounts for foreign financial institutions that knowingly:
  
  • facilitate a significant transaction or transactions or provide significant financial services for:
    
    • the IRGC or any of its agents or affiliates (e.g., Khattam al Anbiya, Sepanir, and Ghorb Nooh) that are blocked under the International Emergency Economic Powers Act ("IEEPA"); or
      
    • any financial institution that is blocked under IEEPA in connection with Iran's proliferation of WMD or in connection with Iran's support for international terrorism (includes the following banks: Bank Sepah, Bank Melli, Arian Bank, Kargoshaee Bank, Bank Mellat, Persia International Bank PLC, Future Bank (Bahrain), Export Development Bank of Iran, Banco Internacional de Desarollo (Venezuela), First East Export Bank, Post Bank, and Bank Saderat), Europäisch-Iranische Handelsbank (EIH);
      
  • facilitate the activities of an individual or entity designated under UNSCRs 1737, 1747, 1803, 1929, or successor resolutions;
    
  • facilitate Iran's pursuit of WMD or Iran's support for terrorism; or
    
  • facilitate the efforts of the Central Bank of Iran or any other Iranian bank to carry out the above.
    
• Treasury must also issue regulations within 90 days to prohibit any entity owned or controlled by a U.S. financial institution (i.e., foreign subsidiaries of U.S. banks) from knowingly engaging in transactions with or benefitting the IRGC or any of its sanctioned agents or affiliates.
  

Waiver Provisions
The Secretary of the Treasury may waive the application of the financial sector provisions noted above on or following 30 days after the Secretary determines that such a waiver is necessary to the national interest of the United States and submits a report describing the reasons to the appropriate congressional committees.

Other sanctions-related measures in CISADA
Human Rights
The President must submit to Congress a list of Iranian officials or those acting on behalf of the Government of Iran who are responsible for, or complicit in, committing serious human rights abuses against Iranian citizens or their family members on or after June 12, 2009. Those persons are subject to a visa ban for travel to the United States and economic sanctions, including the blocking of their property subject to U.S. jurisdiction.

United States Government Procurement Contracts
CISADA requires that any firm or individual seeking a USG contract must certify that it, as well as subsidiaries, is not engaged in sanctionable energy or weapons-related activity. This provision will apply to USG contracts for which solicitations are issued after the effective date of new regulations (which must be issued within 90 days after July 1, 2010, or by September 29, 2010). The President may waive this requirement on a case-by-case basis.

Diversion Concerns
CISADA also requires the President to designate a country as a "Destination of Diversion Concern" if he determines that the government of the country allows substantial diversion to Iranian end users or intermediaries of certain goods, services, or technology. If a country is named a "Destination of Diversion Concern," a U.S. export license will be required to export to that country the types of items being diverted, with the presumption that the license application would be denied. The President may waive the licensing requirement if he determines that a waiver is in the national interest.

Procurement Ban for Exporters of Certain Sensitive Technology
Persons that export to Iran sensitive technology that the President determines is to be used specifically to restrict the free flow of unbiased information in Iran or disrupt, monitor, or otherwise restrict speech of the people of Iran are barred from USG procurement contracts. There is waiver authority, as well as an exemption authority with respect to certain countries or instrumentalities designated under the Trade Agreements Act of 1979.

(1) Goods or services include goods, services, technology, information, or support.

(2) Refined petroleum products include diesel, gasoline, jet fuel (naphtha and kerosene-types), and aviation gasoline.

(3) Export-Import Bank assistance: guarantees, insurance, and extensions of credit.

(4) Technologies that have both civilian and military uses.