Earlier this year, President Obama signed into law Public Law 112-158, the Iran Threat Reduction and Syria Human Rights Act of 2012. The ITRA added to and strengthened existing U.S. sanctions regarding Iran and added new sanctions targeting human rights abuses in Iran and Syria. The Act also added a new Section 13(r) to the Exchange Act which requires certain issuers to disclose whether the issuer or its affiliates have knowingly engaged in certain, principally Iran-related, activities. I just received a great memo from our friends at Sullivan & Cromwell explaining what you need to know about these rules that become effective in February 2013. Here is an excerpt:
Section 13(r) requires each issuer that must file an annual or quarterly report under Exchange Act Section 13(a) to disclose in that report whether, during the period covered by the report, the issuer or its affiliates have knowingly engaged in certain, principally Iran-related, activities. Most of these activities may lead to the imposition of sanctions under the ISA, CISADA or other authorities, and, by requiring the SEC to deliver a report containing a responsive disclosure to the President, who must then investigate and make a sanctions determination, the provision appears to be designed to prompt the imposition of sanctions against persons engaged in targeted activities.
The provision applies to all issuers that must file reports under Exchange Act Section 13(a). However, because the targeted activities are generally illegal under U.S. law, but not necessarily so under non-U.S. laws, the disclosure requirements are most likely to impact non-U.S. reporting companies and U.S. reporting companies with non-U.S. affiliates. The provision is effective for all reports required to be filed on or after February 6, 2013, and, thus, will apply to most annual reports for 2012. SEC rulemaking is not required to implement the provision.
ISSUERS REQUIRED TO PROVIDE DISCLOSURE
Many reporting companies already provide disclosure about activities related to one or more countries designated by the U.S. State Department as “State Sponsors of Terrorism” currently, Cuba, Iran, Sudan and Syria) in their periodic reports filed with the SEC, or have provided information about such activities to the SEC and the SEC’s Office of Global Security Risk in response to comment letters on those reports. These disclosures, however, are required to be provided in a reporting company’s periodic reports only if deemed material. New Exchange Act Section 13(r), by contrast, requires disclosure by all reporting companies engaged in any of the specified activities without regard to materiality.
Specifically, Exchange Act Section 13(r) requires each issuer required to file an annual or quarterly report under Section 13(a) to disclose in that report whether, during the period covered by the report, the issuer or any of its affiliates have knowingly taken actions in any of four categories.
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