This article explains the relief of certain sanctions imposed in relation to Iran’s nuclear programme by the UN Security Council (the “UNSC”), the European Union (the “EU”) and the United States of America (the “US”), which took place on Saturday 16th of January, known as Implementation Day. This followed the verification by the International Atomic Energy Agency (“IAEA”) of Iran’s compliance with its obligations under the Joint Comprehensive Plan of Action (“JCPOA”). Those wishing to invest in or do business in Iran will need to be aware of which sanctions were lifted and which will continue to remain in place under the UNSC, EU and US legislative frameworks, as failure to comply with any remaining sanctions may have severe consequences.
Recent history of sanctions against Iran
On 14 July 2015, Iran, the five permanent members of the UNSC (China, France, Russia, the United Kingdom, and the US) plus Germany (the “P5+1“) and the EU reached agreement on theJCPOA.
Pursuant to the JCPOA, Iran undertook to limit its nuclear programme in return for the comprehensive lifting of nuclear-related economic and financial sanctions imposed by theUNSC (“International Sanctions”) and the EU (the “EU Sanctions”), and the nuclear-related secondary US sanctions (the sanctions that the US imposes on foreign persons and entities, including financial institutions that take part in certain activities with Iran) (the “US Secondary Sanctions”).
The JCPOA came into effect on 15 October 2015 (“Adoption Day”), 90 days after the UNSCpassed Resolution 2231 (2015), upon approval of the US legislature and the Iranian legislature, as required under JCPOA. On Adoption Day, the EU approved the requisite “legal acts” specified in the JCPOA, thus preparing for the lifting of EU Sanctions. These legal acts came into effect on Implementation Day.
Implementation Day was the first of three stages of sanctions relief under the JCPOA. Subsequent rounds of sanctions relief will take place in the future if Iran continues to comply with its obligations under the JCPOA. These are due to take place around 2023 and 2025, so are not discussed in this article.
Implementation Day marked a significant milestone in the Iran nuclear agreement. Indeed, US Secretary of State, John Kerry, stated on Saturday that Implementation Day marked “the moment that the Iran nuclear agreement transitions from an ambitious set of promises on paper to measurable action in progress”.
Implementation Day was declared following the implementation of certain measures by Iran in relation to its nuclear programme, and IAEA verification to this effect.
The first round of sanctions relief was provided on Implementation Day, with the majority of the International Sanctions and the EU Sanctions being lifted. Some US Secondary Sanctions were also removed. It is important to note that other UNSC, EU and US sanctions against Iran will continue to remain in place.
All International Sanctions were lifted on Implementation Day – previous UNSC resolutions were terminated and certain individuals and entities were removed from the UNSC sanctions blacklist (pursuant to UNSC Resolution 2231). Further relief, for example in relation to the UN conventional arms embargo, will be provided in the next phases of sanctions relief by theUNSC.
The following EU Sanctions, first imposed in 2012, were removed:
- transfers of funds between EU entities and Iran, including financial and credit institutions;
- banking activities, including new branches of Iranian banks opening in EU Member States, and EU entities opening new offices, subsidiaries, joint ventures, and bank accounts in Iran;
- insurance and reinsurance for Iranian entities;
- import of Iranian oil, gas, and petrochemical products;
- investment in the export to Iran of equipment for oil, gas, and petrochemical sectors;
- shipping, shipbuilding, and transport sectors; and
- export of gold, precious metals, and diamonds.
The EU also lifted the asset freeze on certain Iranian entities in the financial, energy, shipping, and transport sectors, including on the Central Bank of Iran, and Iran was also given access to financial messaging services, including SWIFT.
Residual EU Sanctions will be removed on Termination Day, which is expected to be around 2025. Other sanctions against Iran, for example in relation to human rights violations and terrorism, will continue to remain in place after ‘Termination Day’.
Important US Secondary Sanctions suspended on Implementation Day include those in relation to the following sectors and services:
- financial and banking transactions with Iranian financial institutions;
- financial messaging services;
- insurance and re-insurance;
- transport, investment in, and sale of Iranian oil, gas, and petrochemicals;
- shipping, shipbuilding, and port sectors;
- the automotive sector; and
- trade in gold and other precious metals.
In addition, a number of individuals and companies, aircraft and ships were removed from the US sanctions blacklist and restrictions that the US has placed on non-US persons not generally subject to US jurisdiction were removed (actions by non-US persons, which cause an act to occur in the US, will still be subject to sanctions). Furthermore, the US agreed to “cease the application” of certain nuclear-related sanctions affecting Iran’s financial and energy sectors. Other US sanctions, for example in relation to human rights issues and “support for terrorism”, shall remain in force, even after the final round of sanctions relief on Termination Day.
It is unclear how the US will interpret the sanctions architecture in practice. Even following Implementation Day, US persons will continue to be prohibited from involvement in transactions or dealings with Iran, subject to a small number of categories of transactions that the Treasury Department’s Office of Foreign Assets Control (“OFAC“) may license pursuant to the JCPOA. OFAC has now published guidance following Implementation Day, and it may be that its approach in practice is driven by political considerations, given the differing approaches to Iran of the Democratic and Republican parties in a presidential election year.
Some Practical Considerations
With the long awaited arrival of Implementation Day, many investors and businesses will be assessing the opportunities arising from the opening up of the Iranian market to the outside world. However, as set out above, certain sanctions will remain in place even after Implementation Day, and so caution must be exercised to ensure that any remaining sanctions are not breached.
Persons wishing to do business with Iran should take specific legal advice to ensure any contracts or transactions are not subject to sanctions.
US persons must be aware that unless authorized by OFAC, US persons will continue to be prohibited from entering into any contracts or dealings involving Iran or the Government of Iran, including with individuals and entities on the US Specially Designated Nationals List. The restrictions on US persons are broad and prevent, for example, US persons from approving or facilitating the entry into or performance of transactions with Iran by a non-US subsidiary of a US firm or indeed by unaffiliated foreign persons, which that US person is itself prohibited from performing itself.
The JCPOA also contains a “snap-back” sanctions procedure. In the event of non-compliance by Iran with its obligations under the JCPOA, nuclear related sanctions may be re-imposed, subject to an elaborate procedure, which could ultimately require the involvement of theUNSC. These provisions for reinstating the International Sanctions expire 10 years after the adoption of the UNSC Resolution 2231. It would be prudent to incorporate such an event in the force majeure clause in contracts involving Iran.
Despite the challenges inherent in investing in or doing business with Iran, it is a country which offers ample opportunities for trade (import and export), investment, and joint venture projects. Successful transactions and business relationships will, however, require detailed due diligence, care and foresight from expert advisers.