Iran-Related Secondary Sanctions

On January 16, 2016, the United States lifted the nuclear-related secondary sanctions on Iran. However, other secondary sanctions remain in place, and the current sanctions on Iran are not affected. Common questions now from businesses are: What are secondary sanctions? What is on time to submit? A knowledgeable OFAC attorney can help explain any unanswered questions regarding Iran-related secondary sanctions.

Understanding Secondary Sanctions

Secondary sanctions are a newer type of economic sanction that has become a part of the U.S. government’s economic statecraft through which foreign persons who support targeted bad actors can be subject to a number of restricted measures that, in effect, cut-off these businesses from the United States financial system and make them unpalatable as business partners, customers, and suppliers to other foreign parties. A secondary sanction is a bit different from the typical economic sanctions that have been historically used.

The historical type sanction is called a primary sanction and applies to United States persons or in situations where there is a nexus with the United States. This can include any involvement by U.S. person, any involvement of the U.S.-origin goods or any transaction which is taking place on U.S. soil or United States jurisdiction. Secondary sanctions are a little bit different. This is a way to target people who are doing business with sanctioned parties. One way to think about this is that secondary sanctions provide the U.S. government with an extra set of lists where they can designate foreign parties who are doing business with people who are on the specially designated national’s and person’s list.

When a person gets put on a secondary sanctions list, the United States government can choose from a range of different restricted measures to be put in place depending on the secondary sanctions programs or underlying executive orders issuing the secondary sanctions, as well as the discretion of the secretary of state and the secretary of the treasury. These assertive measures can range from limiting the amount of activity a business can have with United States accounts, to prohibiting all United States parties from doing business with these foreign businesses.

Secondary sanctions are a powerful tool and they work best in concert with a multilateral sanctions’ effort. The international sanctions programs against the Iran were, to a large extent, so successful because there was a multilateral effort and because secondary sanctions were used so that the United States could isolate and prevent foreign parties doing business with Iran.

Sanctions Still in Place

Secondary sanctions were initially created to isolate Iran from the global financial system and from the international global economy. The heaviest secondary sanctions were nuclear-related and the authorities for the sanctions were derived from executive orders and legislation focusing on Iran’s efforts to develop nuclear capabilities. On the Implementation Day (January 16, 2016), the United States lifted those secondary sanctions in place. For instance, after implementation day, secondary sanctions no longer applied the foreign parties who wanted to invest, engage in a business with, or otherwise conduct any type of transaction related to the energy and petrochemical sectors of Iran. However, there are still a number of secondary sanctions in place.

The secondary sanctions still in place are derived from sanctions for:

  • Supportive Terrorism, Executive Order 13224
  • Human Rights Abuses, Executive Orders 13553, 13628, and 13606
  • Proliferation of Weapons of Mass destruction and their means of delivery including Ballistic Missiles, Executive Order 12938 and 13382
  • Support for Persons Involved in Human Rights Abuses in Syria or for the Government of Syria, Executive Order 13572 and 13582
  • Support for Persons Threatening the Peace, Security or Stability of Yemen, Executive Order 13611; the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA)
  • The Comprehensive Iran Sanctions Accountability and Divestment Act of 2010 (CISADA)
  • And Sanctions on the Islamic Revolutionary Guard Corps

The use of secondary sanctions was recently in the news when the new administration on February 3, 2017, designated a number of parties related to Iran’s ballistic missile program test. Those designations were not in violation of the JCPOA, but rather part of other existing secondary sanction reports.

Working with Secondary Sanctions

For foreign businesses, what secondary sanctions mean is they still need to conduct sanctions’ compliance in relation to Iran. Although the largest aspect of the Iran secondary sanctions, which was a nuclear-related secondary sanction, have been lifted for non-U.S. persons, these other secondary sanctions mean it is important to make sure that a business compliance program is appropriately updated and that they are regularly screening any parties in Iran that they are doing business with or that a foreign business is doing business with.