In other breaking news that many may have missed, Orbitz Worldwide, Inc. recently reported in its most recent 10-Q that a handful of employees of a Hilton-branded hotel were paid wages via direct deposit into bank accounts maintained with Bank Melli. The obvious question is why is Orbitz reporting on seemingly immaterial activities of a third party private hotel company in its public filings? The answer is because the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA) now requires it.
The ITRA recently added new Iran-related disclosure requirements for public reporting companies under new Section 13(r) of the Securities Exchange Act of 1934, which became effective for SEC periodic reports due on or after February 6, 2013. Among other things, public companies are required to disclose in their periodic reports whether they knowingly engaged in (or any of their affiliates knowingly engaged in) certain “Iran-related activities, ” which generally include dealings involving:
- the Iranian government;
- entities owned or controlled by the Iranian government;
- persons designated on the OFAC Specially Designated Nationals (SDN) list as representatives of the Iranian government;
- persons and entities identified on the SDN list as supporters of terrorism or proliferators of weapons of mass destruction;
- financial institutions that facilitated a transaction for any person or on the SDN list whose property is blocked in connection with certain terrorist-related activities; or
- Iranian oil resources.
At first glance, many reporting companies may believe that the new requirements of Section 13(r) would be inapplicable to their business and operations. However, a significant number of public companies are taking a conservative approach with their Iran-related disclosures and are reporting almost anything that is potentially covered by the ITRA. The reason for this conservatism is likely due to two key aspects of the ITRA requirements.
First, Section 13(r) requires reporting of activity of both the issuer and its affiliates. The term “affiliate” is
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