The Joint Comprehensive Plan of Action relating to Iran's nuclear programme (the "JCPOA") officially came into effect on 18 October ("Adoption Day"), requiring all JCPOA participants to make the necessary arrangements and preparations for implementation of their respective JCPOA commitments. In this briefing, we summarise the most recent steps taken by the US and EU under the JCPOA.
In the case of both the EU and US, there have been no immediate changes to the legislative position and all sanctions continue to apply.
For further background on the JCPOA, please see our previous briefing.
EU High Representative Federica Mogherini and Iranian Foreign Minister Javad Zarif made a joint statement on Adoption Day, confirming that Iran will now start the implementation of its nuclear-related commitments and the International Atomic Energy Agency (the "IAEA") will make preparations for the monitoring and verification of Iran's actions. The Joint Commission created by the JCPOA was to meet for the first time on 19 October in Vienna, in order to make further preparations for the implementation of the JCPOA.
As required under the JCPOA, the EU has also adopted the legislative framework for the lifting of its nuclear- related sanctions. These measures will take effect on Implementation Day, i.e. the point at which the IAEA verifies that Iran has implemented its required measures. Implementation Day is currently expected to occur in spring 2016.
The new legislative measures published on Adoption Day comprise:
- Council Decision (CFSP) 2015/1863 (the Decision) which amends Decision 2010/413/CFSP;
- Council Regulation (EU) 2015/1861 ("Regulation 1861") which amends Regulation (EU) 267/2012; and
- Council Regulation (EU) 2015/1862 ("Regulation 1862") which also amends Regulation (EU) 267/2012.
None of the measures in the new legislation will take effect until Implementation Day.
The new legislation sets out article-by-article amendments made to the existing legislative framework in order to fulfil the EU's commitment under the JCPOA to lift its nuclear-related sanctions. Some of the key changes to be made to the existing financial and trade sanctions include the following:
- Amendments to the previous trade restrictions regarding dual-use equipment. A prior authorisation will be required for the sale or supply to Iran of the nuclear-related items listed in Annexes I and II of Regulation 1861 (or the provision of related services). Authorisations will only be granted if certain criteria relating to the item's end use are met.
- Amendments have been made to the existing restrictions on military-related goods. However, postImplementation Day, prohibitions will remain in force in respect of the sale or supply to Iran of (a) items which could contribute to the development of nuclear weapon delivery systems, and (b) items on the EU's Common Military List (or, in both cases, the provision of related services).
- Removal of the restrictions on the provision of, and the provision of services relating to (a) key equipment used in the oil and gas industries, and (b) naval equipment.
- Removal of the restrictions relating to the import, purchase and transport of Iranian petrochemical, crude oil and petroleum products and natural gas.
- The prohibition on the sale or supply of graphite and listed raw or semi-finished metals has been replaced with a requirement for prior authorisation.
- Removal of the restrictions on the sale and purchase of gold, precious metals and diamonds.
- Removal of the restrictions on the sale or supply of Iranian denominated banknotes and coins to the Central Bank of Iran.
- Removal of the restrictions on financing certain Iranian enterprises (those involved in the manufacture of certain military or dual-use goods or the oil, gas or petrochemicals industries).
- Removal of the restrictions on transfers of funds to or from Iranian banks or Iranian persons.
- EU financial institutions will no longer be prohibited from (a) opening new accounts or correspondent banking relationships with Iranian banks, (b) establishing branches or representative offices in Iran, or (c) establishing joint ventures with Iranian banks.
- Removal of the restrictions on the sale or purchase of public or public-guaranteed bonds issued by Iranian persons.
- Removal of the prohibition on providing insurance or reinsurance to Iranian persons.
- The existing restrictions on the provision to Iranian vessels of bunkering and ship supply service, and engineering and maintenance to cargo aircrafthave been relaxed but the provision of such services will remain prohibited where the service provider determines that the ship or aircraft is carrying goods listed on the Common Military List or whose sale or supply to Iran is otherwise prohibited.
