On May 8, 2018, President Trump announced his decision to pull the United States out of the Joint Comprehensive Plan of Action (JCPOA) between the P5+1 nations1 and Iran. He further announced that U.S. nuclear-related sanctions, which had been suspended since the agreement was implemented in January 2016, would be reinstated following 90- and 180-day wind-down periods associated with specific activities. Per the announcement, by November 5, 2018, all U.S. nuclear-related sanctions that had been lifted under the JCPOA, including secondary sanctions2, are expected to be re-imposed and in full effect.
As a result of this decision, the U.S. State Department issued the necessary statutory waivers to facilitate the winding down, by U.S. and non-U.S. persons, of existing transactions involving Iran. In addition, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) expects to revoke or amend, general and specific licenses issued in connection with the JCPOA.
OFAC has also published a new set of frequently asked questions (FAQs) that provide some additional guidance on the timeline for sanctions to be re-imposed and the associated wind-down periods.
90-Day Wind-Down Period
According to OFAC’s FAQs, after a 90-day wind-down period ending August 6, 2018, the United States will re-impose the following sanctions that were lifted pursuant to the JCPOA:
- 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.
In addition, following the 90-day wind-down period, the United States will revoke the following JCPOA-related authorizations under U.S. primary sanctions regarding Iran:
- The importation into the United States of Iranian-origin carpets and foodstuffs and certain related financial transactions pursuant to general licenses;
- Activities undertaken pursuant to specific licenses for the export of commercial aircraft, aircraft parts, or associated services; and
- Activities undertaken pursuant to General License I relating to contingent contracts for the export of commercial aircraft, parts, and services.
180-Day Wind-Down Period
The FAQs further state that, following the 180-day wind-down period ending on November 4, 2018, the United States will re-impose the following sanctions:
- 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;
- Sanctions on the provision of specialized financial messaging services to the Central Bank of Iran and designated Iranian financial institutions;
- Sanctions on the provision of underwriting services, insurance, or reinsurance; and
- Sanctions on Iran’s energy sector.
In addition, effective November 5, 2018, the U.S. government will revoke General License H that authorized U.S.-owned or controlled foreign entities to engage in transactions with Iran.
Finally, no later than November 5, 2018, the United States will re-impose, as appropriate, the sanctions that applied to persons removed from the List of Specially Designated Nationals and Blocked Persons (SDN List) and/or other lists maintained by the U.S. government on January 16, 2016.
What This Means
Other than the aircraft manufacturing sector, the JCPOA had little effect on U.S. persons. Even after the implementation of the JCPOA, most primary sanctions remained in place. By contrast, the primary effects of the JCPOA were to lift the nuclear-related secondary sanctions applicable to non-U.S. persons. They thus allowed foreign investment and participation in various sectors of the Iranian economy and also authorized the provision of certain services by non-U.S. persons, notably financial services and insurance/reinsurance. Accordingly, the greatest impact of the United States withdrawal from the JCPOA will be felt by non-U.S. entities that re-entered Iranian markets.
The present course outlined by the president would mean that no later than November 5, 2018, U.S. secondary sanctions would be re-imposed with respect to Iran’s energy and petrochemical sectors, its shipping, shipbuilding and port sector, its automotive sector, and its civil aviation sector. In this regard, numerous individuals and entities that had been removed from the SDN List, in addition to NIOC, NICO, NITC, and IRISL already cited, could be re-listed. Further transactions within these sectors or involving these entities could subject non-U.S. persons to secondary sanctions.
The actions taken thus far, including the provision of wind down periods, are consistent with previous OFAC guidance regarding what to expect in the event that the United States reinstated sanctions to their pre-JCPOA status, also referred to as “snapback.” In those previous statements, OFAC advised that the United States would not retroactively impose sanctions on legitimate activity undertaken pursuant to the JCPOA, but that the JCPOA does not grandfather contracts signed prior to snapback. Thus, for those doing business in Iran, contracts that can be fully executed within the wind-down period will be permitted, but performance of a pre-existing contract after expiration of the wind-down period would be prohibited.
It remains to be seen how other countries will react to the U.S. move. Countries within the European Union have in the past attempted to frustrate U.S. secondary sanctions by enacting blocking statutes. However, these were of limited utility as evidenced by OFAC’s ability to levy huge penalties on many foreign entities, notably banks. Given the predominance of the U.S. financial system and the lure of U.S. markets, most foreign firms may well conclude that continued trade with Iran is not worth the risk.
The application of U.S. sanctions often relies on the particular circumstances of a transaction. If you have questions about how these changes affect your business, please contact Cozen O’Connor’s Transportation and Trade Group.
1 The five permanent members of the U.N. Security Council (United States, Russia, China, U.K., France) plus Germany.
2 Secondary sanctions are measures applicable to non-U.S. persons for engaging in certain transactions with Iran, even if the person or transaction has no nexus to the United States. Secondary sanctions are designed to discourage non-U.S. individuals and entities from doing business with Iran by limiting their access to U.S. financial institutions and markets.