One of the issues that has received little attention in all the hubbub about Implementation Day is the survival of the name and shame provisions adopted by Congress in section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which amended the Securities and Exchange Act of 1934 to require that all “issuers” who are required to file annual or quarterly reports with the SEC must report certain Iran-related activities by the company itself or its “affiliates.” The activities that must be reported are activities specified in sections 5(a) and 5(b) of the Iran Sanctions Act, sections 104(c)(2) and 105A(b)(2) of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 and any transactions with the Government of Iran or with persons blocked under Executive Orders 13224 or 13382.

These transactions include knowingly

• Making and investment of $20 million or more that directly and significantly contributes to Iran’s ability to develop its petroleum resources;
• Providing goods and services valued at $1 million (or an aggregate of $5 million in a 12-month period) that directly and significantly contribute to Iran’s ability to import refined petroleum;
• Assisting Iran in the development of chemical, biological or nuclear weapons or a destabilizing amount of conventional weapons;
• Assisting in the transfer of items to Iran that can be used for human rights violations including conventional firearms, stun guns, and hardware, software and technology for monitoring and censorship;
• Assisting (in the case of foreign financial institutions) the IRGC to acquire weapons of mass destruction or delivery systems for such weapons; or
• Engaging in any transaction or dealing with the Government of Iran or any company owned by the Government of Iran “without the specific authorization of a Federal department or agency.”

Significantly, section 219 may require disclosure of activity that is not prohibited under U.S. sanctions. If any of the above described transactions is engaged in by a foreign company (that is not a subsidiary of U.S. company) and does not involve any U.S. origin goods, the transaction, although subject to one or more sanctions (such as debarment from U.S. government procurement), is not prohibited as a matter of law.

Some, but not all, of the secondary sanctions listed above were lifted on Implementation Day for foreign firms (other than those that are U.S. subsidiaries). Nevetheless, the reporting requirements set forth in section 219 remain in place for those foreign firms that are also issuers required to file annual or quarterly reports.

The situation is somewhat more complex for foreign companies that are owned or controlled by U.S. companies. Prior to Implementation Day, the activities listed above were absolutely prohibited to those companies. Now, General License H  permits some (but, again, not all) of those activities (provided no U.S. persons facilitate those activities other than through revising policies or making global IT systems available). Importantly, it permits, for foreign subsidiaries of U.S. companies, transactions or dealings with the Government or Iran and its state-owned enterprises.

As with completely foreign firms, these foreign subsidiaries that are owned and controlled by U.S. companies will be required to report all of the above listed activities, except for one, under section 219. The exception is for transactions or dealings with the government of Iran and its state-owned enterprises authorized by General License H. Because the SEC has stated that a general license constitutes the specific authorization referred to in Section 219, those transactions by foreign subs of U.S. parents will no longer be required to be reported under Section 219. Ironically, because General License H applies only to entities owned or controlled U.S. persons, wholly foreign firms that do not meet that criterion will still be required to report these transactions with the Government of Iran and its state-owned enterprises under section 219.

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRSHRA”) requires that publicly-traded companies disclose in their annual and quarterly filings with the Securities and Exchange Commission (“SEC”) certain dealings that the filers or any of their “affiliates” have had with Iran during the reporting period. Among the transactions required to be reported are any transactions with the Government of Iran “without the specific authorization of a Federal department or agency.”

There is no materiality or dollar amount threshold to this obligation to report dealings with Iranian government.  As a result, this obligation  seemingly extends to even the most trivial transaction, including legal transactions by foreign “affiliates” that are not controlled by U.S. persons and are therefore not subject to the prohibitions of section 218 of ITRSHRA

With that in mind, we have the latest Form 10-Q filed by Toyota Motor Credit Corporation (“TMCC”) which discloses that in the last quarter of 2012 an Indonesian subsidiary of Toyota Motor Company (“TMC”), a Japanese company, manufactured two automobiles worth $37,000 which another Indonesian subsidiary of TMC sold to the Iranian Embassy in Jakarta.

Because the two Indonesian companies were not controlled by TMCC these sales weren’t prohibited by Section 218 of ITRSHRA. Further, because the two cars were manufactured in Indonesia, they weren’t otherwise subject to the U.S. sanctions given that they likely had less than 10 percent U.S. origin controlled content. But since TMCC and the two Indonesian companies were under common control of TMC, they were “affiliates” of TMCC (as defined by Exchange Act Rule 12b-2), meaning that these miniscule transactions had to be reported by TMCC.

It is not clear what purpose is served by requiring companies to report such stuff other than, I suppose, to impose the regulatory hassle on any and every public company to ferret out penny ante deals by distant foreign affiliates with Iran. I, for one, look forward to upcoming revelations of, say,  some U.S. company that has an affiliated foreign grocery store chain that sold a loaf  of bread to an Iranian diplomat in Vilnius.