US Senate votes to impose new sanctions on Iran

The US Senate has voted to impose an array of new sanctions with respect to Iran, related to Iran's alleged activity concerning its ballistic missile program, international terrorism, and arms supply and training. The bill serves as a reminder that, notwithstanding the continued implementation of the Joint Comprehensive Plan of Action ("JCPOA"), tensions between the US and Iran have the potential to lead to additional and significant sanctions.

On June 15, 2017, by a 97-2 vote, the Senate passed the Countering Iran's Destabilizing Activities Act of 2017 (the "Act"). The Act provides for several new categories of primary and secondary sanctions related to the Iranian ballistic missile program, the activities of the Iranian Revolutionary Guard Corps-Quds Force ("IRGC-QF"), and the sale of arms to Iran.

In particular, the Act would mandate the imposition of secondary sanctions against any United States or foreign individual whom the President determines "knowingly engages in any activity that materially contributes to the activities of the Government of Iran with respect to its ballistic missile program." Sanctions may be imposed on such entities as well as their successors, owners, and knowing supporters. Sanctioned entities would be denied entry to the United States and would be designated as Specially Designated Nationals ("SDNs") and accordingly have their property blocked to the extent that it is in the United States or under the control of any US person.

The proposed Act would also mandate terrorism-related sanctions for the Iranian Revolutionary Guard Corps ("IRGC") and the Iranian Revolutionary Guard Corps-Quds Force ("IRGC-QF") and their respective "affiliates." Because both the IRGC and IRGC-QF are already designated as Specially Designated Nationals, these provisions of the bill may have limited practical impact, but the legislation may give added impetus to the designation of further entities as SDNs on the basis that they are "agents" or "affiliates" of the IRGC or IRGC-QF.

Finally, the proposed Act would require sanctions on any person that knowingly "engages in any activity that materially contributes to the supply, sale, or transfer directly or indirectly to or from Iran, or for the use in or benefit of Iran" of various arms. It also requires sanctions for those who knowingly provide training or resources related to the supply, sale, transfer, manufacture, maintenance or use of arms.

The proposed Act—which expects continued bipartisan support—operates outside of the Joint Comprehensive Plan of Action (JCPOA), the 2015 agreement regarding Iran's nuclear program. Under the JCPOA, the US arranged to not implement new nuclear-related sanctions. Thus, the Senate bill's new sanctions are limited to Iran's non-nuclear activities, such as its ballistic missile program.

Ultimately, given existing broad authority, the proposed Senate bill may not lead to tangible, large-scale changes to OFAC's Iran sanctions program. Nevertheless, the proposed bill does send a strong signal to businesses that supply goods or services to Iran. Parties conducting business with Iran should exercise heightened caution and conduct appropriate due diligence to address any potential missile program, terrorism, or arms-related nexus to any proposed transaction. As questions remain about the new Administration's approach to enforcing and implementing the JCPOA, these issues merit continued attention. Herbert Smith Freehills' New York office continues to monitor developments in this area.