V&E Export Controls and Economic Sanctions E-communication, May 26, 2011
On May 24, 2011, the U.S. Government imposed sanctions on seven foreign companies for engaging in activities related to the supply of refined petroleum products to Iran. These recent sanctions are the first related to refined petroleum transactions under the Iran Sanctions Act of 1996 since it was amended and expanded by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA). The sanctioned companies are Petrochemical Commercial Company International (PCCI) of Jersey, Royal Oyster Group of the United Arab Emirates (UAE), Speedy Ship of UAE and Iran, Tanker Pacific of Singapore, Ofer Brothers Group of Israel, Associated Shipbroking of Monaco, and Petróleos de Venezuela (PDVSA).
The amended Iran Sanctions Act requires that sanctions be imposed on any “person” (or entity) that (a) exports refined petroleum products to Iran; (b) provides goods, services, technology, information, or other support to maintain or expand Iran’s domestic production of refined petroleum; or (c) provides goods, services, technology, information, or other support that contributes to Iran’s ability to import refined petroleum products. The Act provides a menu of specific sanctions from which the Secretary of State can select to impose upon those engaged in prohibited activities. This flexibility allows the U.S. Government to tailor sanctions to fit particular firms and violations. For a full description of CISADA, see V&E’s July 2, 2010 e-communication on CISADA.
According to the U.S. Department of State, PCCI, Royal Oyster Group, and Speedy Ship (a.k.a. Sepahan Oil Company) are among Iran’s largest current suppliers of refined petroleum products, and all three companies engaged in deceptive practices to ship these products to Iran and to evade U.S. sanctions. The sanctions imposed on PCCI, Royal Oyster Group, and Speedy Ship prohibit them from engaging in U.S. foreign exchange, banking, and property transactions.
Tanker Pacific, Ofer Brothers Group, and Associated Shipbroking have been sanctioned for their participation in a September 2010 transaction in which an $8.65 million tanker was sold to the Islamic Republic of Iran Shipping Lines (IRISL). The sanctions imposed against Tanker Pacific and Ofer Brothers Group prohibit them from securing financing from the U.S. Export-Import Bank, obtaining loans over $10 million from U.S. financial institutions, and receiving U.S. export licenses. In the transaction, Associated Shipbroking acted on behalf of a front company for IRISL. The sanctions imposed on it, therefore, are more punitive. The company is prohibited from engaging in U.S. foreign exchange, banking, and property transactions.
PDVSA, the Venezuelan state oil company, was sanctioned for delivering to Iran at least two cargoes of reformate, a blending component that improves the quality of gasoline, between December 2010 and March 2011. According to a U.S. official speaking on background, PDVSA has applied for Export-Import Bank financing and U.S. export licenses in the past. Still, the sanctions against PDVSA are largely symbolic and will have little practical effect on PDVSA’s operations. The State Department made clear that the sanctions do not apply to PDVSA subsidiaries and do not prohibit PDVSA from exporting crude oil to the United States. PDVSA’s subsidiary CITGO operates in the U.S., and imports from Venezuela account for about 10 percent of all U.S. imports of crude oil and petroleum products.
Even prior to the enactment of CISADA, the Iran Sanctions Act prohibited investments of $20 million or more in the development of Iran’s petroleum resources. Though this prohibition existed previously, the U.S. had not imposed any sanctions for prohibited investments until after the CISADA amendments were enacted. In October 2010, Naftiran Intertrade Company (NICO) was sanctioned for investing in Iran’s petroleum sector. NICO is based in Switzerland, but it is reportedly owned and controlled by Iran. NICO pays companies that develop oil production in Iran and sells Iranian crude oil on the international market. In April 2011, Belarusneft was sanctioned for investing in the development of Iran’s petroleum resources. The company reportedly entered into a $500 million contract for the development of an oil field in Iran. For these activities, NICO and Belarusneft have both been prohibited from securing financing from the U.S. Export-Import Bank, receiving loans from U.S. financial institutions in excess of $10 million in any 12-month period, and obtaining U.S. export licenses or U.S. Government contracts. Together with the companies sanctioned for transactions related to refined petroleum, then, a total of nine foreign companies have been sanctioned for violating the prohibitions in the amended Iran Sanctions Act.
For additional information concerning U.S. sanctions programs, please contact Vinson & Elkins lawyers Kathleen Little, David Johnson, Suzanne Reifman, Adrianne Goins, or Amanda Dietrick. Visit our website to learn more about V&E's Export Controls and Economic Sanctions practice, or e-mail one of the practice contacts.