The P5+1 (the permanent members of the U.N. Security Council and Germany) and the Islamic Republic of Iran have reached agreement on a Joint Comprehensive Plan of Action (“JCPOA”) that aims to curb Iran’s nuclear program in exchange for the lifting of certain multilateral and national sanctions.

Highlights of the JCPOA relating to the removal of the sanctions against Iran include the following:

  • The EU, the U.S. and the U.N. will initiate the comprehensive lifting of U.N. Security Council sanctions and the various related multilateral and national sanctions regarding Iran’s nuclear program, only after the International Atomic Energy Agency (“IAEA”) has verified implementation by Iran of the nuclear-related measures set forth in the JCPOA. According to Obama Administration officials, it is expected that implementation by Iran of the nuclear-related measures will take approximately six months. Iranian officials are predicting a much shorter period.
  • The U.S. has committed to suspending and ultimately terminating all nuclear-related sanctions directed towards non-U.S. persons. The JCPOA provides that U.S. persons and U.S.-owned or controlled foreign entities will continue to be generally prohibited from conducting transactions of the type permitted pursuant to the JCPOA, unless authorized to do so by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”).
  • The U.S. has committed to licensing U.S.-owned or controlled foreign entities to engage in activities with Iran that are consistent with the JCPOA, as well as activities conducted by U.S. persons for the sale of commercial passenger aircraft and related parts and services to Iran and importation into the U.S. of Iranian-origin carpets and foodstuffs. Whether OFAC will implement this commitment through general or specific licenses remains to be determined.
  • Many of the U.S. commitments will require the President to seek legislative action to terminate certain statutory sanctions, such as the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”) and the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”). Given the concerns that many within the U.S. Congress have expressed with respect to the JCPOA, the President may encounter difficulty in enlisting congressional support for these commitments.

Timeline for Implementation of the JCPOA

The JCPOA establishes a series of milestones for implementation of the commitments agreed to by the parties:

  1. Finalization Day is the date on which negotiations of the JCPOA are concluded among the P5+1 and Iran, to be followed by submission of the resolution endorsing the JCPOA to the U.N. Security Council for adoption. It has been reported that the U.N. Security Council resolution will be submitted in a week to ten days.
  2. Adoption Day is the date 90 days after the endorsement of the JCPOA by the U.N. Security Council, or such earlier date as may be determined by mutual consent of the JCPOA participants, at which time the JCPOA and its associated commitments come into effect. Beginning on that date, JCPOA participants will commence arrangements and preparations for the implementation of their JCPOA commitments.
  3. Implementation Day is the date on which, simultaneously with the IAEA report verifying implementation by Iran of its nuclear-related commitments, the EU, the U.S. and the U.N. shall commence lifting of U.N. Security Council sanctions, as well as those multilateral and national sanctions, related to Iran’s nuclear program, including in areas of trade, technology, finance, and energy. According to Obama Administration officials, implementation by Iran of the nuclear-related measures set forth in the JCPOA will take approximately six months.
  4. Transition Day is the date eight years after Adoption Day or the date on which the Director General of the IAEA certifies that the IAEA has reached the Broader Conclusion that all nuclear material in Iran remains for peaceful activities, whichever is earlier. On that date, the EU and the United States will take actions to terminate multilateral and national sanctions related to Iran’s nuclear program and Iran will seek ratification of the Additional Protocol to the Treaty on the Non-Proliferation of Nuclear Weapons (the “NPT Treaty”).
  5. U.N. Security Council Resolution Termination Day is the date on which the U.N. Security Council resolution endorsing the JCPOA terminates according to its terms, which is to be 10 years from Adoption Day, provided that previous resolutions have not been reinstated.

