E.O. 13902 Sector Designations and the Path Off the SDN List

Part 3 of a three-part series on OFAC’s application of E.O. 13902 to Iran’s automotive and rail sectors.

Quick take: Designations under an E.O. 13902 sector determination rest on status, not conduct. OFAC need only determine that a person operates in a sector it has named — fourteen so far, with automotive and rail added on October 1, 2026. That changes how a designated company defends itself and how it gets off the SDN List. Denial is not an option when the basis is participation in an industry. The path is a documented, verifiable exit from the sector, presented through OFAC’s reconsideration process under 31 C.F.R. § 501.807, with the record built for the possibility of judicial review.

Fourteen Sectors, Five Instruments

E.O. 13902 named four sectors when it issued on January 10, 2020. Four determinations since then have added ten more.

Status, Not Conduct

Most OFAC designations allege conduct: support to a terrorist organization, procurement for a weapons program, a corrupt act. A sector-based designation alleges a status. The press release for the October 1 action says exactly what the basis is — each company “is being designated pursuant to E.O. 13902 for operating in the automotive sector of the Iranian economy.” Treasury adds narrative about the Islamic Revolutionary Guard Corps, trade-based money laundering, and prison labor, but the narrative is context. The legal basis is participation in the industry.

That has three consequences. First, an Iranian automaker or railway cannot plausibly contest the basis while it continues to operate in the sector. Second, a non-Iranian company can be designated without any finding that its transactions were significant, knowing, or wrongful; OFAC designated five foreign parts suppliers on October 1 for “operating in” the sector, not for supplying it. Third, OFAC has not defined the new sectors, so the boundary of the status is OFAC’s to draw. For U.S. persons the change is modest, since state-owned Iranian enterprises were already blocked as the Government of Iran and vehicle assembly already fell within the manufacturing sector. For non-U.S. persons it is the whole game.

Who Gets Designated Under a Sector Determination

The record since 2020 shows the pattern. Eighteen Iranian banks were designated when the financial sector was named. Shadow-fleet operators and refineries followed the petroleum determination. Twenty-seven airlines followed the aviation determination within fifteen days. On October 1, OFAC designated the sector’s operators, their foreign suppliers, and Hong Kong shell companies it treated as operating in Iran’s financial sector. Owned-or-controlled subsidiaries, such as HEPCO’s Shanghai arm, come in alongside their parents. Anyone whose business is the sector should assume a place on the list is a question of sequencing.

The Path Off the List: 31 C.F.R. § 501.807

Any designated person may seek administrative reconsideration under 31 C.F.R. § 501.807. The regulation allows a petitioner to argue that an insufficient basis exists for the designation, or to assert that the circumstances resulting in the designation no longer apply. It also allows a petitioner to propose remedial steps that would negate the basis; the regulation’s own examples are corporate reorganization and the resignation of persons from positions in a blocked entity. Treasury’s release for the October 1 action repeats that the goal of sanctions “is not to punish, but to bring about a positive change in behavior,” and points to OFAC’s petition process.

A status-based designation shapes the petition. An Iranian operator’s realistic arguments are changed circumstances: exit from the sector, divestiture, or dissolution, each documented. A foreign supplier’s petition is about a complete and verifiable exit: terminated contracts, closed Iranian customer accounts, cleared receivables, severed agency and ownership ties, and a compliance program with Iran screening that prevents a return. OFAC tests those showings through written questionnaires, and the candor and completeness of the responses often decide the outcome. Omitting an uncomfortable fact is the surest way to lose credibility with the agency, and the record cannot be repaired later.

Operating While Designated

A designated company that needs to unblock funds or wind down U.S.-nexus contracts generally needs a specific license. OFAC’s September 10, 2026 Statement of Licensing Policy applies a presumption of denial to Iran-related applications, with exceptions where required by law or for risks to life, limb, or environmental safety. Applicants should expect to attest to those circumstances in writing. The exemption in section 11 of E.O. 13902 for agricultural commodities, food, medicine, and medical devices remains available.

If OFAC Says No

A denied petition is final agency action reviewable under the Administrative Procedure Act. Courts review the administrative record under a deferential standard and may consider classified evidence the petitioner never sees, as we explained after Martinez Morales v. Treasury. That makes the petition stage decisive. The declarations, exhibits, and questionnaire responses submitted to OFAC are the record a court will review. A petition written with that audience in mind is a better petition for OFAC as well.

Frequently Asked Questions

What is a sector-based designation under E.O. 13902?

It is a designation resting on a person’s status — operating in a sector of the Iranian economy that the Secretary of the Treasury has determined falls within section 1(a)(i) of E.O. 13902 — rather than on specific conduct. OFAC need not allege wrongdoing beyond participation in the sector. Fourteen sectors have been determined since 2020, most recently automotive and rail on October 1, 2026.

Can a company designated under a sector determination petition for removal from the SDN List?

Yes. Any designated person may seek administrative reconsideration under 31 C.F.R. § 501.807 by showing that an insufficient basis exists for the designation, that the circumstances no longer apply, or by proposing remedial steps that negate the basis. Because the basis is status, a credible petition documents a complete, verifiable exit from the sector and the measures that prevent a return. OFAC may issue questionnaires before deciding.

What happens if OFAC denies a delisting petition?

A denial is final agency action reviewable in federal court under the Administrative Procedure Act. Courts apply a deferential standard and review the administrative record the petitioner built, so the petition and its supporting evidence are the record a court will see.

About Ferrari & Associates

Ferrari & Associates is a Washington, D.C. boutique law firm practicing exclusively in the area of U.S. economic sanctions administered by the Office of Foreign Assets Control. Since 2009, the firm has represented designated individuals and entities in SDN delisting petitions under 31 C.F.R. § 501.807, OFAC specific license applications, pre-designation advocacy, sanctions compliance programs, and federal court litigation challenging OFAC action under the Administrative Procedure Act. The firm can be reached at ferrari@falawpc.com or +1 202-280-6370.

This post is provided for informational purposes only and does not constitute legal advice or create an attorney-client relationship. Attorney advertising.

About Ferrari & Associates