On May 8, 2018, President Trump announced that the United States is withdrawing from the Joint Comprehensive Plan of Action (JCPOA).
Before former President Obama left office, in late 2016, OFAC had published a list of FAQs to address the possibility of the relaxation of sanctions on Iran being revoked (snapback), meaning, in large part, the re-imposition of certain secondary sanctions on non-US persons for certain dealings with Iran.
On May 8, 2018 OFAC published several new FAQs explaining how the re-imposition of sanctions (or snapback) will go into effect. While the FAQs leave a number of issues undecided, some of the key takeaways from the new FAQs are as follows:
- Wind-down Periods: The US government will provide either a 90 or a 180-day period for persons to wind down operations previously authorized under the JCPOA and entered into prior to May 8, 2018. Some sanctions will be re-imposed after a 90-day “wind-down” period (August 6, 2018) and other sanctions will be re-imposed a 180-day wind-down period (November 4, 2018). With the exception of goods or services necessary to wind down operations in or business involving Iran entered into prior to May 8, 2018 during the 90/180-day wind-down period, the provision or delivery of additional goods or services and/or the extension of additional loans or credits to an Iranian counterparty after the wind-down period, including pursuant to contracts entered into prior May 8, 2018, may result in the imposition of US sanctions.
- Retroactivity: Sanctions will not be applied retroactively to authorized transactions entered into before May 8, 2018 or to authorized transactions that took place during a wind-down period, but transactions conducted after these periods could be subject to penalties (if subject to US laws) or secondary sanctions to the extent they involve conduct for which sanctions have been re-imposed. Contracts entered into prior to the snapback will not be grandfathered past the applicable 90 or 180-day wind-down period.
- Primary Sanctions/General License H and the other General Licenses: US-owned or –controlled foreign entities will have a 180-day wind-down period for transactions under General License H, and US persons will have a 90-day wind-down period under the other licenses that were issued under the JCPOA on January 16, 2016. Effective November 5, 2018, US-owned or –controlled foreign entities will no longer be authorized to wind down certain activities involving Iran that were previously authorized under General License H. OFAC intends to replace General License H, General License I, and the general licenses in §§ 560.534 and 560.535 (relating to trade in Iranian-origin carpets and foodstuffs) with more narrowly scoped authorizations to allow US persons and, as appropriate, US-owned or –controlled foreign entities to engage in transactions ordinarily incident and necessary to wind down activities that had been previously authorized.
- The detailed provisions of the revised authorizations, including General License H, are not yet known; in other words, we do not know what wind-down activities will be authorized under the revised General License H or the other general licenses. However, the new authorizations are expected to permit the receipt of payments under written agreements that were entered into prior to May 8, 2018. We will provide an updated alert when OFAC reissues the general licenses.
- Secondary Sanctions: If a non-US, non-Iranian person is owed payment at the time of the end of the wind-down period for goods or services (as well as owed repayment for loans or credits extended) fully provided or delivered to an Iranian counterparty prior to the end of the wind-down period pursuant to contracts entered into prior to May 8, 2018, the US government will not impose sanctions on the non-US, non-Iranian person for receiving payment for those goods and services. Any payments would need to be consistent with US sanctions, including that payments could not involve US persons or the US financial system.
- Other General Licenses: The FAQs only address actions taken on January 16, 2016 in connection with the JCPOA. Neither the President nor OFAC has mentioned changing any of the general licenses that predated the JCPOA, such as the general license for agricultural, medicine and medical devices, or general license D-1, the General License with Respect to Certain Services, Software, and Hardware Incident to Personal Communications. We have no reason to believe that these non-JCPOA general licenses will be revoked or revised. However, the movement of a number of Iranian Banks back to the SDN list by November 5, 2018 (see final bullet below) may make payment more difficult.
This 90-day wind-down period (August 6, 2018) applies to some secondary sanctions, as well as some primary sanctions:
Secondary Sanctions Involving Non-US Persons
- Sanctions on the purchase or acquisition of US 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.
Primary Sanctions Involving US Persons
In addition to lifting certain secondary sanctions on non-US persons, the JCPOA authorized certain primary sanctions applicable to US persons, several of which will now be re-imposed after August 6, 2018.
- The importation into the United States of Iranian-origin carpets and foodstuffs and certain related financial transactions pursuant to general licenses under the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560;
- Activities undertaken pursuant to specific licenses issued in connection with the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (JCPOA SLP); and
- Activities undertaken pursuant to General License I relating to contingent contracts for activities eligible for authorization under the JCPOA SLP.
- OFAC has rescinded the JCPOA SLP and will no longer consider applications.
- OFAC expects to revoke any current specific licenses issued under the JCPOA SLP, but it will issue authorizations for related wind-down activities until August 6, 2018.
This 180-day wind-down period (November 4, 2018) applies to the remaining secondary sanctions, as well as the primary sanctions lifted by General License H:
Secondary Sanctions Involving Non-US Persons
- 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.
Primary Sanctions Involving US Persons
As noted above, US-owned or –controlled foreign entities will have a 180-day wind-down period, but we have to wait for OFAC to reissue General License H to know the scope of the wind-down activities that will be authorized. Effective November 5, 2018, US-owned or –controlled foreign entities will no longer be authorized to wind down certain activities involving Iran that were previously authorized under General License H. OFAC intends to replace General License H with a more narrowly scoped authorization to allow US-owned or –controlled foreign entities to engage in transactions ordinarily incident and necessary to wind down activities that had been previously authorized. Until OFAC issues the revised General License H, we will not know the scope of the revised authorization.
Persons to be Replaced from the EO 13599 List to the SDN List No Later than Nov 5, 2018
The US government will also re-impose sanctions on persons that had been removed from the SDN list as part of the JCPOA on January 16, 2016. No later than November 5, 2018, OFAC expects to move persons from the E.O. 13599 List (i.e., persons meeting the definition of “Government of Iran” or “Iranian financial institution”) back to the SDN list. The move is not effective immediately in order to facilitate wind-down activities by non-US, non-Iranian persons involving E.O. 13599 List persons, with whom transactions were authorized under the JCPOA. Beginning November 5, 2018, however, activities with most persons moved from the E.O. 13599 List to the SDN list will be subject to secondary sanctions, identifiable by the following notation on their SDN list entry: “Additional Sanctions Information – Subject to Secondary Sanctions.”