Shearman And Sterling

Iran Sanctions, Iran Bank Note

January 31, 2018

Section 219 Iran Notices Update: Disclosure Dynamics in the Era of Relaxed Iran Sanctions


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It has now been two years since Iran-related sanctions relief took effect under the Joint Comprehensive Plan of Action.[1] While U.S. persons continue to be generally prohibited from engaging in Iran-related business, the JCPOA clearly expanded opportunities, from a sanctions perspective, for non-U.S. persons (including foreign subsidiaries of U.S. companies under General License H) to do business in that country.

The new sanctions landscape has implications for the reporting requirements of SEC-registered issuers. Since 2013, U.S.-registered issuers have been required to disclose certain Iran-related business activities in public filings with the SEC, and issuers have filed hundreds of such Iran Notices since the lifting of sanctions. We have surveyed the field of these filings to assess whether disclosure trends have been impacted by the still-changing landscape of U.S. sanctions policy toward Iran.

Noteworthy Trends

  • Issuers continue a risk-averse approach, reflecting broad interpretations of “affiliate” and “Government of Iran”
  • In describing new business ventures, issuers make note of the shifting sanctions landscape
  • Disclosure approaches continue to vary by industry
  • While federal enforcement has not materialized, states may be taking note

Section 219

As we have described in prior publications, Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA) requires SEC-registered issuers to disclose in their periodic reports filed under Section 13 of the Securities Exchange Act of 1934 specific information concerning business activities generally relating to Iran’s energy and financial sectors and Iran’s suppression of human rights, but also relating to any “transaction or dealing” with the Government of Iran—broadly defined to include any entity owned or controlled, directly or indirectly, by the Government of Iran, as well as any political subdivision, agency, or instrumentality thereof, and any person who acts or purports to act for on its behalf. Additionally, Section 219 requires issuers to report transactions with OFAC-designated global terrorists and weapons proliferators.

As expected, since the implementation of the JCPOA, there has been a notable increase in Section 219 disclosures by U.S. companies in Form 10-Ks. By our count, roughly half of Iran Notices appear in 10-Ks as opposed to 20-F filings.

Issuers Maintain Conservative Approach to Section 219 RequirementsWith little guidance issued by the SEC, issuers have struggled with how broadly to interpret the terms of Section 219—particularly, the terms “affiliate” and “Government of Iran”—as they determine which events trigger a reporting obligation. As reflected by the examples below, issuers have continued a pattern of taking a conservative approach to these terms.


Section 219 requires issuers to disclose certain conduct by the issuer “or any affiliate of the issuer” with respect to Iran. The SEC staff, in guidance published on December 4, 2012, suggested that the term “affiliate” in Section 219 is the same as defined in Exchange Act Rule 12b-2. Rule 12b-2 states that “[a]n ‘affiliate’ of, or a person ‘affiliated’ with, a specified person, is a person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.” As we have noted in previous publications, issuers continue to lament the vague scope of this term as they reported the conduct of various affiliates, no matter how attenuated their corporate relationship may be.

For example, in its February 16, 2017 filing, Laredo Petroleum, Inc. (a U.S. company) stated clearly that neither it nor its affiliates knowingly engaged in any activities associated with Iran. However, “because the SEC defines the term ‘affiliate’ broadly,” Laredo disclosed information provided by Warburg Pincus, Laredo’s founding member and whose affiliates own 36.2% of Laredo’s common stock. According to the disclosure, the affiliates of Warburg Pincus beneficially own more than ten percent of the equity interests of another company, Santander Asset Management Investment Holdings Ltd. (SAMIH). Because SAMIH may be deemed to be under common control with Laredo due to the SEC’s broad interpretation of affiliate, Laredo disclosed that a SAMIH affiliate—Santander U.K. plc—held savings accounts for two SDNs during the year, even as it noted that SAMIH’s activity does not relate to any activity conducted by Laredo or Laredo’s affiliates.

Many issuers disclosed Iran activities of their major shareholders. For example, noting that the SEC “defines the term ‘affiliate’ broadly,” Century Aluminum Co. (a U.S. company) disclosed in 2017 the Iran activities of its largest stockholder (and affiliates thereof), “despite the fact that the Company has no control over” those entities. Similarly, Polymet Mining Corp. (a Canadian company) disclosed in 2016 that it was reporting information related to its largest shareholder, which, because of the SEC’s broad interpretation, “may be considered an affiliate of the Company despite the fact that the Company has no control over” that shareholder’s actions or the actions of its affiliates.

