Mandated SEC Reporting of Iran-Related Activities and Activities With Certain Other Sanctioned Persons

January 08, 2013

The Iran Threat Reduction and Syria Human Rights Act of 2012, signed into law on August 10, 2012, created a new reporting requirement for issuers, including foreign private issuers, who file reports with the Securities and Exchange Commission to disclose their own and their affiliates’ Iran-related activities. In light of this latest requirement, Issuers should examine their current blocked person and sanctioned country screening procedures to ensure they are obtaining the information necessary to decide whether or not they are required to report any activities under the Act, and to address the information flow among affiliated companies in order to permit them to comply with these new mandatory reporting requirements. U.S.-based issuers and their foreign affiliates, as well as foreign private issuers, should carefully consider the administrative issue of whether their corporate reporting procedures must be amended to permit filers to make accurate reports under the Act, and the public relations ramifications that could result from the SEC’s publishing those reports on the Internet.

This new mandate also requires issuers to report their own and their affiliates’ activities relating to sanctioned persons whose property is blocked because the U.S. government has determined that they are engaged in terrorist activities or in proliferation of weapons of mass destruction, regardless of whether they are acting on behalf of Iran or some other group of interest. The disclosure requirement differs from current SEC disclosure requirements because it applies whether or not the reportable activities are material — either quantitatively or qualitatively — to the operations of the issuer or its affiliates. In the past, the SEC’s Office of Global Security Risk has monitored issuers’ activities and has sent inquiries to issuers requesting they report on their activities involving sanctioned countries, but the Act requires issuers to make active disclosures rather than simply respond to SEC inquiries as they are issued.

  1. The reporting provisions are set forth in Section 219 of the Act, which requires that issuers disclose in their annual and quarterly reports if they or their affiliates have knowingly engaged in activities, transactions or dealings that are subject to sanctions under U.S. Iran sanctions laws and regulations or relate to dealings with certain persons or entities determined to be involved in proliferation of weapons of mass destruction or terrorism. The Act also mandates that issuers reporting such activities must also file a separate notice with the SEC that disclosure of such activities has been included in their annual or quarterly reports. The effective date of the new SEC reporting requirements is 180 days following the date of enactment of the Act (which makes the effective date February 6, 2013).
  2. The SEC has issued Compliance and Disclosure Interpretations to provide guidance to issuers concerning implementation of the requirements of Section 219 of the Act. These C&DIs include the following important points.
  3. The SEC interprets the effective-date provision as imposing the new reporting requirement for any report with a due date after February 6, 2013, even if the report is actually filed prior to February 6, 2013.
  4. The required reports must disclose reportable activities that occurred at any time during the period covered by the report, including, if applicable, a period prior to enactment of the Act. For example, a 10-K report covering the calendar year 2012 must include reportable activities that occurred on or after January 1, 2012, even though the Act was not signed into law until August 10, 2012.
  5. The Act requires issuers to disclose not only their own reportable activities but also those of their affiliates. This requirement could pose practical problems for issuers in situations where they do not have the ability to require the affiliate to produce the information required for disclosure purposes (such as in the case of “brother/sister” companies under common control with an issuer, but not actually controlled by the issuer).
  6. The Act requires disclosure of certain transactions with the Iranian government and persons identified with the Iranian government and its instrumentalities. Where such transactions have been approved by a foreign government, they must still be reported unless authorized by a U.S. federal department or agency. A transaction that is authorized by a general or specific license issued by the Office of Foreign Assets Control of the U.S. Treasury Department would not have to be reported, since OFAC-licensed transactions would be deemed to have been authorized by a U.S. federal department or agency. Where a transaction was authorized by a foreign government, but not by a U.S. federal department or agency, the issuer can disclose the fact that a foreign government has given an approval “to provide the appropriate context for the disclosure.”
  7. All required disclosures pursuant to Section 219 of the Act will be made public upon filing through the SEC’s EDGAR system. SEC will be releasing on January 14 a new EDGAR form, “IRANNOTICE”, for reporting under the Act.

Where disclosure of an activity is required, the disclosure must include:

“a detailed description of each such activity, including—

(A) the nature and extent of the activity;

(B) the gross revenues and net profits, if any, attributable to the activity; and

(C) whether the issuer or the affiliate of the issuer (as the case may be) intends to continue the activity.”

Finally, the SEC must promptly transmit reports of disclosable activity to the President and to the Foreign Affairs and Banking Committees of the U.S. House of Representatives and Senate. Upon receiving these reports, the President is generally required to commence an investigation to determine whether or not sanctions should be imposed. The President must make this determination within 180 days of the initiation of the investigation.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:


This article was originally published by Bingham McCutchen LLP.