- Regulation 1862 amends Annexes VIII and IX of Regulation 267/2012 which set out the lists of entities and individuals subject to asset freezing measures. A total of 331 individuals and entities are to be removed from the asset freeze, including a number of large Iranian entities such as National Iranian Oil Company and certain Iranian banks. However, some asset freeze targets remain and the EU will retain the ability to designate new individuals and entities as subject to asset freezing measures on a number of grounds. It will therefore remain necessary for companies to check the names of their Iranian counterparties against the EU's asset freeze list even after Implementation Day.
- The existing prohibition on the supply to designated persons of specialised financial messaging services used to exchange financial data will remain in force.
The EU has not announced any changes to its human rights-related sanctions against Iran (set out in Council Regulation (EU) 359/2011) and so it appears that these measures will remain in force following Implementation Day.
The new EU legislative measures do not themselves include any "snap-back" provisions allowing for the re- imposition of sanctions should Iran fail to meet its commitments under the JCPOA. It may therefore be the case that any re-introduction of sanctions is intended to be achieved through the publication of new amending Decisions and Regulations if and when required.
The US Office of Foreign Assets Control ("OFAC") issued a statement and guidance on Adoption Day describing the steps the US government is taking to proceed towards Implementation Day. On Adoption Day, the President issued a memorandum to US government agencies to direct them to take all appropriate measures to ensure that US commitments on Implementation Day are accomplished promptly and effectively, and the Secretary of State issued contingent waivers of certain statutory sanctions that will take effect on Implementation Day.
OFAC's guidance makes clear that no US sanctions have been lifted or loosened as of Adoption Day. Furthermore, OFAC has clarified that non-US persons' entry into contracts involving Iranian entities prior to
Implementation Day may expose those persons to risk of secondary sanctions. This includes contracts that are contingent on the implementation of sanctions relief under the JCPOA. OFAC states that until Implementation Day, it will "vigorously enforce" the sanctions that remain in effect.
The US Secretary of State has issued contingent statutory waivers that will go into effect on Implementation Day. Imposition of the following secondary sanctions will be waived beginning on Implementation Day in most scenarios1:
- Sanctions related to the energy, shipping, and shipbuilding sectors;
- Sanctions related to financial institutions' participation in the natural gas industry;
- Sanctions related to the sale, supply, or transfer of precious metals or materials involved in the energy, shipping, shipbuilding, or nuclear sectors;
- Prohibition on maintaining a correspondent or payable-through account in the US by a foreign financial institution that facilitates the sale, supply, or transfer of the above-mentioned metals or materials or facilitated a significant financial transaction on behalf of any Iranian person;
- Sanctions related to underwriting, insurance, or reinsurance relating to any of the above matters;
- Sanctions relating to transactions by foreign financial institutions with the Central Bank of Iran;
- Sanctions relating to underwriting, insurance, or reinsurance relating to the National Iranian Oil Company, the National Iranian Tanker Company, or a successor entity to either such company;
- Sanctions relating to purchasing, subscribing to, or facilitating the issuance of sovereign debt of the government of Iran or debt of any entity owned or controlled by the government of Iran; and
- Sanctions relating to significant investments that directly and significantly contribute to Iran's ability to develop Iranian petroleum resources.
In addition, certain "primary" sanctions applicable to US persons related to the sale of commercial passenger aircraft and spare parts and components for such aircraft, as well as associated services (including underwriting, insurance, and reinsurance). US primary sanctions relating to Iran will generally, however, remain in place following Implementation Day.
The Adoption Day measures represent an additional step towards significant changes in the sanctions imposed against Iran. However, it is important for firms wishing to do business in Iran to note that all the relaxations described in this briefing are conditional upon the IAEA's confirmation that Iran has met its commitments under the JCPOA. No changes have yet come into force and so there remain broad restrictions, particularly for US persons, on dealing with Iran. OFAC has stated that it will continue to vigorously enforce all sanctions currently in place, including prohibitions on entering into contracts that may be contingent on the relaxation of sanctions. Further, companies should continue to monitor the situation closely post-Implementation Day since there remains a possibility that sanctions could be re-imposed at short notice should Iran fail to meet its commitments.