This is the latest in a series of columns from attorneys at O’Melveny & Myers LLP, examining the intersections of the political and legal worlds in the run-up to Election Day 2012.
U.S. policy towards Iran is proving to be the principal foreign policy issue of the 2012 election season. With an ever-expanding sanctions regime focused on Iran—and now Syria, too—companies operating internationally do so in an atmosphere of increasing legal and reputational risk. Now is therefore a good time for companies to assess the adequacy of their compliance programs.
In the Oval Office and on the Republican presidential campaign trail, Iran dominates the discussion. President Obama urges diplomacy, with limits. Republican front-runner Mitt Romney has identified his primary foreign policy objective as stopping Iran’s alleged nuclear-weapons program, and criticizes President Obama for having taken a conciliatory approach. Meanwhile, Congress has taken the initiative by expanding the existing U.S. sanctions regime against Iran. The President has taken his initiatives principally on the diplomatic front, both at the United Nations, which imposed broader sanctions in 2010, and also by persuading U.S. allies to broaden their own sanctions regimes. For example, the European Union and Canada have imposed significant sanctions that target Iran’s financial and energy sector, with the recently announced E.U. oil embargo being perhaps the most notable measure.
Within this charged political atmosphere, companies that have ties to Iran—even attenuated ties through counterparties—face legal and reputational risks, not to mention shareholder concerns. Indeed, the U.S. Securities and Exchange Commission has taken the position that companies with such ties have to be particularly mindful of their disclosure obligations, even where such activities are insignificant from the perspective of overall company revenue.
What is the Legal Scope of U.S. Economic Sanctions?
The United States has maintained sanctions against a number of countries, not only Iran. The countries currently targeted by comprehensive U.S. sanctions are Cuba, Iran, Sudan, and Syria, while transactions involving Burma and North Korea are subject to certain, less comprehensive restrictions.
In addition to the country programs, U.S. economic sanctions laws restrict or prohibit business by U.S. persons with certain specific individuals and entities engaging in activity inconsistent with U.S. foreign policy and national security interests, such as terrorists and narcotics traffickers.
Persons Subject to Sanctions: The economic sanctions regulations generally apply to “U.S. persons,” which includes U.S. citizens and permanent resident aliens, U.S. business entities and their unincorporated foreign branches, and any person actually within the United States. The Cuban Sanctions also apply to entities owned or controlled by U.S. persons.
Prohibited Activities in General: The comprehensive sanctions programs prohibit virtually all business transactions between sanctioned countries/entities and U.S. persons. These include transactions in connection with the export or import of goods and services and technology to or from sanctioned countries. Most financial transactions, including investments, are also prohibited.
The sanctions against North Korea and Burma are more targeted.
Facilitation: The sanctions regulations prohibit U.S. persons from approving or facilitating transactions by foreign persons with which the U.S. person cannot engage. This broad prohibition poses significant compliance challenges for U.S. companies.
Potential Penalties: The maximum civil penalty for most economic sanctions programs is $250,000 per violation, with criminal fines up to $1,000,000 and 20 years imprisonment. The agencies that enforce these laws expect companies to devote significant resources to compliance in this area.
