The U.S. Securities and Exchange Commission (SEC) yesterday issued some answers to frequently asked questions on the new reporting requirement contained insection 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012(TRA) (H.R. 1905, enacted as Public Law 112-158) that was signed into law on August 10, 2012 and requires ''issuers" to disclose certain activities in Iran starting on February 6, 2013.
Asexpected, the guidance is broad in nature and does not shed too much light on important terms, such as the definition of“affiliate.” As noted below, the SEC has stated that they will use the definition of that term that is currently contained in section 12b-2of the SEC’s regulations, which states:
Affiliate. An “affiliate” of, or a person“affiliated” with, a specified person, is a person that directly, or indirectlythrough one or more intermediaries, controls, or is controlled by, or is undercommon control with, the person specified.
TheFAQs can be found on the SEC's website here and include questions 147.01 through147.07.
The text of each of the FAQs are reprinted below:Question 147.01Question: Section 219(b) ofthe Iran Threat Reduction and Syria Human Rights Act of 2012, signed into lawon August 10, 2012, specifies that new Section 13(r) of the Exchange Act “shalltake effect with respect to reports required to be filed with the Securitiesand Exchange Commission after the date that is 180 days after the date of theenactment of this Act,” which would be February 6, 2013. If an issuer’speriodic report is required to be filed on a date after February 6, 2013 — suchas, for example, the 2012 Form 10-K for calendar year filers — is the issuerrequired to disclose Iran-related business activities pursuant to Section 13(r)if it files the periodic report on or before February 6, 2013?
Answer: Yes. We interpret“reports required to be filed” to include any periodic report with a due dateafter February 6, 2013, regardless of when the report is actually filed. [Dec.4, 2012]
Question 147.02Question: If an issuer’sannual report is required to be filed after February 6, 2013, must it includedisclosure of activities specified in Section 13(r)(1) that occurred during thefiscal year but prior to enactment of the Iran Threat Reduction and Syria HumanRights Act of 2012 on August 10, 2012?
Answer: Yes. An issuer isrequired to disclose activities specified in Section 13(r)(1) that occurredduring the period covered by the report, which, for a Form 10-K, is the entirefiscal year. For example, an issuer that files an annual report for the fiscalyear ending December 31, 2012 is required to disclose any activities specifiedin Section 13(r)(1) that took place between January 1, 2012 and December 31,2012. [Dec. 4, 2012]
Question 147.03Question: Section 13(r) coversactivities by an issuer “or any affiliate of the issuer.” How is the term“affiliate” defined for purposes of Section 13(r)?
Answer: The term “affiliate”in Section 13(r) is as defined in Exchange Act Rule 12b-2. [Dec. 4, 2012]
Question 147.04Question: If an issuer and itsaffiliates have not engaged in any of the activities specified in Section13(r)(1) during the period covered by the report, must the issuer include astatement to that effect in its periodic report?
Answer: No. Disclosure isrequired only if the issuer or any of its affiliates engaged in any of theactivities specified in Section 13(r)(1) during the period covered by thereport. [Dec. 4, 2012]
Question 147.05Question: Section13(r)(1)(D)(iii) requires disclosure if an issuer or any of its affiliatesknowingly conducts any transaction or dealing with “any person or entityidentified under section 560.304 of title 31, Code of Federal Regulations(relating to the definition of the Government of Iran) without the specificauthorization of a Federal department or agency.” Would this provision allowissuers to omit disclosure of transactions or dealings that have beenspecifically authorized by foreign governmental authorities, but not any U.S.federal department or agency?
Answer: No. A transaction ordealing with any person or entity identified under 31 CFR § 560.304 must bedisclosed unless it was specifically authorized by a U.S. federal department oragency. If a disclosable transaction was specifically authorized by a foreigngovernmental authority, an issuer could disclose that fact in addition to theother information required by Section 13(r)(2) to provide the appropriatecontext for the disclosure. [Dec. 4, 2012]
Question 147.06Question: The Office ofForeign Assets Control (OFAC) of the U.S. Department of the Treasury issuesboth general and specific licenses. A general license authorizes a particulartype of transaction for a class of persons without the need to apply for aspecific license. A specific license is a document issued by OFAC to aparticular person or entity, authorizing a particular transaction in responseto a written license application. See OFAC’s Frequently Asked Questionsand Answers #74, available at http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#60(explaining the difference between a general license and a specific license).Does a general license issued by OFAC count as a “specific authorization of aFederal department or agency” for purposes of Section 13(r)(1)(D)(iii)?
Answer: Yes. Both general andspecific licenses constitute specific authorization by OFAC to engage in atransaction, provided all conditions of the applicable license are strictlyobserved. [Dec. 4, 2012]
Question 147.07Question: If an issuerincludes disclosure responsive to Section 13(r) in a periodic report filed withthe Commission, will the disclosure become public?
Answer: Yes. All periodicreports filed with the Commission are made public automatically upon filingthrough the Commission’s EDGAR system. [Dec. 4, 2012]
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