Hilton Worldwide Holdings, Inc. (a U.S. company), also noted the SEC’s broad interpretation of the term “affiliate,” stating that it may be deemed to be a controlled affiliate of the Blackstone Group. Because affiliates of the Blackstone Group may be deemed to be Hilton’s affiliates, Hilton Worldwide reported last year the Iran-related activity of Blackstone affiliate Travelport Worldwide Ltd. This is in addition to Hilton disclosing its own reportable activity under Section 219, which included the stay at a Hilton property by an Iranian governmental delegation.

“Dealings” with the “Government of Iran”

Similarly, there is continued lack of clarity as to the specific types of entities encompassed by the “Government of Iran,” and what activities constitute reportable “dealings or transactions.” Here again, issuers largely take a conservative approach.

Transactions with Iranian joint ventures frequently prompted disclosures, even when the ownership of the venture was less than clear. For example, ArcelorMittal S.A., (a Luxembourg company) reported the business conducted in Iran of its European business segment. In disclosing the sale of steel products to an Iranian joint venture, ArcelorMittal stated that it relied not on SEC guidance, but on “press reports and other publicly available information,” which suggested that these “companies may have links to the Iranian Government.”

In a complex disclosure related to a joint venture, BHP Billiton (an Australian company) disclosed the activity of its wholly owned affiliate BHP Great Britain Ltd. (BHP GB). BHP GB, together with British Petroleum (BP) and two other oil and gas companies, holds a percentage interest in the Bruce oil and gas platform that provides transportation and processing services to the Rhum gas field. BHP Billiton noted that the Rhum field is owned under an unincorporated joint arrangement between BP and the Iranian Oil Company Ltd., whose indirect owner—the National Iranian Oil Company—is owned by the Government of Iran. BHP also noted that the Bruce-Rhum agreement to which its affiliate is a party is an activity authorized pursuant to an OFAC-issued license.

Nomura Holdings, Inc. (Japan) disclosed that its indirect wholly owned subsidiary “interacted with a multilateral development financial institution that supports the economic development of its member countries, largely in Africa, the Middle East and Southeast Asia, in connection with a potential financing transaction for the client of the institution.” The company noted that the Government of Iran holds a minority ownership interest in this institution, but that it had no basis to believe that the Government of Iran controls the institution.

Likewise, several issuers deemed Iranian port activities to constitute dealings with the Government of Iran. For example, in its 2016 filing, NewLead Holdings disclosed that one of its transport ships called at Bandar Imam Khomeini (BIK) port of Iran on two occasions to discharge shipments. Similarly, Safe Bulkers, Inc. (a Monaco company) disclosed the three port calls in Iran and provided the names of each Iranian port, the name of each vessel, the content of its cargo, as well as the gross rate charged by the port. While it asserted that this practice did not violate sanctions, Safe Bulkers stated that its policy is for its vessels to avoid port calls in Iran unless the charterer provides information certifying that its cargo is licensed by OFAC.

In another example of abundance of caution, Reynolds Group Holdings Ltd. (a U.S. company) disclosed in 2016 that a UAE joint venture (of which it owned 50%) sold milk carton sleeves to an Iranian dairy company that was “majority-owned by a pension fund for certain civil servants in Iran and therefore may be indirectly controlled by the Government of Iran.” Unilever N.V. (a Dutch company) disclosed in 2016 that its non-U.S. subsidiary, among other relevant transactions, “advertised our products on television networks that are owned by the Government of Iran or affiliated entities,” and further noted that “[i]ncome, payroll and other taxes, duties and fees (including for utilities) were payable to the Government of Iran and affiliated entities in connection with our operations” in the country.

Certain issuers have taken the position that even inadvertent transshipments through Iran trigger a reporting obligation. For example, in 2016 Honeywell disclosed that its non-U.S. subsidiary “inadvertently made four ground shipments of low value, non-U.S. items from Turkey to Uzbekistan from December 2013 to March 2014 that transited through Iran en route to Uzbekistan,” with a combined total value of approximately $48,000. The vendor proposed the transport route for the shipment through Iran, which was inadvertently approved by non-U.S. Honeywell employees. Honeywell noted that its subsidiary did not pay, directly or indirectly, any duties or taxes to the Government of Iran, as the goods were shipped pursuant to a treaty system allowing for the bypass of customs in transiting countries. Nonetheless, Honeywell voluntarily disclosed the transshipments to OFAC and reported the activity in its 10-K.

