Earlier this week, Rep. Anthony Weiner (D-NY) introduced H.R. 6361, or the “Stop Business with Terrorists Act of 2008,” which was introduced into the Senate earlier this year as S.1234 by Senators Lautenberg (D-NJ) and Clinton (D-NY). The purpose of the bill is to reverse current law which permits, in limited circumstances, dealings by foreign subsidiaries of U.S. firms with Iran.

Under current law, a foreign subsidiary could do business with Iran in the following circumstances. First, it must be a foreign subsidiary incorporated in a foreign jurisdiction, not a branch operation of a U.S. company. Second, the transactions with Iran cannot involve any U.S. persons. Third, some have argued that in order not to be seen as a device to evade the sanctions, the foreign subsidiary must have some business other than dealing with Iran.

Under the Stop Business with Terrorists Act of 2008, a parent company will be liable for acts of its foreign subsidiaries with respect to Iran that violate Executive Order 12959 and Executive Order 13059 notwithstanding its incorporation in a foreign jurisdiction and the absence of U.S. involvement in the transaction at issue. Those Executive Orders prohibit, among other things, exports and reexports of U.S. origin goods, services and technology to Iran.

Although this legislation doesn’t fall directly within the purview of the European Union’s blocking legislation, Council Regulation (EC) No 2271/96, one has to wonder whether yet another effort by the U.S. to extend the scope of its sanctions regulations outside its own borders will provoke any countermeasures or retaliation by Europe. Of course, the extraterritorial scope here is more limited than it was in the Iran and Libya Sanctions Act because only the U.S. parent is penalized under the proposed legislation. Still, the legislation will have a direct impact on the operations of E.U. companies insofar as their U.S. parents prohibit them from dealings with Iran.

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