Impact on European Banks and Companies
As stated in Part 1 of this series, the secondary sanctions system also impacts European companies, and this is through Executive Order 13608 signed by President Obama on May 1, 2012. This Order gave to the Department of the Treasury the authority to impose sanctions on those foreign individuals and entities – called Foreign Sanctions Evaders (FSE) – who violate, attempt to violate, conspire to violate, or cause a violation of any sanctions regulation concerning Iran. This Order can be used as a legal tool to target foreign companies that don’t have any physical or financial presence in the United States.
Effectively, Executive Order 13608 prohibits U.S. persons from engaging in nearly all direct or indirect transactions with those designated as Foreign Sanctions Evaders (FSE), including any exporting, re-exporting, importing, selling, purchasing, transporting, swapping, brokering, approving, financing, facilitating, or guaranteeing, in or related to any goods, services, or technology in or intended for the United States, or any goods, services, or technology provided by or to United States persons, wherever located.
By giving this authority to the Treasury, the U.S. government is likely hoping to convince foreign companies dealing with Iran to cease their commercial relationship with that country. By not yielding to the expectations of the United States, European companies risk being cut off from the U.S. marketplace and U.S. financial system. Therefore, the consequences for a European company that is sanctioned by the U.S. government can be dramatic, especially if that company has any direct or indirect nexus to the U.S. financial system, economy, or marketplace.
To clarify the effects of secondary sanctions in the European context, let’s use an example. “Alpha” is a German company that produces sophisticated hydraulic systems assembling some industrial components of U.S. origin. Alpha sells its products to many clients all over the world, and also to clients in Iran, some of whom might be SDNs. OFAC decides to sanction the German company as an FSE for its re-exportation of U.S. origin components to Iran. As a consequence, Alpha is indirectly forced to stop its production because no American company is now authorized to supply it with the hydraulic components it needs. At the same time and for the same reason, Alpha does not receive any new orders from its American buyers. Within some months, Alpha may go bankrupt or dissolve given its restricted access to U.S. origin goods and the U.S. marketplace.
The names of the sanctioned foreign persons are easily consultable in a special list that is regularly updated by OFAC: the Foreign Sanctions Evaders List. The names of FSE’s can also be searched on the consolidated sanctions list, i.e. SDN List, with the tag: [FSE-IR] or [FSE-SY]. Generally speaking, U.S. persons cannot have any dealings with a listed person without an authorization from OFAC, unless the transaction is exempt from regulation under the International Emergency Economic Powers Act.
Disclaimer: Blog posts should not be relied upon as legal advice and are only provided for informational purposes. Information contained in blog posts may also become outdated with the passage of time as laws change and U.S. foreign policy and national security objectives evolve.
 It is important to note the difference existing between the above mentioned list, issued by the Treasury’s authority under Executive Order 13608 and the Commerce’s Denied Persons List, issued by the Commerce’s authority under the Export Administration Regulations (EAR). Commerce may impose denial orders on foreign persons, including foreign businesses and individuals, who have committed export violations of the EAR. U.S. persons are prohibited from dealing with Denied Persons in any export transaction involving items subject to the EAR. Treasury’s authority under Executive Order 13608 is complementary to Commerce’s authority as Treasury may prohibit the provision of services (in addition to goods and technology) to or from an identified or listed person and may prohibit transactions or dealings involving goods and technology that are not subject to the EAR.