In a similar vein, some issuers reported even rejected transactions under the theory that they could be considered “dealing” with the Government of Iran. For example, last year Dell Technologies, Inc. (a U.S. company) reported that “the Embassy of the Government of Iran located in the Republic of Ireland placed an order for Dell desktop computers” and other equipment. Notably, Dell “did not accept the order,” but the Embassy “deposited prepaid funds in the amount of its purchase order in a local bank for our account.” Dell reported that the funds remain blocked at the local bank.

No Materiality Threshold

Section 219 contains no exception for de minimis transactions, as demonstrated by multiple examples. For example, Food retailer Royal Ahold Delhaize (a Dutch company) disclosed that in 2016 its subsidiary sold to two separate individuals a book on the Dutch language. The books were delivered to the Iranian Embassy in the Netherlands, for a net revenue of just €67.

When disclosing transactions of nominal value, some companies elected not to provide information on associated profits or revenues. For example, MasterCard, Inc. (a U.S. company) disclosed that it processed transactions related to Iranian Embassies in certain European countries, as well as transactions for Iran Air, which accepted MasterCard payments in Austria, France, Malaysia and Qatar. MasterCard provided no more detail, and did not disclose net revenues or profits associated with the processed transactions, only describing the transactions as “de minimis.”

Companies Explore New Iran Business Amid Fluid Sanctions Environment

Through disclosures, issuers have explicitly noted the current atmosphere of regulatory uncertainty. For example, Star Bulk Carriers, Inc. (a Greek company) noted that sanctions regimes instituted by various jurisdictions prohibit “a wide scope of conduct, target numerous countries and individuals, are frequently updated or changed and have vague application in many situations.” Consequently, “there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations.”

Many other issuers have likewise stated that they cannot provide assurance of future compliance with all applicable sanctions laws. For example, Mitsubishi UFJ Financial Group (a Japanese company) described the variance of sanctions laws across major jurisdictions as increasing the “costs and resources necessary to design and implement an appropriate global compliance program.” Specifically, Mitsubishi UJF reported that it altered its compliance program to accommodate a series of measures implemented by the Japanese government related to Iran. In doing so, however, Mitsubishi UJF expressed concern in its disclosure that “there remains a risk of potential U.S. regulatory actions against us…if U.S. regulators perceive the modified policies and procedures not to be in compliance with applicable regulations.”

Other companies are alerting investors to the potential for snap-back of nuclear-related sanctions. Capital Product Partners LP (a Greek company) noted that, although sanctions relief was granted as part of the JCPOA, “[a]ctivities permissible under the JCPOA have not actually been repealed or permanently terminated under U.S. law,” and that “the United States has the ability to re-impose sanctions against Iran if Iran does not comply with its obligations under the nuclear agreement.”

Despite this uncertainty, disclosures from both U.S. and non-U.S. issuers reveal that many companies are exploring new opportunities since the easing of sanctions two years ago. For their part, many U.S. issuers are taking advantage of OFAC’s General License H, which authorizes certain Iran-related transactions by foreign entities owned or controlled by U.S. persons. For example, Arthur J. Gallagher & Co. (a U.S. company) reported that its U.K. subsidiary acted as an insurance broker and advised clients about obtaining insurance coverage for activities related to Iran’s oil, gas and petroleum industries. The U.K. subsidiary then assisted clients in obtaining insurance, reinsurance and retrocession coverage for a variety of oil-related activities. The company pointed out that these activities were conducted pursuant to General License H and stated that it intends to continue acting as an insurance broker in connection with these coverages. Similarly, Eaton Corp. PLC (a U.S. company) also stated that its subsidiaries intend to continue to do business in Iran under General License H, noting, however, that it has no assets or employees in Iran. Validus Holdings Ltd. (a U.S. company) has non-U.S. subsidiaries that are now conducting shipping operations in and out of Iran, including the shipment of “crude oil from Iran to another country and transporting refined petroleum products to Iran.”

