US Congress Enacts Major New Sanctions Provisions, Including New Russia and Iran Related Sanctions

On April 24, 2024, President Biden signed into law H.R. 815, which includes the 21st Century Peace through Strength Act (the “Act”). Notably, the Act amends the International Emergency Economic Powers Act and the Trading with The Enemy Act to extend the statute of limitations period applicable to sanctions violations from five years to ten years. The Act also authorizes expansive new sanctions and other measures related to Russia and Iran, which we discuss in further detail below.

New Iran-Related Sanctions

The Act contains four provisions related to Iran: (i) the Stop Harboring Iranian Petroleum Act (the “SHIP Act”); (ii) the Fight and Combat Rampant Iranian Missile Exports Act (the “Fight CRIME Act”); (iii) Iran-China energy Sanctions Act of 2023 (the “Iran-China Energy Sanctions Act”); and (iv) the No Technology for Terror Act. The relevant portions of these Acts are summarized below.

• Sanctions related to Iranian-origin petroleum products. The SHIP Act requires the President to impose sanctions on any person who the President determines knowingly engaged in certain transactions involving Iranian-origin petroleum products, including persons who own or operate certain foreign ports, vessels that transport Iranian-origin petroleum products, or refineries that process Iranian-origin petroleum products.
• Sanctions related to the facilitation of Iran’s missile production. The Fight CRIME Act requires the President to impose sanctions on any person who the President determines knowingly engaged in certain missile-related activities involving the Government of Iran or Iran-aligned entities, including, inter alia, possessing, developing, importing, or exporting almost anything related to missile technology (e.g., complete rocket systems, target drones, and missile related components) or importing or exporting certain arms or related materiel to or from Iran. Notably, non-US persons would also risk liability by providing significant support to a person subject to sanctions for engaging in such activities.

• Sanctions related to certain non-US financial institutions that facilitate Iranian oil and drone sales. The Iran-China Energy Sanctions Act authorizes sanctions against Chinese financial institutions that facilitate transactions involving Iranian-origin petroleum products, or against foreign financial institution (i.e., any non-US financial institution) that facilitates the purchase of Iranian unmanned aerial vehicles (“UAVs”), UAV parts, or related systems. Unlike other OFAC sanctions authorities, liability pursuant to the Iran-China Energy Sanctions Act does not require that the underlying transaction be “significant” or “material.”
• Expansion of foreign direct product rules to certain items destined to Iran or involving the Government of Iran. Generally, foreign direct product (“FDP”) rules provide that certain foreign-manufactured items that are the “direct products” of certain US-origin technology or software or are produced by a plant or component of a plant that is itself a “direct product,” are subject to US export controls. The No Technology for Terror Act expands the scope of these existing FDP rules to certain foreign-manufactured items that are exported, reexported, or in-country transferred to Iran from abroad or involve the Government of Iran.

The Act’s Iran oil sanctions provisions will likely result in decreased Iranian oil exports. By way of background, in May 2018, the US withdrew from Iran the Joint Comprehensive Plan of Action (“JCPOA”), reimposing stringent primary and secondary sanctions, including on Iran’s petroleum exports. These sanctions resulted in the designation of hundreds of individuals, entities, vessels, and aircraft on OFAC sanctions lists, including major Iranian banks, oil exporters, and shipping companies. Further sanctions were imposed on certain transactions with the Central Bank of Iran. This resulted in decreased export of Iranian oil, as illustrated by the following graph, based upon data from the Federal Reserve Bank of St. Louis  for the time period between 2000 to October 2023.

The Act is likely to lead to increased enforcement and secondary sanctions designation activity, increasing the sanctions risks for parties involved in the purchase and sale of Iranian oil.  For example, Congress will receive a report with a description of companies, ports, and ships involved in the export and sale of Iranian-origin petroleum products. This could result in even further designations and other sanctions measures related to Iranian-origin petroleum products.

New Russia-Related Sanctions

The Act includes the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act (“REPO for Ukrainians Act”), which seeks to hold Russia responsible for the financial burden of reconstructing Ukraine as a result of Russia’s invasion. In particular, the REPO for Ukrainians Act prohibits US financial institutions from releasing blocked Russian sovereign assets and allows the President to seize, transfer, or confiscate such blocked assets. The President must liquidate or sell any seized Russian sovereign assets and deposit the relevant funds into the Ukraine Support Fund. We expect that the US government will issue additional guidance to US financial institutions that currently hold blocked Russian sovereign assets.

Ultimately, these expansive new sanctions measures will likely have far reaching implications on companies that do business in Russia and Iran. As a result of these significantly expanded sanctions authorities, we also expect to see increased enforcement actions. Accordingly, we recommend that companies conduct heightened due diligence if engaging in transactions in these jurisdictions or with Russian and/or Iranian companies.

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