On July 14, after months of negotiations, China, France, Germany, Russia, the United Kingdom, and the United States (the “E3/EU+3”, also known as the “P5+1”) and Iran reached an agreement, the Joint Comprehensive Plan of Action (JCPOA), regarding Iran’s nuclear program. The JCPOA, including its five annexes and four attachments, creates a detailed and complex process by which Iran must take certain steps to ensure the peaceful nature of its nuclear program while the United States and the European Union (EU) cease the application of nuclear-related sanctions and ultimately repeal them. 

The JCPOA does not provide any immediate impact on the Iran sanctions that have been in place during the recent negotiations. Until Implementation Day—the day that the International Atomic Energy Agency (IAEA) verifies that Iran has implemented key nuclear-related measures described in the JCPOA, expected to occur in six to nine months—only the limited relief under the interim Joint Plan of Action (Interim JPOA), in effect since November 2013 to encourage negotiations, remains available. On Implementation Day, the JCPOA anticipates that the United States and the EU will provides sanctions relief beyond the scope of the Interim JPOA in a number of areas described below.

The sanctions relief, if implemented, represents a significant opportunity for European companies, but it remains to be seen what impact the deal will have on U.S. companies and their non-U.S. subsidiaries, given the agreement’s limited impact on U.S. primary sanctions.

U.S. Sanctions Overview

Annex II to the JCPOA commits the United States to take certain steps with respect to both U.S. primary sanctions and nuclear-related secondary sanctions on Implementation Day, although the commitments with respect to primary sanctions are more limited and in the form of certain licensing commitments. 

With respect to secondary sanctions, U.S. sanctions relief will occur in a number of sectors:

  • Financial and Banking Measures: Certain secondary sanctions measures, including those related to the Central Bank of Iran and other Iranian financial institutions, the National Iranian Tanker Company and National Iranian Oil Company, along with several other Specially Designated Nationals (SDNs), transactions involving Iranian Rials and government bonds, would be suspended and eventually terminated.
  • Insurance Measures: The JCPOA specifically addresses certain secondary sanctions measures related to the insurance industry and indicates that the U.S. will lift “sanctions on the provision of underwriting services, insurance, or reinsurance in connection with activities consistent with this JCPOA, including activities with individuals and entities set forth in Attachment 3 to this Annex.”
  • Energy and Petrochemical Sectors: The JCPOA anticipates that the United States would cease efforts to reduce Iran’s crude oil sales, including limitations on the quantities of Iranian crude oil sold and the nations that can purchase Iranian crude oil. In addition, many secondary sanctions restrictions would be permanently removed, including sanctions on investment, including participation in joint ventures, goods, services, information, technology, and technical expertise and support for Iran’s oil, gas, and petrochemical sectors; sanctions on the purchase, acquisition, sale, transportation, or marketing of petroleum, petrochemical products, and natural gas from Iran; sanctions on the export, sale, or provision of refined petroleum products and petrochemical products to Iran; and sanctions on transactions with Iran’s energy sector, including with the National Iranian Oil Company and Naftiran Intertrade Company.
  • Shipping, Shipbuilding, and Port Sectors: The agreement would permanently remove secondary sanctions restrictions that threaten sanctions for persons found to have knowingly engaged in transactions with Iran’s shipping and shipbuilding sectors and port operators, including IRISL, South Shipping Line, and the National Iranian Tanker Company, as well as the port operators of Bandar Abbas.
  • Automotive Sector: The JCPOA includes language specifically addressing certain secondary sanctions measures related to the automotive industry and indicates that the United States will lift “sanctions on the sale, supply or transfer of good and services used in connection with Iran’s automotive sector.”