Many non-U.S. companies likewise disclosed new or proposed ventures in Iran. While some of these ventures have been highly noted in the press (e.g., Total S.A.’s massive planned development of Iranian gas fields), many smaller ventures are also underway. Canon, Inc. (a Japanese company) disclosed transactions relating to copier leases and service contracts with various Iranian Embassies, and further stated that it “intends to study the possible restart of business with certain Iran counterparties, considering recent changes in the international situation and economic situations relating to Iran.” Nomura Holdings, Inc. (a Japanese company) obliquely disclosed that its subsidiaries had “engaged in discussions on business development” with the Government of Iran, but “may engage in similar activities in future periods.”

Notable Disclosures by Industry

There is no uniform approach to complying with the disclosure requirements of Section 219. Each issuer’s decision whether—and how much—to report depends on a variety of factors, including the nature and risk profile of their respective lines of business. Below, we highlight representative disclosures from various industries:

Financial Institutions and Financial Services

The tendency by U.S. and non-U.S. financial institutions to take a risk-averse posture to Section 219 is unsurprising considering that these institutions are, in general, subject to increased regulatory scrutiny. Accordingly, U.S. financial institutions routinely disclose transactions with SDNs, irrespective of the monetary amount involved. Other specific disclosures include:

  • Lloyds Banking Group PLC (a U.K. company) disclosed that, despite “reducing its dealings with Iran and individuals and entities associated with Iran,” two of its non-U.S. affiliates (Lloyds Bank PLC and Bank of Scotland PLC) received or made payments involving entities owned or controlled by the Iranian Government. Lloyds asserts that these payments (related to “historic guarantees”) were credited to blocked or frozen accounts, and specifically authorized under U.K. and EU sanctions laws.
  • BBVA Compass Bancshares, Inc. (a U.S. company) disclosed that it had not knowingly engaged in Iran-related activities, but did disclose conduct taken by affiliates and subsidiaries of its controlling company, BBVA Group. These activities included legacy contractual obligations related to counter indemnities to its non-Iranian customers in Europe, as certain guarantees had been provided by Bank Melli PLC. BBVA Group further disclosed certain letters of credit issued by an Iranian bank to one of BBVA Group’s clients in Europe. Lastly, BBVA Group noted that it maintains bank accounts in Spain for two employees (both Spanish citizens) of the Iranian Embassy in Spain. BBVA Group announced its plans to terminate these business relationships as soon as legally possible.
  • Mitsubishi UFJ Financial Group, Inc. (a Japanese company) disclosed that its subsidiaries conducted “loan transactions with counterparties in or affiliated with Iran, the outstanding balance of which was approximately $0.8 million, representing less than 0.0001% of our total assets, as of March 31, 2016.” The company emphasized that it did “not have any loans outstanding to the financial institutions specifically listed [for sanctions] by the U.S. government.” Additionally, the bank disclosed “receiving deposits or holding assets on behalf of individuals residing in Japan who are citizens of countries designated as state sponsors of terrorism,” including Iran.
  • Citigroup, Inc. (a U.S. company) disclosed in its 2016 third quarter 10-Q that it processed three Iran-related transactions totaling approximately $681. The three funds transfers involved three different Iranian Embassies worldwide. In one case, Citigroup, London processed a domestic payment from an individual in Ireland to the Iranian Embassy in Ireland, as well as a cancellation refund for the Iranian Embassy in Norway. In another case, a subsidiary of Citigroup acted as a remitting bank for a payment related to a visa fee for the Iranian Embassy in Poland. Citigroup clarified that the three funds transfers were for transactions ordinarily incident to travel, and were therefore activities exempted under OFAC regulations.

Pharmaceuticals/Medical Devices

Many non-U.S. pharmaceutical companies reiterated their commitment to providing life-saving medicine and medical equipment to Iran, regardless of the end-user. Most companies continued to assert their goal of providing healthcare products to patients around the world, despite any geopolitical or economic issues in those countries.

