US Federal Agencies Continue the US “Maximum Pressure” Campaign

In series of coordinated actions and announcements during the course of October and November 2020 (the Recent Iran Actions), three US federal agencies—the US Department of State (DOS), the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury, and the US Department of Justice (DOJ)—targeted both Iranian and non-Iranian entities and individuals in a significant ratcheting up of the current US Administration’s “maximum pressure” campaign on Iran. The following are the key takeaways from the Recent Iran Actions:

• The coordinated nature of the US agencies’ Recent Iran Actions suggests US authorities are seeking new ways to effectively cut off oil-sector revenues to Iran, and specifically revenues destined for Iran’s Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF). Earlier this year, US authorities seized four oil tankers carrying Iranian cargo en route to Venezuela, in violation of US sanctions on Iran and Venezuela. In the Recent Iran Actions discussed below, US authorities announced the sale of the seized oil—the largest in the history of the Iran program—and imposed sanctions on various individuals and entities alleged to have been involved in the underlying transactions.
• OFAC redesignated various Iranian government entities as blocked persons, including the Iranian Ministry of Petroleum, under Executive Order (EO) 13224. Dating to the weeks following the September 11, 2001 terrorist attacks, EO 13224 broadly authorizes sanctions against persons and entities supporting terrorism, and was designed to cut off funding to terrorists. To be clear, the Iranian government entities in question were already subject to US sanctions under the Iran sanctions program, pursuant to various statutory authorities. The redesignation of these entities under a counterterrorism sanctions authority suggests a strategic effort by US authorities to stigmatize and isolate these entities internationally, further deter economic transactions with them, and signal US concerns to both private actors and international governments.
• A number of other non-US entities, including entities from the United Arab Emirates (UAE), the United Kingdom (UK), and Singapore, were designated under secondary sanctions authorities for providing “material[] assist[ance]” to sanctioned persons or entities. The US Administration has actively employed secondary sanctions to target non-US persons as part of the Iran sanctions program.

In light of these recent coordinated actions by the US Administration, companies doing business with entities operating in the Iranian oil sector or other sanctioned sectors of the Iranian economy would be well-served to assess their exposure to US secondary sanctions. While the use of secondary sanctions by US authorities is not new, companies operating in Iran’s oil sector should be aware of the risk of designation for providing material support or assistance to entities designated for terrorism.

We outline the Recent Iran Actions below, beginning with the most recent action.

November 18 – OFAC Designates Companies in the Finance, Energy, Construction, and Mining Sectors Connected to the Supreme Leader of Iran

On November 18, 2020, OFAC designated a large number of entities to its Specially Designated Nationals and Blocked Persons List (SDN List), targeting the leadership and 50 subsidiaries of the Islamic Revolution Mostazafan Foundation (the Foundation). OFAC described the Foundation as “an immense conglomerate of some 160 holdings in key sectors of Iran’s economy, including finance, energy, construction, and mining,” and “a key patronage network for the Supreme Leader of Iran.” The designations were made pursuant to EO 13876 (“Imposing Sanctions With Respect to Iran”), dated June 24, 2019. EO 13876 targets the Supreme Leader of the Islamic Republic of Iran, the Iranian Supreme Leader’s Office, and their affiliates. OFAC also targeted Iran’s Minister of Intelligence and Security under EO 13553 (“Designating Iranian Officials Responsible for or Complicit in Serious Human Rights Abuses”), dated September 29, 2010.

In a coordinated action, the DOS targeted IRGC-QF Brigadier General Heidar Abbaszadeh and IRGC-QF Colonel Reza Papi pursuant to Section 7031(c) of the Department of State, Foreign Operations, and Related Programs Appropriations Act of 2020. OFAC indicated that the designations were made based on the individuals’ “command responsibility” for “gross violations of human rights” in connection with the Iranian regime’s response to the November 2019 protests.

November 10 – OFAC and DOJ Coordinate Efforts Targeting Companies and Individuals for Violating US Export Controls and Sanctions on Iran

On November 10, 2020, OFAC designated a network of six companies and four individuals for allegedly “facilitating the procurement of sensitive goods—including U.S.-origin electronic components” and “products that have an application in military communications.” These companies allegedly procured the goods in violation of US sanctions and US export controls for Iran Communications Industries (ICI), an Iranian military firm previously designated by both the United States and the European Union for being owned or controlled by Iran’s Ministry of Defense and Armed Forces Logistics. The designations were made under the authority of Executive Order 13382 (“Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporter”), dated June 28, 2005. The “network” of companies allegedly involves companies based in or otherwise operating in a number of non-US countries, including Hong Kong, China, Taiwan, Singapore, and the UAE.

