On January 16, 2016, the United States, China, France, Russia, United Kingdom, Germany and Iran, with the High Representative of the European Union (“EU”) for Foreign Affairs and Security Policy, marked the arrival of Implementation Day of the Joint Comprehensive Plan of Action (“JCPOA”), the international agreement designed to curb Iran’s nuclear program. Implementation Day signals the International Atomic Energy Agency’s (“IAEA”) verification that Iran has implemented the nuclear-related measures mandated in the JCPOA to curb its nuclear capabilities, triggering the lifting of certain international nuclear-related sanctions.
U.S. Sanctions Relief
In a statement released on January 16, U.S. Secretary of State John Kerry confirmed that Iran “has fully implemented its required commitments as specified in the [JCPOA]” and that “U.S.-sanctions related commitments described in [the JCPOA] are now in effect.” Notwithstanding Secretary Kerry’s statement, it is important to note that a number of U.S. sanctions restrictions that are outside the scope of the JCPOA are still in effect after Implementation Day.
However, with the arrival of Implementation Day, many U.S. secondary sanctions that restricted non-U.S. persons’ activities involving Iran and restricting Iran’s ability to access the (non-U.S.) international financial system have been waived. As a result of the lifting of the U.S. nuclear-related sanctions, non-U.S. persons, including non-U.S. financial institutions, can engage in 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.
Even after Implementation Day, however, U.S. persons generally continue to be broadly prohibited from engaging in transactions or dealings involving Iran, including the Government of Iran, with the exception of certain additional categories of transactions that the U.S. Treasury’s Office of Foreign Asset Control (“OFAC”) has authorized pursuant to the JCPOA. As explained more fully below, OFAC has issued a general license authorizing foreign companies that are owned or controlled by U.S. persons to engage in certain transactions with Iran. An entity is “owned or controlled” by a United States person if the United States person: (1) holds a 50 percent or greater equity interest by vote or value in the entity; (2) holds a majority of seats on the board of directors of the entity; or (3) otherwise controls the actions, policies, or personnel decisions of the entity.
OFAC’s published guidance on the JCPOA implementation in the U.S. clarifies the following noteworthy points:
- The term “consistent with the JCPOA” refers to transactions that are (1) in line with the general licenses issued by OFAC, (2) the licenses that may be granted on a case-by-case basis with respect to commercial passenger aircraft, and (3) those transactions that are outside the scope of the JCPOA, which do not violate sanctions.
- The following activities are inconsistent with the JCPOA and continue to be subject to sanction even when engaged in by non-U.S. persons: transactions involving (1) persons on the SDN List; (2) transfers of materials or software for use in the military or ballistic missile programs of Iran; and (3) transfers that have not been approved by the procurement channel established by the JCPOA and UN Security Council Resolution 2231 if the transfer of the item is subject to the procurement channel. Additionally, transactions prohibited under General License H (discussed below) are also inconsistent with the JCPOA.
- General License H, Authorizing Certain Transactions Relating to Foreign Entities Owned or Controlled by a United States Person, allows for a foreign entity owned or controlled by a U.S. person and established or maintained outside the U.S. to engage in certain transactions, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran. The General License also allows a U.S. parent company to engage in certain limited activities in support of authorized business by an overseas subsidiary, specifically (i) to engage in activities related to the establishment or alteration of corporate policies and procedures, to the extent necessary, to allow U.S.-owned or controlled foreign entities to engage in transactions involving Iran that are authorized under the General License H and (ii) make available to foreign entities they own or control certain automated and globally integrated business support systems. Otherwise, the prohibition against facilitation in the Iranian Transactions and Sanctions Regulations (“ITSR”) remains in place for U.S. persons. General License H does notauthorize transactions involving Iran that would involve (1) the direct or indirect exportation or rexportation of goods, technology, or services from the United States absent separate authorization from OFAC; (2) any transfer of funds to, from, or through the U.S. financial system; (3) any individual or entity on the SDN List or any activity that would be prohibited by non-Iran sanctions administered by OFAC if engaged in by a U.S. person or in the United States; (4) any individual or entity identified on the Foreign Sanctions Evaders (“FSE”) List; (5) unless authorized by the U.S. Department of Commerce, any activity prohibited by, or requiring a license under the U.S. Export Administration Regulations (“EAR”) or a person whose export privileges have been denied pursuant to the EAR; (6) any military, paramilitary, intelligence, or law enforcement entity of the Government of Iran, or any officials, agents, or affiliates thereof; (7) any activity that is sanctionable under Executive Orders relating to Iran’s proliferation of weapons of mass destruction and their means of delivery, including ballistic missiles; relating to international terrorism; relating to Syria; relating to Yemen; or relating to Iran’s commission of human rights abuses against its citizens; or (8) any nuclear activity that is subject to the procurement channel established pursuant to the UN Security Council Resolution 2231 and the JCPOA that has not been approved through the procurement channel process.