The impact on primary sanctions under the Iranian Transactions and Sanctions Regulations (ITSR) is more limited. The U.S. government has made a commitment in the JCPOA to issue licenses for activities related to certain activities. OFAC has advised that more detailed guidance will be provided in the future. These areas include, but are not limited to:

  • Non-U.S. Subsidiaries of U.S. Companies: The JCPOA may ease primary sanctions measures relevant to subsidiaries of U.S. entities located outside the United States, as the wording states that the U.S. will “license non-U.S. entities that are owned or controlled by a U.S. person to engage in activities with Iran that are consistent with this JCPOA.” The JCPOA defines an entity as owned or controlled by a U.S. person “if the U.S. person: (i) holds a 50 percent or greater equity interest by vote or value in the entity; (ii) holds a majority of seats on the board of directors of the entity; or (iii) otherwise controls the actions, policies, or personnel decisions of the entity.” The JCPOA further clarifies that “U.S. persons and U.S.-owned or -controlled foreign entities will continue to be generally prohibited from conducting transactions of the type permitted pursuant to this JCPOA, unless authorized to do so by the U.S. Department of the Treasury’s Office of Foreign Asset Control (OFAC).” It remains to be seen how this licensing commitment will be implemented b OFAC.
  • Civil Aviation: The JCPOA commits the United States to allow licenses for primary sanctions in civil aviation. Specifically, the United States committed to “allow for the sale of commercial passenger aircraft and related parts and services to Iran by licensing the (i) export, re-export, sale, lease or transfer to Iran of commercial passenger aircraft for exclusively civil aviation end-use, (ii) export, re-export, sale, lease or transfer to Iran of spare parts and components for commercial passenger aircraft, and (iii) provision of associated serviced, 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.” But if the United States determines that “licensed aircraft, goods, or services have been used for purposes other than exclusively civil aviation end-use, or have been re-sold or re-transferred to persons on the SDN List, the United States would view this as grounds to cease performing” its civil aviation commitments in the JCPOA.
  • Imports of Food: The general license for foodstuff imports under the ITSR was revoked in 2010, but the JCPOA commits the United States to provide licenses for the importation into the United States of Iranian-origin foodstuffs, specifically including pistachios and caviar.  The foodstuff provision also extends to Iranian-origin carpets. 
  • Education: The JCPOA anticipates that the United States would end the exclusion of Iranian citizens from higher education coursework related to careers in nuclear science, nuclear engineering, or the energy sector. The ITSR already provides a general license for certain educational services, such as academic exchanges, Iranian applicants to be students or teachers in the United States, and U.S. persons supporting not-for-profit educational activities such as combating illiteracy in Iran. 

Finally, the JCPOA provides for the removal of certain individuals and entities on the SDN List, the Foreign Sanctions Evaders List, and/or the Non-SDN Iran Sanctions List with connections to Iran’s nuclear program. Under the JCPOA, individuals and entities in Attachment three will be removed from the relevant lists on Implementation Day, the day that the IAEA verifies that Iran has implemented key nuclear-related measures described in the JCPOA. Individuals and entities in Attachment four will be removed from the relevant lists on or after Transition Day, which occurs eight years from the adoption of the JCPOA or after the IAEA certifies that all nuclear material in Iran remains in peaceful activities. 

EU Sanctions Overview

The EU has agreed to lift all nuclear-related sanctions imposed by Council Decision 2010/413/CFSP and Council Regulation 267/2012 (as subsequently amended). Annex V to the JCPOA sets out the precise detail on the sanctions lifting, with a summary of the areas covered set out below:

  • Transfers of funds between EU persons and entities, including financial institutions, and Iranian persons and entities, including financial institutions; 
  • Banking activities, including the establishment of new correspondent banking relationships and the opening of new branches and subsidiaries of Iranian banks in the territories of EU Member States;
  • Provision of insurance and reinsurance; 
  • Supply of specialised financial messaging services, including SWIFT, for designated persons and
  • entities, including the Central Bank of Iran and Iranian financial institutions; 
  • Financial support for trade with Iran (export credit, guarantees or insurance);
  • Commitments for grants, financial assistance and concessional loans to the Government of Iran; 
  • Transactions in public or public-guaranteed bonds; 
  • Import and transport of Iranian oil, petroleum products, gas and petrochemical products; 
  • Export of key equipment or technology for the oil, gas and petrochemical sectors; 
  • Investment in the oil, gas and petrochemical sectors; 
  • Export of key naval equipment and technology; 
  • Design and construction of cargo vessels and oil tankers; 
  • Provision of flagging and classification services; 
  • Access to EU airports of Iranian cargo flights; 
  • Export of gold, precious metals and diamonds; 
  • Delivery of Iranian banknotes and coinage; 
  • Export of graphite, raw or semi-finished metals such as aluminium and steel, and export or software for integrating industrial processes; 
  • Designation of persons, entities and bodies (asset freeze and visa ban); and 
  • Associated services for each of the categories above.