At the same time, the DOJ filed a criminal complaint against two of the designated entities, and one of the designated individuals, in the District of Columbia for conspiring to violate US export laws and sanctions against Iran.

October 29 – OFAC and DOS Issue Secondary Sanctions; DOJ Announces Sale of Iranian Oil

On October 29, 2020, OFAC and the DOS simultaneously imposed secondary sanctions on certain entities for transactions related to Iran’s oil sector. Each of the OFAC and the DOS enforcement actions were made pursuant to EO 13846 (“Reimposing Certain Sanctions With Respect to Iran”), dated August 6, 2018. OFAC acted under Section 1 of EO 13846, which authorizes sanctions for material assistance to certain persons designated on the SDN List. DOS acted under Section 3 of EO 13846, which authorizes a menu of sanctions (up to and including designation as an SDN) for knowingly engaging in a “significant transaction” involving the Iranian automotive, petroleum, or petrochemical sectors. DOS also designated five individuals under Section 5 of EO 13846, which authorizes sanctions on certain officers or executives of sanctioned entities.

The OFAC and DOS October 29 actions are notable for the inter-agency coordination, as well as their extensive use of the secondary sanctions provisions of EO 13846 to continue to target the Hong Kong-based Triliance network (discussed below) in connection with Iran’s oil sector.

We summarize the two actions here:

• OFAC action. OFAC announced the designation of eight Iranian, Chinese, and Singaporean entities to the SDN List pursuant to the secondary sanctions authorized under EO13846. The entities were allegedly involved in the sale and purchase of Iranian petrochemical products brokered by Triliance Petrochemical Co. Ltd. (Triliance), a Hong Kong-based company designated earlier this year, on January 23, 2020. OFAC alleged that Triliance facilitated and concealed the transfer of “the equivalent of millions of dollars” to the National Iranian Oil Company (NIOC) as payment for Iranian petrochemicals, crude oil, and petroleum shipped to the UAE and China.

In OFAC’s October 29, 2020 press release, OFAC alleged that the Iranian, Chinese, and Singaporean entities (i) “engaged in transactions facilitated by Triliance”; or (ii) “otherwise assisted Triliance’s efforts to process and move funds generated by the sale of those petrochemical products.” Seven of the entities were designated pursuant to section 1(a)(iii)(B) of EO 13846 for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, Triliance.

One of the eight entities, Binrin Limited (Binrin), a Hong Kong entity, was designated under the same provision of EO 13846 for its dealings with Arya Sasol Polymer Company (Arya Sasol), a Singapore entity. Since both Binrin and Arya Sasol were designated for the first time in the October 29 OFAC action, OFAC appears to have designated Binrin for dealings with Arya Sasol that occurred prior to the designation of Arya Sasol.

OFAC has placed continued focus on the Triliance network in its enforcement actions. The October designation follows the imposition of secondary sanctions on six entities based in Iran, the UAE, and China on September 3, 2020 pursuant to the same provision of EO 13846, prohibiting “material[] assist[ance]” to SDNs designed under the Order.

• DOS action. The DOS announced the designation of five entities from Iran, China, and Singapore, as well as five individuals to the SDN List. The entities were designated for “hav[ing] knowingly engaged in a significant transaction for the purchase, acquisition, sale, transport, or marketing of petroleum products from Iran” pursuant to section 3(a)(ii) of EO 13846. Notably, two of the entities designated by the DOS, Arya Sasol and Binrin, were also named in the OFAC action under section 1(a)(iii)(B) of EO 13846. Separately, the individual persons named in the DOS action were designated “for being principal executive officer of the aforementioned entities, or performing similar functions and with similar authorities as a principal executive officer,” for purposes of section 5(a)(vii) of EO 13846, which authorizes sanctions against “the principal executive officer or officers, or persons performing similar functions and with similar authorities,” of certain sanctioned entities.

In addition to the above, the DOJ announced that it sold 1.1 million barrels of oil destined for Venezuela, which were seized from four foreign-flagged oil tankers on August 14, 2020 pursuant to 18 U.S.C. 981(a)(1)(G)(i), as property of a terrorist organization, i.e., the IRGC-QF. The complaint for the forfeiture of the oil was filed on July 1, 2020 in the US District Court for the District of Columbia, but the sale was only made public on October 29, 2020. See U.S. v. All Petroleum-Product Cargo Aboard The Bella With International Maritime Organization Number 9208124 et al., No. 1:20-cv-01791, 2020 WL 4745119 (D.D.C. 2020). The DOJ alleged that the sale of the oil was intended to benefit the IRGC-QF, a blocked entity designated on SDN List. In the same press release, the DOJ revealed that it had filed a complaint in August 2020 for the forfeiture of two shipments seized by the US Navy of Iranian missiles en route to Yemen in two separate seizures in November 2019 and February 2020.