- OFAC may issue specific licenses to U.S. persons on a case-by-case basis to engage in transactions for the (i) export, reexport, sale, lease or transfer to Iran of commercial passenger aircraft for exclusively civil aviation end use; (ii) export, reexport, 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.
- Finally, upon its publication in the Federal Register, a regulatory amendment to the ITSR authorizes the importation into the United States of Iranian-origin carpets and foodstuffs, including pistachios and caviar, provided that such transaction or dealing does not involve or relate to goods, technology, or services for exportation, reexportation, sale, or supply, directly or indirectly to Iran, the Government of Iran, an Iranian financial institution, or any other person whose property and interests in property are blocked.
As noted above, a number of U.S. legal authorities that are outside the scope of the JCPOA remain in effect after Implementation Day. These include the following: the trade embargo against Iran, export controls, designation authorities and blocking sanctions for support for terrorism, Iran’s human rights abuses, proliferation of Weapons of Mass Destruction and ballistic missiles, and, as noted above, a continued prohibition on transactions with individuals who remain on or are placed on the SDN list.
EU Sanctions Relief
On January 16, the EU introduced far-reaching sanctions relief concerning Iran (following the verification issued by the IAEA). The EU had already adopted, on 18 October 2015, the necessary legislative package designed to introduce the relief on Implementation Day, and that legislative package is now in effect.
The EU sanctions relief affects the following sectors/activities.
Financial, banking and insurance: The prohibition of financial transfers to and from Iran (including the notification and authorization regimes) is lifted; banking activities, e.g., establishing new correspondent banking relationships with respect to non-listed Iranian banks is permitted; the supply of specialized financial messaging services, including SWIFT, is allowed for non-listed Iranian parties; financial support for trade with Iran (e.g., export credit, guarantees/insurance) is permitted;
- Energy and petrochemical sectors: It is now permitted to import, purchase, swap and transport crude oil, petroleum products, gas and petrochemical products from Iran; EU persons are also permitted to invest in, export equipment/technology to, and provide technical assistance to, the Iranian oil, gas and petrochemical sectors;
- Shipping, shipbuilding and transport: EU sanctions related to shipping and shipbuilding and certain sanctions related to the transport sector, including the provision of associated services, have been lifted;
- Gold, other precious metals, banknotes and coinage: The sale, supply, purchase, export, transfer or transport of gold and precious metals as well as diamonds, and the provision of related brokering, financing and security services, to, from or for the Government of Iran, its public bodies, corporations and agencies, or the Central Bank of Iran is allowed; delivery of newly printed or minted banknotes and coinage for the Central Bank of Iran is also permitted;
- Metals: The sale, supply, transfer or export of certain graphite and raw or semi-finished metals to any Iranian person, entity or body, or for use in Iran, is no longer prohibited but is subject to an authorization regime; and
- Software: The sale, supply, transfer or export of certain software to any Iranian parties or for use in Iran, in connection with activities consistent with the JCPOA, is no longer prohibited but is subject to an authorization regime.
In addition to the relief referred to above, many (but not all) Iranian persons and entities have been removed from the EU’s list of designated parties. Those that have been de-listed are no longer subject to an asset freeze, visa ban, nor a prohibition to make funds available. Entities that have been de-listed include the Central Bank of Iran and the National Iranian Oil Company (NIOC).
The following EU sanctions remain in force, notwithstanding the arrival of Implementation Day: the arms embargo; sanctions related to missile technology; and restrictions on certain nuclear-related transfers and activities. Also, as noted above, an authorization regime is now in place with respect to certain metals and software, and a number of persons and entities are still on the EU’s list of designated parties. Furthermore, sanctions that have been imposed by the EU that are unrelated to the JCPOA (e.g., for human rights violations or support for terrorism) remain in place.
For more information on the JCPOA, including detailed analysis of the impacts of the JCPOA on U.S. and non-U.S. companies and financial institutions, please see our previous client update here.