IRAN SANCTIONS.

United Nations: The UN Security Council adopted Resolution 1929 on June 9, 2010, imposing a fourth round of sanctions against Iran for refusal to comply with its international nuclear nonproliferation obligations. After the original language of the Resolution was softened to ensure Russian and Chinese support, twelve countries on the Security Council voted in favor of the Resolution. Brazil and Turkey voted against the Resolution, and Lebanon abstained.

Resolution 1929 builds on existing UN sanctions to prevent Iran from acquiring nuclear materials and technology, including weapons delivery systems. It requires states to prevent the direct or indirect supply of nuclear materials and information to Iran, to restrict the travel of certain Iranian individuals, to freeze funds belonging to certain Iranian companies and individuals, and to require their nationals to exercise vigilance when doing business that might contribute to the development of Iranian nuclear weapons systems. Iranian-owned or -contracted vessels in port and on the high seas are subject to inspection and seizure of prohibited cargo, and states are banned from providing bunkering services and critical support services, such as food and water, to ships allegedly carrying prohibited cargo. Among other prohibitions, Resolution 1929 also seeks to compel states to eliminate any financial services—including insurance and reinsurance, asset transfers, and banking assistance—that might further Iran’s nuclear program.

Most importantly, Resolution 1929 authorizes states to take undefined additional measures against Iran to hamper its nuclear activities. The United States and European Union are leading the Resolution’s implementation with domestic legislation that goes beyond the Resolution’s minimum requirements. Because Iran has a history of navigating disparities between different states’ policies, such sanctions will be most effective if the United States and the European Union harmonize their legislation and encourage their allies to adopt similar policies.

United States: On July 1, 2010, President Obama signed the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (CISADA) into law. The bill had strong bipartisan support, but it also engendered a debate between those who were concerned that it would disturb U.S. foreign relations and those who didn’t want to reduce the sanctions’ power by allowing numerous waivers.

In addition to implementing UN Resolution 1929, CISADA expands existing U.S. sanctions by broadening the President’s power to penalize U.S., Iranian, and third-party companies who know or should know that their actions will further Iran’s nuclear interests. Sanctions may be imposed on U.S and non-U.S. companies (1) who invest in Iran’s petroleum production industry; (2) who sell, lease, or provide goods, services, technology, or information that could facilitate the maintenance or expansion of Iran’s domestic production of refined petroleum; or (3) who export or assist Iran’s ability to import refined petroleum products. CISADA also codifies existing sanctions, creates new types of sanctions, and requires additional due diligence from certain U.S. industries, including the financial services industry. CISADA may extend liability to U.S. subsidiaries of foreign companies for conduct taking place abroad, but the scope and implementation of these provisions remains unclear and will be discussed in future updates. The threat of increased sanctions has already caused some non-U.S. companies to avoid prohibited relationships with Iran.

CISADA includes an exception for insurers and reinsurers; Sanctions will not be imposed against such entities if the President determines that they exercised due diligence in establishing and enforcing official policies, procedures, and controls to avoid insuring or reinsuring the sale, lease, or provision of goods, services, technologies, information, or support that could significantly further Iran’s ability to import refined petroleum products.[1]

However, it is unclear what actions may constitute due diligence and whether the prohibited $1 million (individual) or $5 million (yearly collective) transactions triggering sanctions would be applied to insurance premiums or limits of coverage.

CISADA tasks the Treasury Department with issuing regulations that will hopefully address these and other areas of confusion. For now, it seems likely that following current policies and controls used to ensure compliance with Office of Foreign Assets Control regulations should suffice.

The Obama Administration had previously placed dozens of Iranian companies and officials on a financial blacklist, barring them from doing business with U.S. entities and freezing their U.S. assets. Five Iranian shipping companies were blacklisted—including Hafiz Darya Shipping Co.—as suspected fronts for the previously blacklisted Islamic Republic of Iran Shipping Lines.

European Union: The European Council announced on June 17, 2010 that it would impose new restrictive measures that would go beyond those required in UN Resolution 1929. Because of Europe’s more extensive trade relationship with Iran, its sanctions will likely have more practical consequences than increased U.S. sanctions.

Germany, Italy, and other countries with significant trading links with Iran have traditionally opposed sanctions, but are expected to ratify the new measures in light of Iran’s growing nuclear program. It is unclear what countries that oppose sanctions as a matter of principle, such as Sweden, will do.

Iran: Iran maintains that its nuclear program is intended for peaceful use. Mr. Ahmadinejad stated that Tehran will not make “one iota of concessions” as a result of the sanctions and will continue work on four new nuclear reactors.

An Iranian parliamentarian has said that the country will retaliate if UN sanctions are enforced. Hossein Ebrahimi, a member of the National Security and Foreign Policy Commission, stated: “Even if one Iranian ship is stopped for [a] security-check, we will act likewise and thoroughly inspect any [foreign] ship passing through the Persian Gulf and the Strait of Hormuz.”

Oil industry experts claim that because Congress has been debating stricter sanctions since 2006, Iran has had time to take measures to reduce the impact of the new U.S. restrictions.