01.25.2013 Foreign Subsidiaries Subject to Iran Sanctions Now Permitted to Engage in "Wind-Down" Activities; SEC Provides Guidance on Reporting Requirements



On December 26, 2012, the Office of Foreign Assets Controls (“OFAC”) issued a final rule amending the Iran Transaction Sanctions Regulations (“ITSR”).[1]  The rule adds a section to the ITSR to more formally implement the prohibition on foreign subsidiaries engaging in activities that violate the ITSR that went into effect on October 9, 2012.[2]  The rule also clarifies that those foreign subsidiaries are permitted to engage in transactions that are either eligible for general licenses or are exempted from the ITSR, and are eligible to apply for specific licenses as a U.S. person could apply for such licenses.


Perhaps most importantly, the rule creates a general license authorizing those foreign subsidiaries to engage in “transactions ordinarily incident and necessary to the winding-down of [prohibited] transactions . . . provided that those. . . transactions do not involve a U.S. person or occur in the United States.”[3]  The general license is in effect from October 9, 2012, through March 8, 2013.[4]  Prior to the creation of this general license, US companies would have been held liable for these wind-down activities by their foreign subsidiaries unless they divested their interest in the foreign entity prior to February 6, 2013.[5]


At the same time, the SEC has issued guidance on the new requirement for public companies to report on violations of the ITSR in their annual or quarterly reports.[6]  Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012[7] requires public companies to include in any annual or quarterly report with a due date after February 6, 2013, information on certain activities by such companies or their “affiliates” involving contacts with or support for Iran or other identified persons involved in terrorism or the creation of weapons of mass destruction.


The SEC has created a new EDGAR form type called IRANNOTICE.[8]  Public companies that are required to include information described above in their periodic reports must also prepare the notice and submit it using the new form type.  The notices will appear with the companies’ filing history on EDGAR and will be searchable.


The SEC has also issued guidance on the reporting requirement.[9]  They have confirmed that the definition of the term “affiliate” in the new law is consistent with the definition of the term elsewhere in the Exchange Act (Rule 12b-2).  As such, an affiliate 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.”[10]


They have also clarified that reports must include activities that occurred during the period covered by the report, even if those activities occurred prior to the February 6, 2013 effective date of the reporting requirement, but that activities covered by general or specific licenses issued by OFAC are not required to be reported. 


OFAC’s issuance of a general license for “wind-down” activities engaged in by foreign subsidiaries may alleviate the obligation for some public companies to report these activities pursuant to Section 219 and may allow U.S. parent companies to avoid liability for these activities without divesting their interest in their foreign subsidiaries.  The general license gives foreign subsidiaries at least some time to disentangle themselves from the activities that were made unlawful by the October Executive Order, though it is unclear whether this will be sufficient time for all of the companies in this position.

[1] Office of Foreign Assets Control, Final Rule: Iranian Transactions and Sanctions Regulations, 77 Fed. Reg. 75,845 (Dec. 26, 2012).

[2] See Executive Order from the President regarding Authorizing the Implementation of Certain Sanctions Set Forth in the Iran Threat Reduction and Syria Human Rights Act of 2012 and Additional Sanctions with respect to Iran, Section 4 (Oct. 9, 2012) (available at

[3] 77 Fed. Reg. at 75,850.

[4] Id.

[5] See Executive Order, supra note 2, at Sec. 4(c).

[6] SEC Questions and Answers of General Applicability, Section 147 (Dec. 4, 2012) (available at 

[7] Pub. L. 112-158 (Aug. 10, 2012).

[8] See Notice required by the Iran Threat Reduction and Syria Human Rights Act of 2012 to be filed through EDGAR (Dec. 19, 2012) (available at    

[9] See supra note 6.

[10] 17 C.F.R. § 240.12b-2.