Tightening U.S. Sanctions against Iran’s Automotive Industry and its effect on U.S. business relations with Foreign Companies

On June 3, 2013, President Obama approved a new Executive Order (E.O.)  to isolate the Iranian government by tighening U.S. sanctions.  The E.O. aims to target Iran’s automotive sector and petrochemicals industry, as well as Iran’s currency, the Iranian rial.  These sanctions came into play on July 1st and were imposed prior to the recent presidential election in Iran.  The E.O. aims to halt the automotive production in Iran by prohibiting the sale, supply, or transfer to Iran of substantial goods or services relating to the automotive industry.  The Office of Foreign Assets Control (OFAC)  is choosing to target the automotive industry, as it remains one of Iran’s most profitable industries.  Subsequently, such sanctions on the automotive industry are aimed at further devaluating the Iranian rial in the international marketplace.  Ultimately, aiming to make it unusable outside of Iran.

The E.O. has authorized sanctions against any companies (or individuals) doing business with Iran’s automotive industry or handling complex business transactions using the rial currency.  While U.S. companies are prohibited to engage in business dealings in Iran, it is critical for U.S. companies to perform due diligence prior to business interactions with foreign automobile companies who may be doing business with Iran’s automotive industry. Additionally, the E.O. includes sanctions against any person that aids any Iranian person on the Specifically Designated Nationals (SDN) or Blocked Persons lists.  As a result of this E.O., U.S. companies must remain compliant by clearing their potential or current foreign automobile partner[s] against a comprehensive set of U.S. and international sanctions lists, which includes the OFAC SDN List.  The U.S. auto industry is prohibited from doing business with foreign automobile companies if such companies are listed as an SDN for business activity with the Iranian automotive market. Furthermore, foreign companies that help Iran evade the sanctions can also face severe backlash from the international community, including a ban on doing business in the United States.

A major takeaway here is the list of sanctions against Iran is growing to hit many profitable industries and while U.S. businesses cannot directly engage in business with Iran, the rules may differ for their foreign business partners.  The less obvious trap that U.S. companies must be vigilant of is the activity and relationship their foreign business partners have with Iran.  With sanctions on the rise, U.S. companies have the potential to become indirectly involved with Iran via their relationship with foreign companies, if proper due diligence is not made a top priority.