Key points:

  • The Trump Administration could dramatically alter U.S. sanctions against Iran, Cuba and Russia.
  • Sanctions against Iran and Cuba could snap back, rendering illegal some transactions that are currently permitted.
  • Sanctions against Russia could be scaled back or rescinded entirely.
  • Until the smoke clears, companies should approach these markets with caution.

Introduction. With the results in from the U.S. presidential election, companies should begin to consider the potential impact of a Trump presidency on their international business. U.S. economic sanctions were among the hot-button issues debated this election cycle, and changes under a Trump Administration could restrict opportunities for companies conducting or hoping to engage in business involving Iran or Cuba. On the other hand, Trump has vowed to improve relations with Russia, which could signal the impending revocation of U.S. sanctions against that country.

Below are our thoughts on the possible direction of U.S. sanctions in the coming months.

Iran. The sanctions topic that garnered the greatest attention this election season involved the United States’ relationship with Iran.

By way of background, in July 2015, the United States and its allies entered into a Joint Comprehensive Plan of Action (JCPOA) with Iran, also referred to as the Iran nuclear deal. As we reported then, the deal eased certain sanctions against Iran in exchange for Iran’s curtailment of its nuclear program.

In January 2016, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) took steps to fulfill the United States’ JCPOA commitments. Among other actions, OFAC issued General License H, which permits non-U.S. entities that are owned or controlled by a U.S. person to engage in many previously prohibited transactions with Iran.

OFAC also waived the application of other sanctions, such as those under Section 5(a) of the Iran Sanctions Act (ISA). This allowed non-U.S. companies, including non-U.S. subsidiaries of U.S. companies, to engage in certain previously-prohibited transactions related to the development, production and exportation of Iranian petroleum products. (Though see here for continuing restrictions for U.S. government contractors.)

And OFAC announced a new licensing policy and issued two General Licenses offering opportunities related to commercial and civil aviation. As a result, some U.S. companies – including Boeing – have already entered the Iranian market; others are restructuring their operating policies and procedures to permit their non-U.S. subsidiaries to do so.

Analysis. We think a Trump presidency could threaten implementation, and even the existence, of the JCPOA. In March of this year, Trump indicated that he would “dismantle[e] the disastrous deal,” and his election means there is a real possibility that the JCPOA, as it stands today, may not survive its one year anniversary.

Trump could make good on his promise by issuing an Executive Order reinstating previous sanctions. In that case, companies would be prohibited from performing transactions previously authorized pursuant to General License H or other recent amendments. Trump could also prohibit activities to unwind existing Iran business, leaving some companies with no choice but to breach existing contracts and incur the resulting costs.

A more favorable outcome would be the establishment of a grace period for companies to halt newly prohibited business – though whether such leeway would be granted is anyone’s guess. Alternatively, Trump could leave it to Congress to introduce additional oversight of, or new sanctions to interfere with, Iran-related transactions. This approach is reportedly favored by many Republican senators.

Further clouding the picture are reports that Trump’s original stance on the JCPOA has softened somewhat in recent months. According to these reports, Trump may now favor stricter enforcement of Iran’s nuclear commitments.

Trump’s approach to the JCPOA will likely have global repercussions and affect other nations’ relationships with Iran. If, for example, the United States were to reinstate previous sanctions, non-U.S. entities (even those with no ties to the United States) could themselves be subject to U.S. sanctions for engaging in certain transactions in or with Iran. At the same time, we think it is unlikely that the European Union will re-introduce the sanctions that it maintained on Iran prior to the JCPOA. This may make it harder for the United States to change its Iran stance too dramatically: unilateral sanctions have typically proven less effective than the multilateral sanctions approach that was seemingly essential to getting Iran to ultimately negotiate the JCPOA.

Cuba. Although Cuba did not receive the same attention during the campaign as Iran, Trump has indicated that he intends to maintain the comprehensive U.S. embargo against Cuba.

He could also go further and take steps to reverse much of President Obama’s progress toward opening relations between the United States and Cuba. Were Trump to fully reinstate sanctions, as with Iran, the effects would be significant: companies would at best be given time to unwind now-prohibited business transactions and, at worst, could be forced to breach contractual commitments and sacrifice the time and money spent on establishing their presence in that market.

Analysis. We think Trump is unlikely to change course too significantly on Cuba. Although the pace of rapprochement might ease, he and his Republican colleagues do not appear to have a strong appetite at this point to re-impose strict limitations on the country.

Russia. While Trump appears to contemplate re-imposing or maintaining restrictions against Iran and Cuba, his approach to Russia could be just the opposite. Current U.S. restrictions on Russia and with respect to Ukraine – including a comprehensive embargo on the Crimea region – are more targeted than restrictions on Cuba and Iran.

Analysis. It is certainly possible that Trump could repeal some or all of those limitations and / or rescind the current comprehensive prohibition on conducting business in or with Crimea (which, he has reportedly stated he would consider recognizing as Russian territory). These steps would expand business opportunities for U.S. companies in Russia.

As with Cuba and Iran (and foreign policy, in general), however, Trump’s concrete plans regarding Russia remain unclear.

Conclusion. At this point, the only certainty about U.S. sanctions is uncertainty. Correspondingly, we think companies should proceed carefully when pursuing opportunities in countries, such as Iran, Cuba and Russia that are subject to current U.S. sanctions.

In truth, given how frequently and easily U.S. sanctions shift, the uncertainty engendered by Trump’s election is only a turbo-charged version of the usual variety of uncertainty in this area of law. Companies should always proceed carefully when pursuing business in or with a market that was recently a subject of U.S. sanctions – or could be in the future. Compliance personnel must keep a close eye on the legal landscape. And compliance processes and policies must be nimble enough to quickly and appropriately adapt to changes.

This may be particularly true in light of the transition to President Trump. But it’s true in any environment.