  • EDAP TMS S.A. (a French company) once again disclosed that it honored warranty contracts in 2015 related to previous sales of lithotripsy devices (used to treat kidney stones) to three Iranian public hospitals. However, in a departure from previous years, EDAP noted that it did not invoice any medical equipment in 2016.
  • AstraZeneca PLC (a U.K. company) disclosed that its affiliate sells pharmaceuticals in Iran solely through a single third-party distributor, using three known entities in the Iranian distribution chain, none of which appears to be controlled by the Government of Iran. However, the company noted that the third-party distributor may initiate payments through banks associated with the Government of Iran, and at least one independent sub-distributor is likely indirectly controlled by the Government of Iran. Finally, AstraZeneca noted that, due to the types of products it sells, it is likely that some of the end-payers for its medicines might include members of the Government of Iran. The net profit of this activity was $6 million to AstraZeneca PLC (approximately 0.18% of the AstraZeneca Group’s net profits).
  • Novo Nordisk A/S (a Danish company) noted that, as a global company, it conducts business with customers in Iran, including the Government of Iran. Among the disclosures, Novo Nordisk detailed that its wholly owned affiliate in Iran plans to build a factory on land purchased from a company controlled by the Government of Iran. Novo Nordisk A/S plans to “invest approximately €70 million over the course of the next five years” to pay for its construction. This is in addition to the company’s regular sale of pharmaceutical products and devices directly to the Government of Iran, and its transactions with designated banks, a practice Novo Nordisk plans to continue.
  • Fresenius Medical Care AG & Co. KGaA (a German company) noted in its disclosure that certain exceptions apply when transactions involve the sale of medical devices. Fresenius referenced “OFAC’s public guidance provides that sales of medical devices to Iran by non-U.S. companies are generally subject to humanitarian exceptions.” Fresenius’ disclosure was notable because it was a departure from most filings, which as a general rule did not reference OFAC guidance but rather simply asserted that certain actions are permissible under all applicable laws.

 Several U.S. issuers also reported notable activity:

  • Eli Lilly and Co. (a U.S. company) disclosed that it ships pharmaceutical products to, and conducts “related activities” in, Iran through a non-U.S. subsidiary. The company noted its discovery that some of these shipments, which were arranged by a third-party logistics company, were sent to Iran on aircraft owned or operated by Iran Air, which is a designated air carrier under Executive Order 13382. Eli Lilly announced that it voluntarily disclosed the activity to OFAC and implemented internal controls to ensure its products are no longer shipped through Iran Air.
  •  John Wiley & Sons, Inc. (a U.S. company) reported net profits of approximately $0.6 million related to the sale of scientific and medical content to certain “publicly funded universities, hospitals, and institutions that meet the definition of the ‘Government of Iran.” Asserting that these transactions are compliant with U.S. sanctions programs, Wiley & Sons expressed its intent to continue these or similar sales.
  • Much like AstraZeneca, GlaxoSmithKline PLC (a U.K. company) disclosed that, while it “does not have a legal entity based in Iran . . . it does export certain pharmaceutical and vaccine products to Iran, via sales by non-U.S. entities, to two privately held Iranian distributors.” GSK stated that it has “no direct knowledge of the identity of its distributors’ downstream customers in Iran, and it is possible that these customers include entities, such as government-owned hospitals and pharmacies that are owned or controlled directly or indirectly by the Iranian government.”

Non-Medical Consumer Goods

The fact that many of these well-known consumer goods companies have complex global affiliate relationships did not prevent them from disclosing even minor operations in Iran.

  • Canon Inc. (a Japanese company) disclosed the Iran-related activity of more than eight affiliates, despite the fact that all of these disclosures were related to the maintenance of copier machines at various Iranian embassies around the world, with each transaction generating less than $1,000 in net profit.
  • Sony Corp. (also a Japanese company) disclosed that a non-U.S. subsidiary sold medical instruments (“including medical printers, print media and monitors”) to a third-party-owned dealer in Dubai, which resold those items to entities under the control of the Iranian Ministry of Health. Sony’s gross revenue from these sales was approximately $4.8 million, and Sony estimated that its net profit from such sales was $0.3 million. Additionally, the company disclosed incidental transactions (taxes and permits) paid to Government of Iran-owned bodies relating to the liquidation of its representative office in Tehran.
  •, Inc. (a U.S. company) reported that it “determined [it] processed and delivered orders of consumer products for certain individuals and entities located outside Iran covered by” Iran sanctions. These included consumer products valued around $50 to an Iranian Embassy not located in Iran; consumer products totaling about $1,300 to an individual designated under Executive Order 13224; products for an entity owned or controlled by the Government of Iran valued around $2,400; and $250 in sales to a person who may have been acting for an entity designated by Executive Order 13382 and owned or controlled by the Government of Iran. The consumer product sales included “books, other media, apparel, home and kitchen, jewelry, office, toys, consumer electronics, software, health and beauty, pet products, and lawn and patio.” Amazon stated that it cannot accurately calculate the net profit of these transactions, but that it did not plan to continue selling to these accounts in the future. Further, Amazon noted that “[a] review is ongoing and we are enhancing our processes designed to identify transactions associated with individuals and entities covered by the ITRA.”
  • Alibaba Group Holding Ltd. (a Chinese company) disclosed Iran-related activities of SoftBank Group Corp., one of its major shareholders. Specifically, during the previous year, one of SoftBank’s non-U.S. subsidiaries provided telecommunications services to the Iranian Embassy in Japan, as well as roaming services in Iran through Irancell, which may or may not be a government-controlled entity. Another indirect subsidiary of SoftBank provided office supplies to the same Iranian Embassy in Japan. These transactions generated less than $1,100 of net profit to SoftBank, of which Alibaba received none.