U.S. Sanctions Relief under the JCPOA

As noted, the United States is expected to suspend, and ultimately remove, all nuclear-related sanctions, which are directed towards non-U.S. persons. The JCPOA defines “non-U.S. person” to mean any individual or entity, excluding (i) any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States, and (ii) any entity owned or controlled by a U.S. person. As a result of the lifting of the U.S. nuclear-related sanctions beginning on Implementation Day such sanctions, including associated services, would not apply to non-U.S. persons conducting the following activities:

  • Financial and banking measures: Financial and banking transactions with Iranian banks and financial institutions as specified in the JCPOA, including:
    • the opening and maintenance of correspondent and payable through-accounts at non-U.S. financial institutions, investments, foreign exchange transactions, and letters of credit;
    • transactions in Iranian Rial;
    • provision of U.S. banknotes to the Government of Iran;
    • bilateral trade limitations on Iranian revenues abroad, including limitations on their transfer;
    • purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt, including governmental bonds; and
    • financial messaging services to the Central Bank of Iran and Iranian financial institutions;
  • Insurance measures: Underwriting services, insurance, or re-insurance in connection with activities consistent with the JCPOA, including in connection with activities in the energy, shipping, and shipbuilding sectors of Iran, or for the National Iranian Oil Company (“NIOC”) or the National Iranian Tanker Company (“NITC”);
  • Energy and petrochemical sectors: Transactions with Iran’s energy sector, including:
    • investment, including participation in joint ventures, goods, services, information, technology and technical expertise and support for Iran’s oil, gas and petrochemical sectors;
    • purchase, acquisition, sale, transportation or marketing of petroleum, petrochemical products and natural gas from Iran; and
    • exportation, sale or provision of refined petroleum products and petrochemical products to Iran;
  • Shipping, shipbuilding, and port sectors: Transactions with Iran’s shipping and shipbuilding sectors and port operators; the Islamic Republic of Iran Shipping Lines (“IRISL”), NITC, and South Shipping Line Iran and their affiliates;
  • Gold and other precious metals: Trade in gold and other precious metals;
  • Software and metals: Trade with Iran in graphite, raw, or semi-finished metals, such as aluminum and steel, coal, and software for integrating industrial processes; and
  • Automotive sector: Sale, supply, or transfer of goods and services used in connection with Iran’s automotive sector.

Although the lifting of the U.S. nuclear-related sanctions will have greater impact on the activities of non-U.S. persons, the United States has also committed to license, beginning on Implementation Day, the following limited activities provided that they do not involve persons on the SDN List and are otherwise consistent with applicable U.S. laws and regulations:

  • Commercial Aviation: The sale of commercial passenger aircraft and related parts and services to Iran, including the (i) export, re-export, sale, lease or transfer to Iran of commercial passenger aircraft for exclusively civil aviation end-use, (ii) export, re-export, sale, lease or transfer to Iran of spare parts and components for commercial passenger aircraft, and (iii) provision of associated services, including warranty, maintenance, and repair services and safety-related inspections, for all the foregoing, provided that licensed items and services are used exclusively for commercial passenger aviation;
  • Indirect Activities: Activities with Iran by non-U.S. entities that are owned or controlled by a U.S. person provided that such activities are consistent with the JCPOA; and
  • Iranian Imports: The importation into the United States of Iranian-origin carpets and foodstuffs, including pistachios and caviar.

It is unclear at this time whether OFAC will license such activity through general or specific licenses under the Iranian Transactions and Sanctions Regulations (“ITSR”) (31 C.F.R. Part 560). OFAC has indicated that the U.S. government will publish detailed guidance related to the JCPOA prior to Implementation Day.

Lastly, the U.S. has committed to removing specific individuals and entities identified in the JCPOA from the SDN List, the Foreign Sanctions Evaders List (“FSE List”), and/or the Non-SDN Iran Sanctions Act List. The effect of this action will be to unblock the property and interests in property within U.S. jurisdiction of such individuals and entities.

Impact of the Iran Nuclear Agreement Review Act of 2015

On May 22, 2015, President Obama signed into law the Iran Nuclear Agreement Review Act of 2015 (the “Act”), which as reported previously, provides the U.S. Congress with an opportunity to review and approve the JCPOA before the President can waive, suspend, reduce, provide relief from, or otherwise limit the application of statutory sanctions with respect to Iran. Specifically, the Act prohibits the President from engaging in any such activity for 12 days after the date of passage by both Houses of Congress of a congressional joint resolution of disapproval; or 10 days after the date of a presidential veto of a congressional joint resolution of disapproval passed by both Houses of Congress.

Although the JCPOA faces staunch opposition in the Congress, where lawmakers in both political parties have expressed concern about the scope of inspections and sanctions relief, President Obama has already threatened to veto any attempt to block the Iran nuclear deal. The President’s veto threat means effectively that two-thirds of both the House and the Senate would be needed to overturn the deal.