GPs unaware of looming Iran Act deadline

In the past few months legal advisors have encountered bewilderment when asking their private equity clients what steps they’ve taken to meet reporting rules contained in the Iran Threat Reduction and Syria Human Rights Act (ITRSHRA) passed in August. 

Any firm registered with the US Securities and Exchange Commission (SEC), or which has a portfolio company registered with the agency, must disclose a broad range of dealings made by the fund with Iranian officials.  

Not every firm, however, is aware of their obligations under the Act, leaving them little time to meet a 6 February reporting deadline. Legal sources speaking to PE Manager said even firms that prove to have no connection to Iran or Syria should at minimum be prepared to answer any SEC questions about how they reached that conclusion. 

Other concerns relate to the reporting liabilities of SEC-registered portfolio companies, who due to broad language under the Act, must file disclosures around certain Iranian or Syrian trade activity made by sister portfolio companies – a risk which reaches non-US firms in control of even one SEC-registered company. 

GPs may need to take the lead on compliance with the Act, said Debevoise & Plimpton corporate partner Matthew Kaplan in an interview with PEM. 

“Private equity firms would prefer to not receive duplicative diligence inquiries from their portfolio companies as to its and its control entities’ compliance with sanctions targeting Iran,” elaborated Kaplan. 
 
He continued: “To streamline the process and take steps to protect itself from potential control person liability and/or unwanted disclosure relating to disclosable activities, the parent private equity firm can coordinate enterprise-wide diligence efforts, review the adequacy of its portfolio companies’ policies and procedures and act as the central resource for all necessary information.”

The law follows the Comprehensive Iran Sanctions Act signed in 2010, which requires the federal government to impose sanctions against private equity firms that “knowingly” assisted Iran’s production of petroleum under certain conditions.