The Joint Comprehensive Plan of Action or “JCPOA” is an agreement reached in 2015 between Iran, the United States, Russia, China, France, the United Kingdom, Germany and the EU, pursuant to which the nuclear-related sanctions against Iran issued by the UN Security Council, the EU and the United States were lifted. On 8 May 2018 the United States have withdrawn from the JCPOA and have re-imposed the previously lifted US sanctions. The remaining signatories to the JCPOA have continued their commitment to the agreement and have continued the sanctions lifting.

However, Iran has now exceeded the limit of its uranium stockpile set at 300 kg and has announced that, by 7 July 2019, it will have enriched uranium beyond the 3.67 percent fissile purity in violation of its commitments in the JCPOA.

This could culminate in the return of the UN and EU sanctions against Iran that have remained lifted in a matter of weeks (the so-called “sanctions snapback”).

What is a sanctions snapback?

UN snapback

In the event of a snapback, which any of the remaining signatories could trigger, the UN sanctions in relation to Iran’s nuclear activities would be re-imposed1 and the UN members, as well as the EU would have to re-implement them2.

These sanctions include amongst others an asset freeze and visa or travel ban in relation to a number of natural persons and entities designated by the UN, as well as prohibitions and restrictions in relation to proliferation-sensitive nuclear activities, the provision of financial services, the opening of new branches, subsidiaries, or representative offices of Iranian banks, the establishing by Iranian banks of new joint ventures, the establishing or maintaining of correspondent relationships, and prohibitions in relation to the provision of financial services.

EU snapback

Besides the UN sanctions, the EU could also autonomously re-impose the EU sanctions that were lifted under the JCPOA3.

These sanctions include amongst others, an asset freeze and visa or travel ban in relation to a number of natural persons and entities designated by the EU, as well as prohibitions and restrictions in relation to proliferation-sensitive nuclear activities, the oil, gas and petrochemical sector, certain trade with Iran, the shipping, shipbuilding and transport sector, and prohibitions and restrictions in relation to financial transfers to and from Iran, banking and insurance activities, financial messaging services, and financial support for trade with Iran.

The reintroduced EU sanctions would be directly applicable in all EU Member States.

What is required for a sanctions snapback?

UN snapback

The JCPOA sets forth a dispute resolution mechanism, which could be triggered by any of the remaining participants to the JCPOA (the “complaining participant”) if it believed that another participant to the JCPOA is not meeting its commitments.

First, the complaining participant would refer the dispute to the Joint Commission consisting of Iran, Russia, China, France, Germany, the UK and the EU. The Joint Commission would then have 15 days to resolve the matter, unless the time period was extended by consensus.

Second, any participant could then refer the dispute to the Ministers of Foreign Affairs of the parties to the JCPOA if it believes that it has not been resolved. The Ministers would then have another 15 days to resolve the dispute, unless the time period was extended by consensus. At the same time, or instead of, the review by the Ministers of Foreign Affairs, the complaining participant, or the participant that is allegedly in breach of the JCPOA, could request that the dispute be considered by a three-member Advisory Board. The Advisory Board’s opinion is not binding and would have to be provided within this same 15 days’ time period.

Third, if the dispute is not resolved after this 30-day process, the Joint Commission would have 5 additional days to consider the opinion of the Advisory Board.

Fourth, if the dispute still has not been resolved to the satisfaction of the complaining participant, and if the complaining participant deems the breach by the other party to constitute significant non-performance, then the latter could treat the unresolved matter as grounds to cease performing its commitments under the JCPOA in whole or in part, or notify the UN Security Council that it believes the breach constitutes significant non-performance4.

Finally, upon notification by the complaining participant, the UN Security Council must vote, within 30 days, on a resolution to continue the sanctions lifting. Such resolution would need nine votes in favour – and no vetoes by the US, Russia, China, the UK or France – to be adopted. If this resolution is not adopted within 30 days of the notification, then the provisions of the old UN Security Council resolutions would be re-imposed, unless the UN Security Council decides otherwise.

EU snapback

The Information Note on EU sanctions to be lifted under the JCPOA of 23 January 2016 (the “Information Note”) clarifies that the EU will reintroduce the lifted EU sanctions in the event of a significant non-performance by Iran and after having exhausted all recourse possibilities under the above-mentioned dispute resolution mechanism.

The EU sanctions would be reintroduced through a decision by the Council of the EU, based on a recommendation by the High Representative of the EU for Foreign Affairs and Security Policy, France, Germany and the United Kingdom and in accordance with regular EU procedures for the adoption of restrictive measures.

What happens with existing contracts in case of a snapback?

UN snapback

In case of a snapback, the re-imposed UN sanctions would not apply with retroactive effect to contracts signed between any party and Iran or Iranian individuals and entities prior to the date of application, provided that the activities contemplated under and in execution of these contracts are consistent with the JCPOA and the previous and current UN Security Council resolutions.

EU snapback

The EU has clarified in its Information Note that, in case of an EU snapback, the EU sanctions would not apply with retroactive effect. The execution of contracts concluded in accordance with the JCPOA while the sanctions were lifted would be permitted consistent with previous provisions when sanctions were originally imposed in order to allow companies to wind down their activities. Details about the period of time allowed for the execution of prior contracts would be specified in the legal acts providing for the reintroduction of the EU sanctions.

The EU furthermore clarified by way of example that the reintroduction of sanctions on investment activities would not retroactively penalise investments made before the date of snapback, and the execution of investment contracts concluded before the reintroduction of sanctions would be permitted consistent with previous provisions when sanctions were originally imposed.

Contracts that were permitted when the sanctions regime was still in place would not be targeted by the reintroduction of sanctions.