As has been widely reported, January 16, 2016 was “Implementation Day” under the Joint Comprehensive Plan of Action (JCPOA or Iran Agreement). On that day, the International AtomicEnergy Agency (IAEA) verified that Iran had implemented certain nuclear-related measures stipulated under the Iran Agreement. The IAEA’s verification triggered the lifting or easing of certain sanctions against Iran by the United States and other JCPOA parties, including the European Union, Russia, France, Germany, the United Kingdom and China.
Most of the sanctions lifted or eased by the United States were “secondary” sanctions that had applied to non-U.S. companies and individuals. However, the “primary” U.S. sanctions – those applicable to U.S. entities, individuals and products – for the most part remain in place.
Notably, a key provision in the U.S. sanctions – that foreign entities owned or controlled by a U.S. person are subject to the same restrictions as a U.S. entity – has been lifted. However, because the primary sanctions applying to U.S. persons remain in place – including the prohibition against U.S. persons facilitating transactions with Iran by non-U.S. persons – U.S. companies weighing whether to allow their non-U.S. subsidiaries to do business with Iranian companies may want to consult with counsel before proceeding.
Most Primary U.S. Sanctions Remain in Place
With limited exceptions, U.S. persons (individuals and entities) continue to be broadly prohibited from engaging intransactions or dealings with Iran, its government and Iranian financial institutions, as well as transactions involving goods of Iranian origin. The prohibitions include facilitating transactions by non-U.S. persons with Iran; approving, assisting, financing, servicing, etc., are all prohibited for U.S. persons.
Further, with certain specified exceptions, the export or reexport to Iran of U.S.-origin items – defined as anything with 10 percent or more U.S. content – is still prohibited. The limited exceptions include some that have been in place for years under general licensesissued by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC). Specifically, these involve the longstanding authorization for exports to Iranof agricultural commodities (including food), medicine and medical supplies.
In addition, OFAC issued a policy statement establishing a “favorable licensing policy” for considering specific licenses for the export or reexport of:
- Commercial passenger aircraft for civil aviation end-use
- Spare parts and components for commercial passenger aircraft
- Associated services for commercial civilian aircraft and their parts and components
Secondary U.S. Sanctions Relaxed
As already noted , the major change in U.S. sanctions triggered by Implementation Day is the lifting or easing of “secondary” sanctions – i.e., sanctions targeted at non-U.S. companies imposed in response to Iran’s nuclear-related activities. These sanctions previously reached non-U.S. entities that had no corporate affiliation with U.S. entities and U.S.-owned or -controlled foreign subsidiaries.
Non-U.S. Entities with No U.S. Corporate Affiliation
Before Implementation Day, under the authority of several statutes, the United States had asserted jurisdiction to apply penalties to non-U.S. entities in several sectors with no corporate affiliation to U.S. entities if those entities conducted business with Iran or Iranian entities. Under the JCPOA, the United States has now listed several activities for each of these sectors for which it will not pursue sanctions against non-U.S. affiliated entities. The affected sectors are:
- Financial and banking
- Energy and petrochemical
- Shipping, shipbuilding and port operation
- Gold and other precious metals
- Software and metals
Most, but not all, of the previously sanctionable activities for each of these sectors are now removed from sanctions scrutiny.
U.S.-Owned or -Controlled Foreign Entities
As already noted, U.S. sanctions against Iran treat U.S.-owned or -controlled foreign entities as if they are U.S. entities. While subject to some critical conditions (discussed below), this provision has now – for the most part – been lifted by OFAC’s General License H.
Under this general license, U.S. companies that have compliance policies prohibiting their non-U.S. subsidiaries from transacting with Iran may change their policies, without such a policy revision being considered a prohibited facilitation of a transaction with Iran. In addition, the non-U.S. subsidiary may use any “automated and globally integrated computer, accounting, email, telecommunications, or other business support system … [for transactions with Iran].” Before, use of such systems could have been considered facilitation by the U.S. parent company. However, the prohibition against facilitating such transactions involving Iran or Iranian goods still applies to all actual U.S. persons (citizens and Green Card holders), wherever located. This prohibition also applies to non-U.S. persons while in the United States.
Despite this relief for U.S.-owned or -controlled foreign entities, General License H lists several exceptions – actions for which sanctions remain in effect. In particular, OFAC has made clear that foreign subsidiaries may not knowingly export or reexport U.S.-origin goods, technology or services to Iran without separate authorization from OFAC. This includes the reexport to Iran of any foreign-manufactured goods or technology that may contain 10 percent or more U.S.-controlled content. Further, U.S.-owned or -controlled foreign entities still may not:
- Engage in transactions with any of the more than 200 Iranian or Iran-related individuals and entities who remain or are placed on OFAC’s Specially Designated Nationals (SDN) List or Foreign Sanctions Evaders List.
- Engage in transactions with any persons or entities who have been denied export privileges or otherwise placed on the U.S. Department of Commerce’s Entity List.
- Direct any transfer of funds to, from or through the U.S. financial system.
- Engage in any transactions involving any military, paramilitary, intelligence or law enforcement entity of the government of Iran.
- Engage in activities sanctionable under the remaining Executive Orders applying to Iran (i.e., international support of terrorism, proliferation of weapons of mass destruction and their means of delivery, relating to Iran’s activities in Syria and Yemen, or Iran’s commission of human rights abuses against its citizens).
If any U.S.-owned or -controlled foreign entity engages in activities beyond the scope of the general license, the U.S. parent company will continue to be liable for any violations.
Certain Imports from Iran Permitted
In addition to these changes regarding exports to Iran and activities by foreign subsidiaries of U.S. companies, U.S. imports of Iranian-origin carpets and foodstuffs, including pistachios and caviar, are now permitted. This authorization covers:
- Carpets and other textile floor coverings and carpets used as wall hangings that are classified under chapter 57 or heading 9706.00.0060 of the Harmonized Tariff Schedule of the United States.
- Foodstuffs intended for human consumption that are classified under chapters 2-23 of the Harmonized Tariff Schedule of the United States.