Overview

With effect from 1 June 2011, financial institutions, and governments that are active in Iran’s energy sector may be banned from doing business with the State of California. This briefing from Mayer Brown discusses the impact of the state’s new act.

As a matter of federal law, the United States for many years has barred US companies and financial institutions from virtually all dealings with Iran. In 2010, Congress extended US sanctions to foreign parties involved in Iran’s energy sector through the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA). Section 202 of CISADA authorized state and local governments to divest their funds from parties involved in Iran’s energy sector and to bar such parties from state and local government contracts. California is the first state in the nation to enact a law pursuant to Section 202.

California’s Iran Contracting Act bars persons determined to be engaged in investment activities in Iran’s petroleum, natural gas or nuclear industries from bidding on or renewing contracts with California state and local governments for goods and services worth $1 million or more. The Act requires bidders and contractors to certify that they are not on a list of persons engaged in defined investment activities in Iran prior to bidding on or renewing a contract.