On May 8, 2018, ahead of the May 12 renewal deadline for certain sanctions waivers, President Trump announced that the United States would withdraw from the Joint Comprehensive Plan of Action (“JCPOA”) and reinstate all U.S. sanctions that were lifted or waived in connection to the JCPOA. Starting immediately, the Departments of State and Treasury are taking steps to establish 90- and 180-day sanctions waiver periods to allow U.S. and foreign businesses to wind down certain operations involving Iran.
After November 4, 2018, all U.S. nuclear-related sanctions that were waived under the JCPOA will be fully reinstated, with certain measures fully reinstated by August 6, 2018.
Potential Impact On U.S. Businesses
The President’s decision to withdraw from the JCPOA will have certain direct impacts on U.S. businesses. Both before and after this decision, U.S. persons remained subject to the broad and longstanding U.S. embargo against Iran. However, U.S. businesses will be impacted by the revocation of certain general and specific licenses.
Revoked subject to wind-down ending August 6, 2018:
- The permissive Statement of Licensing Policy (SLP) for export and re-export of passenger aircraft and related parts and services to Iran, as well as the related General License I, authorizing contingent contracts for such exports. Note that OFAC has stated that specific licenses issued under the SLP will be revoked subject to authorization to wind-down by August 6.
- The general license that authorizes the import of Iranian-origin carpets and foodstuffs.
Revoked subject to wind-down ending November 4, 2018:
- General License H, which authorized foreign entities owned or controlled by U.S. persons to conduct business with Iran will be revoked. Foreign subsidiaries that continue to conduct business with Iran (not otherwise authorized) will be subject to OFAC enforcement measures after November 4.
OFAC’s guidance states that a U.S. person owed payment after the conclusion of the applicable wind-down periods for goods or services fully provided prior to August 6 or November 4 may receive payment after those dates. This is subject to certain conditions. The goods or services must have been made pursuant to a written contract or written agreement entered into prior to May 8. Also, such activities must have been consistent with U.S. sanctions in effect at the time of the contract.
Potential Impact On Non-U.S. Businesses
Non-U.S. businesses and persons will experience a significant impact from the U.S. withdrawal from the JCPOA, as the JCPOA waived many secondary sanctions imposed on non-U.S. persons engaging in certain transactions with Iran.
Following a 90-day wind-down period, on August 6, 2018, the following sanctions will snap back, including sanctions on associated services related to the activities below:
- Sanctions on the purchase or acquisition of U.S. dollar banknotes by the Government of Iran;
- Sanctions on Iran’s trade in gold or precious metals;
- Sanctions on the direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes;
- Sanctions on significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial;
- Sanctions on the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
- Sanctions on Iran’s automotive sector.
Following a 180-day wind-down period, on November 4, 2018, the following sanctions will be re-imposed:
- Sanctions on Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, or their affiliates;
- Sanctions on petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
- Sanctions on transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA);
- Sanctions on the provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010 (CISADA);
- Sanctions on the provision of underwriting services, insurance, or reinsurance; and
- Sanctions on Iran’s energy sector.
Non-U.S. persons who do not wind down such activities by August 6 or November 4, as applicable, are exposed to potential secondary sanctions.
OFAC’s guidance states that a non-U.S., but also a non-Iranian person owed payment after the conclusion of the applicable wind-down periods for goods or services or repayment of loans or credit fully provided prior to August 6 or November 4 may receive payment after those dates. This is subject to certain conditions. The goods, services, loan, or credit must have been made pursuant to a written contract or written agreement entered into prior to May 8. Also such activities must have been consistent with U.S. sanctions in effect at the time of the contract.
Additional Future Actions
OFAC’s most recent guidance suggests that by November 5, 2018, OFAC likely will relist on the Specially Designated Nationals List the approximately 400 Iranian persons who were removed pursuant to the JCPOA. OFAC stated that it intends to note on the SDN List entry that transactions with most of such persons are “subject to secondary sanctions.”
Authorizations Not Affected By Withdrawal
Although the withdrawal from the JCPOA will have wide impact on the U.S. sanctions against Iran, several authorizations and general licenses should remain in effect as they are unrelated to the JCPOA. These include general licenses related to the export of medical devices, medicine, agricultural commodities, humanitarian assistance, educational services, and personal communications.
U.S. businesses should carefully review their activities that involve Iran to determine which must be halted and how quickly pre-existing activities and transactions must wind-down. Any U.S. businesses that allowed foreign subsidiaries to make use of General License H will need to revisit such policies and procedures.
Non-U.S. businesses should likewise carefully review their activities to determine whether their activities involving Iran expose them to secondary sanctions risk or have a U.S. nexus that might cause a direct violation of the revised U.S. primary sanctions.