Under the Joint Comprehensive Plan of Action (“JCPOA”), Saturday, January 16, 2016, was “Implementation Day.” On that date, the US Government relaxed certain sanctions against Iran after the International Atomic Energy Agency confirmed that Iran had fulfilled its nuclear-related commitments under the JCPOA. These measures primarily affect parties who are not “U.S. persons” (i.e., US citizens or permanent residents (wherever located or employed), entities organized under the laws of the United States (including foreign branches), and persons located in the United States).
Below we provide a brief summary of the sanctions relief that the US Government instituted on Implementation Day. More detailed information can be found in the related Guidance issued by the US Treasury and State Departments as well as in the JCPOA FAQs published by the Treasury Department’s Office of Foreign Assets Control (“OFAC”). Changes to relevant provisions of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (“ITSR”), will be published in the Federal Register on January 21, 2016. Before engaging in any new activities involving Iran, companies should carefully consider the limitations and restrictions on Iran-related dealings that remain in place despite the relaxation provided on Implementation Day.
The steps taken by the US Government on Implementation Day in order to provide sanctions relief under the JCPOA include:
(1) The relaxation of certain nuclear-related secondary sanctions (i.e., sanctions that are generally directed toward non-US persons for specified conduct involving Iran that occurs entirely outside of US jurisdiction and does not involve US persons). Specifically, the US lifted certain secondary sanctions on (i) Iran’s financial and banking sectors; (ii) the provision of certain insurance, re-insurance, and underwriting services; (iii) Iran’s energy and petrochemical sectors; (iv) Iran’s shipping and shipbuilding sectors and port operators; (v) trade with Iran in gold and other precious metals; (vi) trade with Iran in graphite, raw, or semi-finished metals (including aluminum and steel), coal, and certain software (except with respect to Iran’s military or ballistic missile programs); and (vii) Iran’s automotive sectors.
(2) The removal of certain individuals and entities specified in Attachment 3 to Annex II of the JCPOA from OFAC’s List of Specially Designated Nationals and Blocked Persons List (“SDN List”), Foreign Sanctions Evaders List, and/or Non-SDN Iran Sanctions Act List. As a result of these removals, as of Implementation Day, non-US persons are no longer subject to secondary sanctions for engaging in transactions with a number of Iranian or Iran-related individuals and entities, including the Central Bank of Iran and other Iranian financial institutions. That said, some Iranian and Iran-related persons remain designated on the SDN List, and secondary sanctions continue to attach to transactions by non-US persons involving such persons. In addition, OFAC published a new list, the “List of Persons Identified as Blocked Solely Pursuant to Executive Order 13599,” to identify former SDNs that meet the definition of the Government of Iran or an Iranian financial institution. US persons remain prohibited from engaging in any transactions with the parties designated on this list as well as any other persons meeting the definition of the Government of Iran or an Iranian financial institution.
(3) The issuance of General License H, which authorizes non-US entities that are owned or controlled by a US person (“owned/controlled foreign entities”) to engage in certain activities involving Iran that are consistent with the JCPOA and that would otherwise be prohibited by the ITSR. General License H also authorizes US persons to engage in certain activities necessary to allow owned/controlled foreign entities to engage in transactions involving Iran that are authorized by this general license, including establishing or altering corporate policies and procedures and making certain “automated” and “globally integrated” business support systems available to owned/controlled foreign entities. Importantly, the general license does not completely remove US sanctions restrictions that apply to owned/controlled foreign entities. Such entities remain prohibited, for example, from engaging in transactions involving SDNs, Foreign Sanctions Evaders, and any military, paramilitary, intelligence, or law enforcement entity of the Government of Iran or any agents or affiliates thereof. Moreover, owned/controlled foreign entities remain subject to restrictions on the direct or indirect exportation/reexportation of goods, technology, or services from the United States—including the transfer of funds to, from, or through the US financial system (i.e., most US dollar-denominated transfers). Owned/controlled foreign entities are also subject to the Export Administration Regulations, 15 C.F.R. Parts 730-774 (“EAR”) and to other Executive Orders targeting Iran (e.g., orders relating to Iran’s proliferation of weapon of mass destruction and ballistic missiles, support for international terrorism, and human rights abuses).
(4) The issuance of a Statement of Licensing Policy (“SLP”) to allow for the export, reexport, sale, lease, or transfer of commercial passenger aircraft and related parts and services to Iran for exclusively civil, commercial aviation end-use. The SLP establishes a favorable licensing policy regime through which US persons, and non-US persons where there is a nexus to US jurisdiction (e.g., goods subject to the EAR), may request specific authorization from OFAC to engage in such transactions and provide related services. Licensable transactions may not involve SDNs. In addition, exports/reexports to parties listed on the Department of Commerce’s Denied Persons List and, in some cases, the Entity List, will require separate authorization from the Department of Commerce.
(5) The submission of a Final Rule to amend the ITSR, to authorize the importation into the United States of Iranian-origin carpets and foodstuffs, including pistachios and caviar, by general license. This authorization applies to certain transactions or dealings by US persons in or related to such products, including the processing of letters of credit for payments for these items. This authorization will take effect on January 21, 2015 when it is published in the Federal Register.
Importantly, with the exception of the narrow authorizations described in items 3, 4, and 5 above, none of the sanctions relief provided on Implementation Day affects the comprehensive sanctions against Iran applicable to US persons. In this regard, US persons, including US companies, continue to be broadly prohibited under the ITSR and other sanctions requirements from engaging in transactions or dealings involving Iran and the Government of Iran unless such activities are exempted from the applicable regulations or authorized by OFAC. In addition to the continuing prohibitions on US person dealings involving Iran, a number of key US sanctions and other restrictions which also apply to non-US persons also remain in effect. These restrictions include EAR and ITSR controls on certain exports/reexports to Iran and certain sanctions related to dealings with SDNs. It is also worth emphasizing that non-US persons may still face compliance risks for engaging in transactions that cause US persons to violate applicable Iran-related sanctions—for instance, if a non-US person is involved in a US dollar payment that is routed through the US financial system.
While not specifically related to the JCPOA, we also note that on January 17, 2016 (i.e., the day immediately following Implementation Day), the US Treasury Department announced that OFAC had designated as SDNs 11 entities and individuals involved in procurement on behalf of Iran’s ballistic missile program. The complete list of persons added to the SDN List as part of this action can be found here. US persons are generally prohibited from engaging in any dealings, whether directly or indirectly, with these SDNs or their property. OFAC indicated in a press release announcing these designations that, despite the recent relaxation of nuclear-related sanctions under the JCPOA, the US Government intends to continue to impose sanctions targeting Iranian activities outside of the JCPOA, including those related to Iran’s support for terrorism, regional destabilization, human rights abuses, and its ballistic missile program.
In the coming days, we will be providing a more detailed analysis of the changes implemented by the US Government on Implementation Day. In any case, because of the wide range of legal and practical questions presented by the US Government’s guidance to date, it is possible that further clarification will be provided by relevant agencies in the days and weeks to come.