In conjunction with his decision to cease the United States’ participation in the Joint Comprehensive Plan of Action (JCPOA) with respect to Iran’s nuclear program, Pres ident Trump issued a National Security Presidential Memorandum directing the Secretaries of State and Treasury to begin the process of re-imposing the U.S. nuclear-related sanctions against Iran that were lifted or waived in connection with the JCPOA. The action covers both the limited relief afforded to U.S. persons from the comprehensive U.S. primary sanctions administered by the Treasury Department’s Office of Foreign Assets Control (OFAC) and the range of secondary sanctions that authorize the State Department to impose punitive trade measures against non-U.S. persons who engage in targeted trade with Iran, with the expectation that all U.S. nuclear-related sanctions against Iran that had been lifted or suspended under the JCPOA will be re-instated and in full effect no later than November 5, 2018.
OFAC and the State Department will establish 90-day and 180-day “wind-down” periods for concluding transactions and other activities authorized under waivers and licenses that had been adopted pursuant to the JCPOA. U.S. and non- U.S. companies and investors that had relied on JCPOA-related relief from U.S. primary and secondary sanctions to engage in direct and indirect dealings with Iran will need to determine whether and to what extent those transactions and activities will be sanctionable following the relevant effective date of the re-instated sanctions and establish procedures for completing or terminating those operations within the applicable wind-down period and to affect compliance with renewed U.S. sanctions going forward.
Sanctions Re-Imposed After 90-Day Wind-Down Period Ending August 6, 2018
1. Primary Sanctions (Applicable to U.S. Persons)
The following activities by U.S. persons that had been authorized by licenses and policies issued by OFAC in accordance with the limited primary sanctions relief afforded by the JCPOA will be revoked, and U.S. persons engaging such activities must wind them down by August 6, 2018 in order to avoid liability for violating the re-imposed sanctions:
- Importing Iranian-origin carpets and foodstuffs, and related financial transactions, pursuant to OFAC general licenses;
- Selling and exporting commercial aircraft and related parts and services to Iran under OFAC specific licenses issued pursuant to the OFAC Statement of Licensing Policy (SLP) (The SLP has been rescinded and OFAC will no longer consider license applications. Current specific licenses will be revoked, but OFAC likely will issue authorizations related to wind-down activities.); and
- Entering into contingent contracts pursuant to OFAC General License I for transactions that were eligible for specific licenses under the SLP.
2. Secondary Sanctions (Applicable to Non-U.S. Persons)
Certain secondary sanctions waived under the JCPOA will go back into effect after August 6, 2018, thereby exposing non-U.S. persons to U.S. sanctions for engaging in the following activities and associated services:
- Transactions involving Iran’s automotive sector;
- The Government of Iran’s purchases and acquisitions of U.S. dollar banknotes;
- 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 of Iranian rials, or maintenance of significant rial-denominated accounts outside the territory of Iran; and
- Transactions related to Iranian debt.
Sanctions Re-Imposed After 180-Day Wind-Down Period Ending November 4, 2018
In 180 days, additional secondary sanctions waived under the JCPOA will go back into effect. Non-U.S. persons engaging in the following activities should take steps necessary to wind down those activities by November 4, 2018 to avoid exposure to U.S.secondary sanctions:
- Transactions involving Iran’s energy sector;
- Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions.;Providing underwriting services, insurance or reinsurance;
- Petroleum-related transactions with the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), among others; and
- Dealings with Iran’s port operators and shipping and shipbuilding sectors, including the Islamic Republic of Iran Shipping Lines (IRISL).
Entities meeting the definition of “Government of Iran” or “Iranian financial institution” (which included IRISL, NIOC, NICO and NITC) that were removed from OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List) and placed on the E.O. 13599 List as part of the JCPOA deal will be re-designated as SDNs no later than November 5, 2018. The re-designation of such entities as SDNs will have sanctions implications for both U.S. and non-U.S. persons.
General License H: Foreign Subsidiaries of U.S. Companies
As soon as November 5, 2018, OFAC will revoke General License H, which allowed foreign entities owned or controlled by U.S. persons to engage in certain activities with Iran under prescribed conditions. OFAC intends to issue a more narrow general authorization to allow foreign entities that took advantage of General License H to engage in transactions ordinarily incident and necessary to wind down previously-authorized activities before the November 5, 2018 revocation.
Payments for Wind-Down Transactions
OFAC indicated that payments for wind-down activities may be allowed after the wind-down deadline in certain circumstances, such as payments for goods and services contracted before May 8, 2018 and delivered prior to the wind-down date. Similar relief may be allowed for repayment of loans to Iranian entities.
OFAC published on its website a set of FAQs regarding the re-imposition of nuclear-related sanctions against Iran that had been lifted pursuant to the JCPOA and will likely publish further guidance as it receives questions for clarification of the rules and procedures for complying with the renewed sanctions and winding down previously-authorized activities before the dates when the sanctions are again effective. In the meantime, U.S. and non-U.S. companies and investors that have engaged in transactions and activities with Iran directly or indirectly in accordance with the sanctions relief adopted by the U.S. pursuant to the JCPOA should: (1) review those arrangements and operations to determine whether they will be sanctionable after the U.S. sanctions are re-instated; (2) develop strategies for winding down activities that may now be subject to U.S. primary sanctions or exposed to U.S. secondary sanctions; and (3) implement procedures to maintain compliance with applicable U.S. sanctions following the relevant wind -down periods. These tasks could be complicated by banks and other parties that fear risk of involvement in Iran-related transactions, as well as possible actions by European or other countries that may adopt “blocking” laws to prohibit companies subject to their jurisdiction from complying with renewed U.S. sanctions against Iran.