SEC Queries on Iran Down While Those for Syria, Sudan Up

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By Che Odom

April 26 — The SEC is querying far fewer companies about disclosures related to their business dealings in Iran, but commission questions over Sudan and Syria have increased.

According to Bloomberg BNA's review of letters sent to companies by Securities and Exchange Commission staff over the past 36 months, 10 companies received queries regarding their Iranian connections during the 12 months ending April 26, down from more than 50 in the same period in 2014.

At the same time, there was a slight increase in the hundred or so letters sent by the staff regarding Sudan and Syria. .

While “comment letters seem to come in waves,” companies are seeing an “uptick” in letters on Sudan and Syria, Judith Alison Lee, partner in the Washington office of Gibson, Dunn & Crutcher LLP, told Bloomberg BNA.

Companies must disclose certain business dealings or activities with Iran, Syria and Sudan following the adoption of SEC rules regarding Sudan in 2008 and passage of the Iran Threat Reduction and Syria Human Rights Act in 2012.

The regulations were implemented after the State Department deemed the three countries state sponsors of terrorism.

Attempts to reach the SEC for comment weren't successful.

Success with Iran

If SEC staff members are shifting their focus to Syria and Sudan, “it is most likely because they have largely succeeded with Iran and backed it up” with the statutory reporting requirements, Philip Urofsky, partner and litigator in the Washington office of Shearman & Sterling LLP, told Bloomberg BNA.

“Syria is clearly a current hot spot, Sudan not so much, but for that reason businesses might be emboldened to go back, and the SEC wants to remind them that there are still disclosure requirements,” Urofsky said.

The SEC's Office of Global Security Risk sends the comment letters “almost as a matter of routine when they encounter evidence” of activity in or relating to a sanctioned country, Richard L. Matheny, partner and head of Goodwin Procter LLP's National Security & Foreign Trade Regulation Practice, said.

The agency often can be satisfied with an explanation that the activity is authorized by OFAC or that it was inadvertent and will be terminated, Matheny told Bloomberg BNA.

“In my experience, the activity that the SEC is calling into question is often authorized,” falling under an exemption or covered by a general license, he said. He added that such exceptions include the sale of medicine or medical devices, provision of travel-related services and the sale of certain personal Internet communications software and services.

Variety of Sources

The SEC staff gets its information about potential business contacts from a variety of sources and sometimes the sources are not correct, Lee said. “When they are, sometimes the compliance and governing parts of the company are just not aware of the relationships,” she said.

Deere & Co., Oracle Corp., Goodyear Tire & Rubber Co., Titan International Inc. and Nielsen Holdings Plc are among the companies to receive SEC queries in recent months about lax or inconsistent reporting related to Sudan and Syria.

For example, Deere & Co. didn't disclose contacts with the two countries in its annual financial report even though it reported in its conflict minerals filing that it may have obtained covered minerals from Sudan, the staff's Jan. 26 comment letter said.

Oracle received SEC correspondence in April and January concerning a lack of disclosure of “direct and indirect transactions with end users” in Sudan and Syria in its annual financial statement.


Companies should take care to fully disclose any covered activities, even those they consider immaterial or minimal, attorneys warned.

A failure to disclose business dealings is a significant matter, at least from the SEC's perspective, regardless of whether the contact is financially material, Lee said.

“If the SEC staff finds some evidence of business contacts in these countries, that could subject the companies to civil and perhaps criminal penalties for failing to comply” with economic and trade sanctions, she said.

If the SEC discovers the undisclosed business link, the company won't be able to avail itself of reduced penalties for self-reporting, Lee added.

“The SEC has been very clear that any amount of business activities in these sanctioned countries is material from a qualitative, not quantitative, perspective,” Lee said.


If the SEC is issuing more comment letters, it is most likely a continuation of the Office of Global Security Risk's focus on “asymmetric materiality,” Urofsky said.

Although financially immaterial, “these sorts of business relationships may be qualitatively material to certain investors,” said Urofsky, a former federal prosecutor focused on corporate matters, including internal investigations and Foreign Corrupt Practices Act compliance.

While Urofsky said he does not think a deficiency in disclosure is a sign of a larger problem with a company's compliance program, Lee said it could be a red flag. “Sometimes the failure is just the tip of the iceberg,” she said.

To contact the reporter on this story: Che Odom in Washington at

To contact the editor responsible for this story: Yin Wilczek at