Hospitality/Airlines Industry

  •  Boeing Co. (a U.S. company) disclosed that it “provided updates to aircraft maintenance manuals to Iran Air Tours,” which was authorized by OFAC license, and which resulted in $16,000 net profit. Boeing noted that it may continue to engage with Iran under OFAC guidelines, and that it will file appropriate disclosures as needed.
  • China Southern Airlines Co. Ltd. (a Chinese company) highlighted an aviation service agreement through which Iran Air provides “grounding service, maintenance and other support services” to China Southern. The company also noted that it has not and will not provide technology or equipment to Iran. China Southern continued: “The service rendered by our Company to Iran is limited to the provision of international traffic in passengers, cargo and mail and those services provided by our local offices and agents to customers. Our Company does not operate flights within Iran.” China Southern’s international route rights and corresponding landing rights are established and governed by a bilateral air transport agreement established between the two respective governments.

Extractive Industries/Natural Resources

Unsurprisingly, issuers in extractive industries file robust disclosures, relying heavily on OFAC-issued specific licenses where applicable.

  • Rio Tinto (an Australian company) acquired its interest in Namibia-based mining company Rössing Uranium Ltd. in 1970. Subsequently, the Iranian Foreign Investments Company (IFIC) acquired a minority shareholding in Rössing in 1975, before the establishment of the Islamic Republic of Iran and the U.S.-imposed sanctions targeting Iran’s nuclear program. IFIC maintains its shareholding under Namibian law. Rio Tinto clarified that Rössing is neither a business partnership nor a joint venture between Rio Tinto and IFIC, and further noted that it “has no power or authority to divest IFIC’s holding in Rössing. However, Rössing and the Namibian Government have taken several recent steps to limit IFIC’s future involvement in Rössing.” For example, between 2010 and 2012, both the Namibian government and the Rössing board took steps to terminate IFIC’s (and by extension, Iran’s) involvement in Rössing, though IFIC will still be entitled to shareholder dividends.
  • CNOOC Ltd. (a Chinese company) disclosed that a non-controlled affiliate conducted “certain drilling and other related services in Iran under renewed subcontracting agreements.” CNOOC ended its disclosure: “We cannot predict at this time whether U.S. sanctions will be imposed on any of our affiliates.”
  • PetroChina Ltd. (a Chinese company) reported that Bank of Kunlun, a PetroChina affiliate due to common control by CNPC, was added to OFAC’s List of Foreign Financial Institutions in 2012. OFAC alleges that Bank of Kunlun serviced at least six designated Iranian banks, but PetroChina asserts that it has no involvement in or control over this affiliate and has never received any net revenue from these activities.
  • China Petroleum and Chemical Corp. (a Chinese company) reported that it engaged in minor trading activities with an Iranian company, as well as sourced a small amount of crude oil from Iran, representing approximately 5% of its refinery throughputs for the year 2016. Like many companies, China Petroleum also reported the activity of its affiliate and controlling shareholder, Sinopec Group Co., which provided oil-related engineering and design services in Iran.


The complicated nature of telecommunications filings has been thoroughly outlined in previous publications: the overlap of affiliated companies, numerous activities disclosed by a single issuer, various services and equipment provided to Iran-related entities, Iranian Embassy-specific services and the myriad roaming agreements.

