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New "IRANNOTICE" Notice Requirement Slated to Become Effective on February 6th: Impacted Companies Should Swiftly Take Stock of their Global Operations
By Melissa Miller Proctor, Esq., Sandler, Travis and Rosenberg, P.A.
Last summer, President Obama signed the Iran Threat Reduction and Syria Human Rights Act of 2012 (the "Act") into law, ever tightening the current U.S. sanctions against Iran for its continued nuclear proliferation activities and support of international terrorism. The Act expanded U.S. sanctions by requiring publicly traded companies and foreign private issuers to, among other things, disclose and report certain of their activities involving Iran to the Securities and Exchange Commission ("SEC"). Most SEC-registered companies already report activities involving Iran and other sanctioned countries to the SEC; however, the new disclosure requirement provided for in Section 219 of the Act captures within its scope additional activities that were not previously reportable, such as dealings with certain Specially Designated Nationals ("SDNs"). The new disclosure and reporting requirement went into effect on February 6, 2013.
Specifically, Section 219 of the Act requires companies subject to annual and quarterly reporting requirements under Section 13 of the Securities Exchange Act of 1934 to disclose in their annual or quarterly reports if they or their foreign affiliates have knowingly engaged in conduct addressed by the Iran Sanctions Act of 1996 ("ISA"), Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 ("CISADA") or have otherwise dealt with the Government of Iran or SDNs designated by Executive Order 13224 or 13382. Generally, activities covered by Section 219 of the Act involve:
- Iran's petroleum or petrochemical industries
- Iran's development of WMDs
- The facilitation of activities of Iran's Revolutionary Guard Corps or other SDNs
- Iran's procurement of items that may be used to commit human rights violations or restrict the dissemination of information and communications.
Section 219 disclosures must describe the specific activities that were undertaken vis-à-vis Iran in detail, including information about the gross revenues and net profits of the conduct and whether the company intends to continue the activity in the future. At the same time, companies are also required to issue a formal notice to the SEC, the new IRANNOTICE, stating that they have included the required disclosures in their annual or quarterly reports. The IRANNOTICE must be filed in the EDGAR system on the SEC's website, where they will be made publicly available.
Once an IRANNOTICE is received, the SEC will forward the company's annual or quarterly report to the President and Congress, which will trigger the commencement of a formal investigation into the company's conduct in order to determine whether any violation of U.S. law has occurred. Within 180 days of the commencement of an investigation, the Administration will determine whether any sanctions should be imposed against the company and/or its foreign affiliate.
Again, Section 219 of the Act expands upon other SEC disclosure requirements by covering additional activities that were not previously reportable. Thus, if they have not done so already, publicly traded companies and foreign private issuers are urged to quickly assess their current business activities, including those of their offshore affiliates, to confirm whether they must contend with any additional SEC disclosure and reporting obligations. Companies should also think proactively as well and establish robust, internal screening mechanisms to identify and evaluate any potentially reportable activities of their global operations.
Melissa Miller Proctor, Sandler, Travis and Rosenberg, P.A.
Melissa Miller Proctor is a Member of Sandler, Travis and Rosenberg, P.A. and the firm's Export Practice Leader, resident in the Scottsdale, Arizona office. With significant experience in export controls, customs laws and regulations, and international trade, Melissa works closely with clients to expand their markets while ensuring their regulatory compliance. She may be reached at (480) 305-2110 or via e-mail at firstname.lastname@example.org.