On Saturday 16 January 2016, the implementation of the Joint Comprehensive Plan of Action (JCPOA) of July 2015, which provides for the lifting of certain sanctions against Iran, was announced. The JCPOA came into force on 18 October 2015 (Adoption Day). On that date the EU published two EU Council Regulations (1861/2015 and 1862/2015) and an EU Council Decision (1863/2015) that provided for the lifting of the major part of the EU sanctions and the de-listing of most listed persons. Also on 18 October 2015, the US Secretary of State issued contingent waivers of certain US statutory sanction provisions. The EU instruments and the US waivers have now taken effect as of 16 January. Switzerland has also lifted part of its sanctions against Iran on 17 January 2016.

The implementation of the JCPOA, which has occurred sooner than expected, was eagerly anticipated by many. It will unlock about 100 billion USD worth of frozen Iranian funds and it will enable Iran to re-enter the world economy because several of its sectors, most notably the energy, shipping and shipbuilding sectors, have become available to foreign investors again. We offer a high-level overview of the phased lifting of the nuclear-related sanctions under the JCPOA.

While most of the EU and Swiss sanctions and listings have now been lifted as a result of the implementation of the JCPOA, the waiver of US sanctions provisions principally relates to ‘secondary sanctions’, i.e., the sanctions directed at non-US persons. Furthermore, whereas the JCPOA provides for the relaxation of nuclear-related sanctions against Iran, human rights-related sanctions and arms embargos against the country remain unaffected.

It is difficult to accurately predict the positive effects of the present developments. The fact that the easing of US sanctions primarily concerns secondary sanctions, meaning that US companies will basically continue to feel the restrictive effect of US regulations, is likely to give a competitive edge to European companies.

Whether potential investors in Iran will be able to fully seize the opportunities created by the implementation of the JCPOA remains questionable. It was precisely the comprehensive nature and enforcement of in particular the US sanction regulations that compelled many banks to de-risk effectively by default: they would cut off any business seen as connected with Iran, irrespective of its legitimacy under applicable sanctions regulations simply because of the perceived risk.

With the bulk of US sanction provisions against Iran still in place this practice is unlikely to change drastically any time soon. Irrespective of the current easing of sanctions therefore, the financial backing of fully compliant investments in Iran may not be easy.

Nevertheless, businesses are expected to benefit from the implementation of the JCPOA, because it will force banks to re-calibrate their outlook on compliance and risk. Against the background of the commercial opportunities offered by the potentially vast and arguably unique Iranian growth economy, the banks will face the question whether their de-risking policies are sustainable. They will have to consider that the largest companies in the world may not find it acceptable to be refused the business they want and are entitled to. 

This means that caution is still required for economic operators planning to set up projects in Iran or undertake ventures with Iranian business partners. They should seek legal advice to ensure that the steps they take are in compliance with existing sanction regulations and protect their interests in the event of future changes to the sanctions regime. They should in particular:

  • establish that their transactions are compliant with the sanctions regime with respect to Iran as it applies following the implementation of the JCPOA;
  • monitor the sanctions position closely to ensure they are abreast of the additional guidance on the implementation of the JCPOA provided by the EU and the US Office of Foreign Asset Control (OFAC);
  • be aware that US primary sanctions as well as human rights-related sanctions and arms embargos against Iran remain in place;
  • be aware that banks may be reluctant to adapt their de-risking policies which may complicate their access to necessary funds; and
  • ensure that any Iran-related contracts include appropriate provisions to safeguard against a ‘snap-back’, i.e., the re-imposition of sanctions in the event of a significant non-performance by Iran of its undertakings under the JCPOA.