The just-passed Iran Sanctions, Accountability, and Human Rights Act of 2012 for the most part merely decorates the Iran sanctions cake with a few more sprinkles and cherries, but one provision is likely to have a significant impact, namely the provision of section 218 which holds U.S. companies liable for dealings with Iran by their foreign subsidiaries. This effectively eliminates a loophole in the current regulations which exempted foreign incorporated subsidiaries of U.S. companies from the Iran sanctions as long as no U.S. persons facilitated the subsidiaries activities with Iran. In order to avoid liability under the new act, companies with overseas subsidiaries doing business with Iran must divest those subsidiaries by 180 days after the bill’s enactment.

Section 218 is not self-enacting but requires the White House within sixty days of enactment to promulgate regulations prohibiting U.S. owned foreign entities from engaging in any transaction, directly or indirectly, which would be prohibited by the Iran Sanctions if engaged in by a U.S. person or an entity in the United States. It seems certain that the President will sign the new legislation and promptly issue an executive order with the required prohibition on dealings with Iran by U.S. owned foreign entities.

Sloppy drafting of the law would permit the President an interesting out here, were he so inclined. The exact language of the bill is that the President “shall prohibit an entity” controlled by a U.S. person from engaging in transactions with Iran. Under this language, the President would be in compliance if the new regulations singled out just one such entity for the new prohibition. Presumably the drafters wanted to say “shall prohibit any entity,” but for those who believe in strict statutory construction, that’s not what the statute actually says. This is, of course, more a comment on Congress’s carelessness in drafting laws than it is a prediction that the President will actually take this approach.

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