  • China Mobile Ltd. (a Chinese company) reported the activities of its parent company, CMCC, which is party to international GSM roaming agreements with Telecommunication Kish Company and Mobile Company of Iran. Both Iranian companies “may be government controlled entities.” Further, China Mobile disclosed that one of its wholly owned subsidiaries, China Mobile International, is a party to a roaming agreement with Irancell Telecommunications Services Company, which may also be a government-controlled entity. Gross revenue totaled less than $500,000, with net profits being “insignificant,” and China Mobile said it intends to continue such activities in the future.
  • Nokia Corp. (a Finnish company) began its 2017 disclosure by noting its two local offices in Iran that employ 50 employees through a branch of a Finnish subsidiary and three employees through a branch of Alcatel Lucent International. Nokia described “routine contacts with government agencies” required to maintain its legal presence, including its tenancy of office facilities, payment of taxes, and employ of Iranian nationals. Relatedly, Nokia disclosed the maintenance of bank accounts for financial transactions in Iran and providing telecommunication equipment and services to Iranian mobile network operators.

Shipping and Logistics

  • NewLead Holdings Ltd. (a Bermuda company) used its sizeable disclosure to state that U.S. and EU economic sanctions could lead to loss of revenue and other adverse effects. NewLead then discussed its heightened compliance policies, explaining that it now includes “provisions in all of [its] new charters designed to prevent our charter parties from violating applicable laws relating to existing sanctions and from engaging in sanctions-triggering activity.” Following that statement, NewLead disclosed that one of its transport ships called at Bandar Imam Khomeini (BIK) port of Iran on two occasions to discharge shipments.
  • Oaktree Capital Group LLC (a U.S. company) recounts a 2015 seizure by the Iran Revolutionary Guard Corps. of its indirectly owned vessel the Maersk Tigris. The vessel was escorted towards the Iranian port of Bandar Abbas and seized. The company noted that, during the seizure, the ship master bought “certain necessary provisions to maintain the health, safety and/or security of the Vessel’s crew,” which generated no revenue for Oaktree.

Enforcement Considerations

From an enforcement perspective, the SEC appears to have signaled relatively low interest in policing Section 219 since its inception. To our knowledge, the SEC has yet to bring an enforcement action against an issuer for violations of its Section 219 reporting obligations. Moreover, neither the current nor former Presidential Administration has publicly “initiate[d] an investigation into the possible imposition of sanctions” with respect to an issuer or its affiliate disclosing Iran-related business, as envisaged by Section 219.

While federal authorities have thus far shown limited willingness to take a heavy enforcement approach in this area, state governments may be paying closer attention. Thirty states and the District of Columbia have enacted their own divestment legislation or policies, which generally prohibit the investment of state-managed funds (e.g., public pension funds) in any entity determined to be doing business in Iran and other sanctioned countries. Importantly, these state divestiture laws often do not track federal sanctions from either a legal or policy standpoint. Accordingly, conduct that is permissible under U.S. sanctions programs often runs afoul of stricter state divestiture statutes. This is especially so since the lifting of Iran-nuclear sanctions; anecdotally, we can report an uptick in the number of state governments notifying companies that their reported Iran business activities preclude them from receiving the investment of state funds. Often, these state agencies base their initial findings on disclosures made pursuant to Section 219. Consequently, some issuers may find themselves weighing the benefits of Iran ventures with the potential costs of divestiture by certain U.S. states.

Summing It All up

It is clear that issuers are maintaining a conservative approach to Section 219, even while relaxed U.S. sanctions requirements allow for new commercial opportunities in Iran. In light of the SEC’s expansive reading of the law, issuers continue to err on the side of reporting even attenuated relationships with Iran.


If you have any questions, concerning section 219 disclosures, please contact your regular Shearman capital markets partner or one of the authors of this note.


[1] Under the JCPOA, the EU and U.N. lifted most sanctions against Iran, while the United States committed to waiving nuclear-related secondary sanctions aimed at activity by non-U.S. persons. Importantly, the U.S. Office of Foreign Assets Control (OFAC) also issued General License H, which authorizes certain Iran-related transactions by foreign entities owned or controlled by U.S. persons.

Authors and Contributors

Stephen Fishbein



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Danforth Newcomb

Of Counsel


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