U.S. Companies to Become Liable for Subsidiary Business in Iran

The U.S. Congress has passed a bill (H.R. 1905) that would make U.S. parent companies liable for any business their "owned or controlled" subsidiaries pursue with Iran. Assuming the president signs it, as seems likely, this law could result in substantial penalties for U.S. companies and would force a significant change in how many U.S. companies approach compliance with the U.S. sanctions against Iran.

Under the current law, the United States permits many foreign subsidiaries of U.S. companies to pursue certain transactions with Iran. The new law would remove that authority by prohibiting those subsidiaries from engaging in transactions with Iran that would be impermissible for the U.S. parent itself. The U.S. parent could be fined up to $250,000 or twice the value of the relevant transaction for any violation a subsidiary causes.

The effect of this new prohibition might be mitigated somewhat by a growing trend among U.S. companies to preemptively terminate even permissible subsidiary business in Iran. It is often easier for a U.S. company to end its subsidiaries' Iran business than to comply with increased sanctions against the Iranian financial sector and Iran itself. Nonetheless, companies will need to revise their compliance programs to account for the new prohibitions. This will, of course, be most difficult for those companies whose subsidiaries have not yet decided to end their Iran business or have not finished doing so.

The new law would also impose a number of new sanctions against companies in the financial and energy industries should they continue to engage in relevant transactions with Iran. A copy of the bill is available here.