On August 6, 2018, President Trump issued Executive Order 13846, “Reimposing Certain Sanctions with Respect to Iran” (the “New Iran EO”), which formally reimposes certain sanctions on Iran that had been suspended or revoked as part of the United States’ commitments under the Joint Comprehensive Plan of Action (“JCPOA”). The New Iran EO, which was issued to coincide with the end of the 90-day wind-down period announced on May 8, 2018 and detailed in our previous blog post, reimposes a wide range of sanctions on Iran that were in effect prior to the implementation of the JCPOA pursuant to pre-existing legal authorities, and also expands the scope of those sanctions, as described below.
In conjunction with the New Iran EO, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued extensive new guidance on the New Iran EO, updated the FAQs related to the President’s May 8 announcement, and amended an existing FAQ relating to the Iran Freedom and Counter-Proliferation Act of 2012 (“IFCA”). While reviewing the New Iran EO and companion guidance, however, it is important to note that they do not represent a comprehensive listing of all primary and secondary sanctions against Iran. There remain other executive orders and statutory instruments in effect, particularly for the imposition of secondary sanctions, that should be consulted when evaluating the impact of any US sanctions on a proposed activity related to Iran or the Government of Iran.
Re-imposition of Pre-JCPOA Sanctions
The New Iran EO took effect on August 7, 2018 and authorizes or requires the imposition of sanctions on activities that were subject to the 90-day wind-down period that ended on August 6, 2018. Consistent with previous guidance issued by OFAC, these newly re-imposed sanctions include:
- Sanctions on the purchase or acquisition of US dollar banknotes by the Government of Iran;
- Sanctions on Iran’s trade in gold or precious metals;
- Sanctions on the direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes;
- Sanctions on significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial;
- Sanctions on the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
- Sanctions on Iran’s automotive sector.
In addition, the Iran EO authorizes or requires the imposition of sanctions on activities that are subject to the previously-announced 180-day wind-down period that will end on November 4, 2018. These sanctionable activities, which relate primarily to Iran’s oil and energy sector and will only apply to activities that occur on or after November 5, 2018, include:
- Sanctions on Iran’s port operators, and shipping and shipbuilding sectors (which OFAC’s companion FAQs describe as including the Islamic Republic of Iran Shipping Lines (“IRISL”), South Shipping Line Iran, or their affiliates);
- Sanctions on petroleum-related transactions with, among others, National Iranian Oil Company (“NIOC”), Naftiran Intertrade Company (“NICO”), and the National Iranian Tanker Company (“NITC”), including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
- Sanctions on transactions by foreign financial institutions with the Central Bank of Iran (“CBI”) and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012;
- Sanctions on the provision of specialized financial messaging services to the CBI and Iranian financial institutions described in subsection 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010;
- Sanctions on the provision of underwriting services, insurance, or reinsurance; and
- Sanctions on Iran’s energy sector.
Expansion of Pre-JCPOA Sanctions
The New Iran EO also broadens the scope of the sanctions that were in effect prior to the implementation of the JCPOA. The new measures include:
- New authority for blocking sanctions on persons determined, on or after November 5, 2018, to have provided material support for, or goods and services in support of, persons blocked for:
- Providing material support for, or goods and services in support of, the purchase or acquisition of US bank notes or precious metals by the Government of Iran;
- Providing material support for, or goods and services in support of NIOC, NICO, or the CBI; or
- Being part of the energy, shipping, or shipbuilding sectors of Iran or a port operator in Iran or knowingly providing significant support to certain other persons blocked pursuant to section 1244(c)(1)(A) of IFCA or to an Iranian person on the SDN List.
- New authority for correspondent and payable-through account sanctions on foreign financial institutions determined to have, on or after November 5, 2018, knowingly conducted or facilitated any significant financial transaction on behalf of the persons blocked under the new authorities described immediately above.
- Authorizing the imposition of additional sanctions on persons determined to have, on or after November 5, 2018, knowingly engaged in certain significant transactions relating to petroleum, petroleum products, or petrochemicals from Iran, including:
- Visa restrictions on corporate officers, principals, or controlling shareholders of a sanctioned person;
- Menu-based sanctions on principal executive officers of a sanctioned person; or
- Prohibitions on US persons investing in or purchasing significant amounts of equity or debt instruments of a sanctioned person.
- Expanding the prohibition on US-owned or -controlled foreign entities previously contained in prior legal authorities by prohibiting transactions with persons blocked for:
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- Providing material support for, or goods and services in support of, Iranian persons on the SDN List and certain other designated persons; or
- Being part of the energy, shipping, or shipbuilding sectors of Iran or a port operator in Iran or knowingly providing significant support to certain other persons blocked pursuant to section 1244(c)(1)(A) of IFCA or to an Iranian person on the SDN List.
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End of Wind-Down Authorizations
After President Trump’s May 8 announcement, OFAC amended the Iranian Transactions and Sanctions Regulations (“ITSR”) to revoke or narrow certain general licenses and replace them with more limited wind-down authorizations, as described in our prior blog post. Three of those wind-down general licenses (the two general licenses at ITSR sections 560.534 and 560.535 related to imports of Iranian-origin carpets and foodstuffs and the general license at ITSR section 560.536 related to the wind-down of transactions previously authorized under General License I related to commercial passenger aircraft, parts, and services) expired on August 6, 2017. (The wind-down authorizations for General License H (which previously authorized non-US entities owned or controlled by US persons to engage in Iran-related transactions) will expire on November 4, 2018.)
Clarification of Previous OFAC Guidance
The new guidance issued by OFAC provides clarification of several issues that remained uncertain following the issuance of OFAC’s guidance on May 8:
- On the question of whether Iran’s trade partners should no longer purchase petroleum products from Iran, OFAC’s guidance states that the New Iran EO provides authority to sanction, on or after November 5, 2018, the purchase of petroleum or petroleum products and significant dealings with NIOC or NICO by persons in jurisdictions that do not have a significant reduction exception. During a State Department briefing on August 6, 2018, a senior official restated the Administration’s position that it was not looking to grant such exceptions but would consider such requests on a case-by-case basis.
- OFAC also provided additional clarity in FAQ 2.3 on the circumstances in which non-US, non-Iranian persons may receive payments after the end of the relevant wind-down period for goods or services “fully provided or delivered” to an Iranian counterparty prior to expiration of the relevant wind-down period. According to OFAC “goods or services will be considered fully provided or delivered when the party providing or delivering the goods or services has performed all the actions and satisfied all the obligations necessary to be eligible for payment or other agreed-to compensation.” In addition, with respect to goods exported to or from Iran, “at a minimum, title to the goods must have transferred to the relevant party.”
- The new guidance also clarifies the treatment of the receipt of payments received after the expiration of the various wind-down authorizations, as previously discussed in FAQ 2.1. FAQ 2.4 confirms that non-Iranian, non-US persons remain permitted to receive payment after the end of the relevant wind-down period for goods or services “fully provided or delivered” to an Iranian counterparty prior to the end of the wind-down period. However, FAQ 2.5 clarifies that US persons and their owned or controlled foreign entities must receive all payments for activities conducted pursuant to such wind-down authorizations during their validity periods (i.e., until August 6, 2018 or November 4, 2018, as applicable), after which the receipt of any payment will require specific authorization from OFAC.
- Finally, FAQ 2.6 clarifies that OFAC will not consider as sanctionable new business entry into new contracts during the relevant wind-down period where those new contracts are in furtherance of a pre-May 8 written contract and are necessary and ordinarily incident to the wind down of activities under that pre-May 8 written contract.
