Overview of Agreement Framework
On 2 April 2015, Iran and the five permanent members of the United Nations Security Council (plus Germany) announced a Joint Comprehensive Plan of Action (JCPOA) providing a framework for a final agreement to curb Iran’s nuclear program and provide Iran relief from nuclear-related sanctions. The parties intend to reach the final agreement by 30 June 2015. The JCPOA anticipates that the final agreement will last for up to 25 years and will include stringent international inspections of Iran’s centrifuges and nuclear storage facilities.
The Agreement Framework and Continued Enforcement of U.S. Sanctions
The 2 April 2015 JCPOA is a framework of understanding, not an agreement. It does not relieve, suspend or terminate any U.S. sanctions against Iran. Most U.S. sanctions are not “nuclear-related.” They are in place due to proliferation of other (conventional) weapons systems, human rights and terrorism concerns. This means that these U.S. sanctions that prohibit the export of goods or services from the United States will remain in place and will continue to be enforced against U.S. persons and companies, as well as the foreign companies they own or control.
The JCPOA follows another multilateral agreement with Iran, the Joint Plan of Action (JPOA), reached on 24 November 2013. Under this agreement, the United States had suspended certain U.S. sanctions designation criteria (also called “secondary sanctions”) that otherwise might have resulted in E.U. banks and companies being sanctioned by the United States for lawful trade with Iran. U.S. persons and companies, as well as the foreign companies they own or control, were unaffected by this suspension.
This suspension allowed E.U. companies to engage in trade with Iran without risk of sanction by the United States. The areas of commerce included in this relief were:
- petrochemicals (including support of Iranian petrochemical companies);
- gold and other precious metals;
- safety-related spare parts for Iranian civil aviation industry; and
- crude oil sales
Trade in goods or technologies subject to U.S. export controls and transactions in U.S. dollars remained restricted. Enforcement has continued, with the U.S. government imposing more than $450 million in penalties for violations of the Iranian sanctions during this period.
The Agreement Framework and E.U. Sanctions
Several kinds of sanctions related to the nuclear proliferation in Iran have been put in place by the European Union, including (but not limited to) an embargo on arms, related materiel and dual-use goods, an import ban on crude oil and natural gas from Iran, an embargo on equipment for the oil and gas industry in Iran, a freezing of the assets belonging to designated individuals and companies and a prohibition on making economic resources available to those blacklisted individuals and companies, as well as restrictions on funds transfers involving Iranian banks.
These sanctions are in force and must be strictly observed by all E.U. persons and companies, as well as by all companies in respect of their business conducted in whole or in part in the E.U. territory.
Other sanctions were suspended at the time of the JPOA in November 2013, such as sanctions on Iran’s petrochemical exports, sanctions on transactions on gold and precious metals and sanctions on insurance and transportation services associated with Iran’s crude oil sales.
When it signed the JCPOA with Iran on April 2, 2015, the E.U. announced that all nuclear-related sanctions would be terminated “simultaneously” with Iran’s implementation (verified by the International Atomic Energy Agency (”IAEA”)) of its “key nuclear commitments” under the JCPOA. Yet, the precise conditions and timing for removing these sanctions still need to be negotiated by 30 June 2015.
Before any relief or suspension of E.U. nuclear-related sanctions takes place - which is not foreseen to happen before 6 months or one year - such measures continue to apply. On April 7, 2015, i.e. only five days after the conclusion of the JCPOA, the European Union even re-listed an Iranian bank and 32 Iranian shipping companies in its legislation pertaining to Iran nuclear proliferation, involving new reasons for their blacklisting, after the E.U. General Court had on January 22, 2015 nullified the decision to designate them.
Furthermore, other E.U. restrictive measures against Iran - adopted in view of political repression and human rights violations in Iran and thus not “nuclear-related” - are likely to remain in force even if Iran achieves the objectives laid down in the JCPOA.
Looking Ahead – A Probable Bisected Compliance Challenge for U.S. and E.U. Companies
The nature of the negotiations, domestic and international politics, and other factors make difficult any reasonable prediction as to the shape of future of U.S. sanctions. With reference to U.S. sanctions history, it appears, however, that the landscape will likely be divided between U.S. sanctions (impacting U.S. persons, companies, banks, U.S. controlled entities and subsidiaries) and other multi-lateral controls, such of those of the E.U., that will allow trade with Iran.
In all probability, it appears that on the U.S. side, the situation will be: (1) the United States will continue its trade embargo on Iran; (2) there will be generally no lawful U.S. exports or goods or services to or imports from Iran; and (3) Iranian banks will continue to be blocked and will not be able to use the U.S. banking system. On the E.U. side, as announced by its High Representative on April 2, 2015, nuclear-related sanctions will likely be lifted if it is established that Iran meets its major commitments with the JCPOA.
This means that U.S. and E.U. companies that trade technologies or goods subject to U.S. export controls or rely on the U.S. banking system (for example, by use of electronic transfers denominated in U.S. dollars) will need to have compliance controls that address these continued U.S. restrictions. U.S. and E.U. companies also will have to maintain controls that prevent officials or other personnel who are U.S. persons from facilitating or approving trade with Iran.
For non-U.S. companies, the risks are likely to be immediate. Trade with Iran using dollars or involving technologies or goods subject to U.S. export controls will create potential liabilities and could result in severe penalties. Technologies or goods subject to U.S. export controls can include non-U.S. made items that contain 10 % or more U.S. content. Those non-U.S. items are often not easily identifiable in a supply chain.
It is probable that Europe and Asia will have open trade with Iran that will be unimpeded by U.S. sanctions, except where that trade intersects with the U.S. market as noted above. To make this possible without contravening criteria for sanctions under U.S. law, the U.S. President and the U.S. Department of the Treasury probably will issue waivers, policy statements and/or guidance to assure foreign companies that their trade with Iran will not result in their being barred from the U.S. market or the severance of their U.S. correspondent banking accounts – as long as the companies otherwise comply with applicable U.S. trade restrictions. These actions by the President and Treasury appear to be within the President’s discretionary authority.
An additional important caution, however, is that the United States will continue to sanction companies that trade with the multitude of Iranian entities designated by the U.S. government for their ties to terrorism, human rights abuses, and the proliferation of conventional weapons. Penalties could include exclusion from the U.S. market and a freezing of any assets in the United States.
The E.U. will also continue to enforce non-nuclear related sanctions, which have been introduced due to repression and human rights violations in Iran. These sanctions include (i) embargo on equipment which might be used for internal repression and prohibition on related services, (ii) embargo on telecommunications monitoring and interception equipment and prohibition on related services and (iii), as regards persons and companies designated because they are held responsible for serious human rights violations in Iran or because they are related to such persons or companies, restrictions on their admission on the E.U. territory, freezing of their assets and prohibition on making economic resources available to them.
U.S. companies that operate internationally as well as non-U.S. companies in the European Union and elsewhere, therefore, should enhance their sanctions compliance programs in anticipation that either they or a business partner will be reentering the Iranian market. Focus should be on the identification and management of goods or technologies subject to U.S. export controls, as well as the impact of the probable continuation of restrictions on use of U.S. dollars in Iranian commerce.
The following is a joint product of the law firms of Bredin Prat and Holland and Hart LLP. We work collaboratively to provide our clients the best quality assistance with trade matters in the United States and Europe.
This summary is not the provision of legal advice. Bredin Prat is licensed to practice law in France, including European Union law. Holland & Hart LLP is licensed to practice law in the United States.
This joint summary does not imply that either is practicing law outside of its jurisdiction(s) of licensure.