October 26 – Counter-terrorism Designations

On October 26, 2020, OFAC made a number of designations under a counter-terrorism executive order dating to 2001. OFAC indicated that the action was designed to target “those who supply and transport the oil that generates revenue for the IRGC-QF.” The action is notable, among other reasons, because the designated Iranian institutions were previously designated under Iran-related sanctions authorities. This indicates that OFAC’s October 26 action was likely calculated to further stigmatize and isolate the entities internationally and to maximize the deterrent effect of the new terrorist designations. In addition, OFAC targeted non-US companies, including companies in the UK, in connection with alleged material assistance to a subsidiary of the Iranian National Oil Company.

The legal basis for OFAC’s October 26 designations was EO 13224 (“Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten To Commit, or Support Terrorism”), dated September 23, 2001, as amended on September 10, 2019. President George W. Bush issued EO 13224 in response to the September 11, 2001 terrorist attacks. EO 13224 was designed to disrupt financial support for terrorist networks by authorizing the US government to designate and block the assets of individuals and entities that either commit, or pose a significant risk of committing, acts of terrorism. EO 13224 also targets individuals or entities that provide support, services, or assistance to, or otherwise associate with, terrorists.

We provide an overview and summary of OFAC’s October 26 action below. The full list of designated entities is available here.

• Iranian government entities. This included the Iranian Ministry of Petroleum (IMOP), NIOC, the National Iranian Tanker Company (NITC), as well as alleged “front company[ies]” for NITC based in the United Arab Emirates. IMOP, NIOC, and NITC were designated for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, IRGC-QF. IMOP was also designated for “owning or controlling, directly or indirectly, NIOC.”
• “[L]eaders or officials” and subsidiaries of the above entities. The leaders targeted included the Iranian Minister of Petroleum Bijan Zanganeh, NIOC’s managing director Masoud Karbasian, NITC’s managing director Nasrollah Sardashti, among others. The OFAC press release indicates that subsidiaries of the Ministry of Petroleum were designated “for being owned, controlled, or directed by, or having acted or purported to act for or on behalf of, directly or indirectly, the Ministry of Petroleum.”
• Two vessels. The vessels include one Honduran and one Panamanian vessel. OFAC alleged that the vessels were “property in which NIOC has an interest.”
• UAE and UK entities. OFAC also designated one entity based in the UAE (Mobin International Limited) and two entities based in the UK (Mobin Holding Limited and Oman Fuel Trading Ltd). These entities are allegedly connected to Mahmoud Madanipour, an Iranian national. The DOJ alleged that Madanipour, also designated in the October 26 action, was “affiliated” with the IRGC-QF in its July 2020 complaint for forfeiture in rem of the cargo of the four tankers referenced above. The legal basis for the designation of the UAE entity was its alleged material assistance to a subsidiary of NIOC. The legal basis for the designation of the two UK entities was the allegation that they were owned, controlled, or directed by, or acted or purported to act for or on behalf of Madanipour.

Concurrently with the above designations, OFAC issued Amended General License 8A, under the Global Terrorism Sanctions Regulations and the Iranian Transactions and Sanctions Regulations to continue to allow certain humanitarian trade transactions involving NIOC or entities owned or controlled by NIOC.

October 22 – Other OFAC Actions

OFAC published two additional actions on October 22, 2020, that were not related to the Iranian oil sector. First, OFAC designated five Iranian entities in connection with alleged interference in the US elections pursuant to EO 13848 (“Imposing Certain Sanctions in the Event of Foreign Interference in a United States Election”), dated September 12, 2018. Second, OFAC designated Iraj Masjedi, whom OFAC identified as a general in the IRGC-QF, Iran’s Ambassador to Iraq, and a former advisor to IRGC-QF Commander Qassem Soleimani. Masjedi was designated pursuant to EO 13224, as amended, for acting or purporting to act for or on behalf of, directly or indirectly, the IRGC-QF.

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We will continue to monitor the Iran sanctions program. Please contact your usual Herbert Smith Freehills contacts with any questions.