HIGHLIGHTS:

  • The United States is withdrawing from the multilateral nuclear accord with Iran known as the Joint Comprehensive Plan of Action (JCPOA).
  • The U.S. sanctions waived by President Barack Obama under the JCPOA will be reimposed in two stages in the next 90 and 180 days, giving companies a limited time to wind-down activities currently authorized under the JCPOA.
  • The reimposition of sanctions will significantly impact both U.S. and non-U.S. companies currently engaged in trade with Iran.

President Donald Trump on May 8, 2018, announced that the United States was withdrawing from the multilateral nuclear accord with Iran known as the Joint Comprehensive Plan of Action (JCPOA) and his reasons for doing so. President Trump made clear that the sanctions waived by the prior administration would be reimposed, including secondary sanctions on non-U.S. entities that engage in certain trade with Iran. The announcement was timed and coordinated, as the President was ready to issue a National Security Presidential Memorandum (NSPM) instructing executive agencies to take action, and the U.S. Department of Treasury Office of Foreign Assets Control (OFAC) issued guidance on when particular sanctions will go back into effect.

What Sanctions Go into Effect on Aug. 6, 2018

In 90 days, certain secondary sanctions waived under the JCPOA will go back into effect, including sanctions on:

  • Iran's automotive sector
  • the acquisition of U.S. dollar banknotes by the Government of Iran
  • Iran's trade in gold or precious metals
  • the sale or supply to or from Iran of graphite, raw or semi-finished metals such as aluminum and steel, coal and software for integrating industrial processes
  • significant transactions related to the purchase or sale of Iranian rials, or maintenance of significant rial-denominated accounts outside the territory of Iran
  • transactions related to Iranian sovereign debt

In addition, OFAC will revoke the authorization for the import of Iranian-origin carpets and foodstuffs, and general license related to the sale of civil passenger aircraft to Iran.

What Sanctions Go into Effect on Nov. 4, 2018

In 180 days, more comprehensive secondary sanctions waived under the JCPOA will go back into effect, including sanctions on:

  • the provision of underwriting services, insurance or reinsurance
  • Iran's energy sector
  • Iran's port operators, and shipping and shipbuilding sectors
  • petroleum-related transactions, including the purchase of petroleum, petroleum products or petrochemical products from Iran1
  • the provision of specialized financial messaging services to the Central Bank of Iran and other Iranian financial institutions

Other significant actions that will likely occur on Nov. 4, 2018, include:

  • Entities removed from the OFAC Specially Designated Nationals (SDN) list as part of the JCPOA Implementation in January 2016 will be redesignated as SDNs. These entities include shipping companies Islamic Republic of Iran Shipping Lines (IRISL) and South Shipping Line Iran; petroleum and petrochemical companies such as National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO) and the National Iranian Tanker Company (NITC); and Iranian government owned entities, including Iranian banks blocked under Executive Order 13599 and removed from the SDN List pursuant to the JCPOA.
  • OFAC has indicated it will revoke General License H, which allowed foreign entities owned or controlled by U.S. persons to engage in activities with Iran consistent with the JCPOA. Any activities by such foreign entities that continue after Nov. 4, 2018, may be subject to OFAC enforcement actions.

What Activities Can Take Place During and After the Wind-Down Periods?

During these wind-down periods, the relevant sanctions are still waived, so activities are not technically limited to "wind-down" activities only. In addition, OFAC has indicated that in certain circumstances payments made after the wind-down expiry would not be sanctionable, provided that the payments are for activities consistent with U.S. sanctions prior to May 8, 2018. Such payments include payment for goods or services contracted prior to May 8, 2018, and delivered prior to the wind-down expiry and repayment by Iranian entities of loans entered into prior to May 8, 2018. However, OFAC has cautioned non-U.S. persons to use the time periods to wind-down, and that when considering activities occurring after the wind-down periods, OFAC will evaluate steps taken to wind-down and whether new business was entered into with Iran during the wind-down periods.

What Steps Should Companies Be Taking Now?

Companies doing business consistent with the JCPOA are well aware of the compliance issues and practical difficulty in arranging payments for Iran-related transactions. During the wind-down periods, such transactions will likely be more challenging as banks and other counterparties engage in derisking by ending their involvement with Iran-related transactions. Hence, companies should be proactive in assessing whether and what transactions must or should be wound-down. Moreover, additional details and guidance may color this analysis, as may actions by the European Union or certain countries to impose "blocking laws" to prohibit companies in those jurisdictions from complying with U.S. secondary sanctions.

It is likely that certain trade not sanctioned prior to JCPOA implementation will remain free from secondary sanctions, such as trade in agricultural commodities and trade by non-U.S. persons in non-sanctioned goods with non-sanctioned persons. However, ensuring such transactions do not run afoul of U.S. sanctions will require enhanced diligence and compliance procedures once secondary sanctions go back into effect.