On Implementation Day, the EU will remove listed persons and entities subject to asset freezing measures from Annexes VIII to IX to Council Regulation 267/2012, as well as suspend the provisions of Council Decision 2010/413/CFSP in relation to such persons and entities.
In addition, we note the following:

  • Pending sanctions infringement investigations by EU Member States: Ongoing investigations on sanctions infringements may be reviewed in accordance with applicable national laws. We note that the UK Department for Business, Innovation and Skills has published a Notice to Exporters 2015/20, which states that "While sanctions remain in place they will continue to be enforced robustly."
  • EU sanctions remaining: The EU political sanctions imposed in response to human rights violations in Iran, by Council Decision 2011/235/CFSP and Council Regulation 359/2011 (as subsequently amended) will remain in place. In practice, the ban on the supply of certain goods used for internal repression will continue in addition to the asset freezing measures on designated persons and entities.
  • Opportunities for EU companies:
    • Civil nuclear cooperation
      The E3/EU+3 have proposed several areas of cooperation with Iran, in particular in the civil nuclear sector. The E3/EU+3 have agreed to facilitate particular activities relating to the operation of civilian nuclear facilities.
    • Export credit support
      More broadly, the EU has also committed to further explore possible areas for cooperation between the EU, its Member States and Iran. In particular, the EU will consider the use of available instruments, such as export credits to facilitate trade, project financing and investment in Iran. The EU provides an overarching framework for export credit principles, but export credit agencies are run at a Member State level, potentially providing a range of different opportunities for EU investors. 

Next Steps

Promptly after concluding negotiations, the E3/EU+3 countries will submit a proposed resolution to the United Nations (UN) Security Council endorsing the JCPOA. There have been reports of a possible Security Council meeting as soon as July 22, 2015. The resolution, once adopted by the Security Council, will terminate the seven current UN resolutions on Iran, and will replace these with specific restrictions on an arms embargo and missile technology. The resolution will have an end date of 10 years after its adoption, by which point the E3/EU+3 and Iran parties aspire to the conclusion of the Iran nuclear issue by the UN Security Council.

Under U.S. law, Congress has sixty days to review the JCPOA from the date the President submits the agreement to Congress. In theory, Congress could enact legislation to attempt to disapprove the JCPOA and interrupt the progression of the terms agreed. President Obama has indicated he would veto any such legislation, requiring a veto-proof majority, two-thirds of the House and Senate, to override the President’s veto. 

Within ninety days of the UN Security Council Resolution, the JCPOA comes into effect, and the parties become legally obligated to commence preparations to implement their JCPOA commitments. On Implementation Day, the day that the IAEA verifies that Iran has implemented key nuclear-related measures described in the JCPOA, expected to occur in six to nine months, the EU will terminate specified provisions of Council Regulation 267/2012 and suspend Council Decision 2010/413/CFSP, while the United States will cease the application of specified sanctions. That said, it remains to be seen how the agreement will be implemented in practice given the complexities of the various provisions. On Transition Day, eight years from the adoption of the Security Council Resolution, the European Union and the United States will take further steps to terminate the sanctions specified.

As the parties work to meet their obligations, the JCPOA also contemplates the “snap-back” of Iran sanctions in the event that Iran fails to comply with the agreement.

Timothy Ford