On January 20, 2014, the United States Department of the Treasury and the United States Department of State issued guidance (the “Guidance”) concerning the US government’s (“USG”) provision to Iran of “limited, targeted, and reversible” sanctions relief for a six-month period in return for Iran’s commitment to place certain limits on its nuclear program. On the same date, the European Union (“EU”) adopted amendments to its sanctions regime targeting Iran’s nuclear program. Although certain of the US and EU restrictive measures against Iran have been temporarily eased, much of the US and EU’s overall sanctions architecture against Iran will remain in place unchanged.
As a result of the political and diplomatic evolution of the Geneva Joint Plan of Action (the “JPOA”), the US and EU Iranian sanctions regimes may be revised more significantly over the next 12-18 months. Companies involved in transactions with an Iranian nexus or that have other dealings with Iranian individuals or entities should continue to be cautious regarding these dealings to ensure they do not violate what continue to be two of the most restrictive economic sanctions regimes. US Sanctions Regime The current United States sanctions against Iran are administered by the US Treasury Department’s Office of Foreign Assets Control (“OFAC”). Although the Iranian sanctions regulations remain in place, the United States has committed to issue appropriate waivers and refrain from imposing new nuclearrelated sanctions pursuant to the JPOA agreed to by the P5+1 and Iran on November 24 2013. 1 Per the Guidance, the US commitments under the JPOA will cease to be binding upon the US after the six-month period beginning January 20, 2014 and ending July 20, 2014 (the “JPOA Period”). 2 Additionally, the US has reserved the authority to revoke the limited sanctions relief described herein “at any time if Iran fails to meet its commitments under the JPOA.” It should be noted also that the sanctions relief agreed to by the US only applies to transactions entered into and completed within the JPOA Period. If a contract entered into during the JPOA Period does not terminate by the end of the period, then transactions under that contract may trigger sanctions with respect to activities occurring after the end of the JPOA Period. In addition, the USG will continue to impose sanctions relating to activities that occur prior to or during the JPOA Period which are prohibited under related sanctions regulations (e.g., regulations targeting terrorists and weapons proliferators). Furthermore, the Guidance clearly states that, subject to limited exceptions described below, the sanctions relief provided pursuant to the JPOA may not involve a US person (including any foreign entity owned or controlled by a US person). US persons may only take advantage of the JPOA sanctions relief for limited activities relating to civil aviation safety and certain humanitarian activities. During the JPOA Period, the US has committed to temporarily: 1. allow for the export by non-US persons of petrochemical products (defined under Section 10(m) of Executive Order 13622 to include any aromatic, olefin and synthesis gas, and any of their derivatives) from Iran, as well as any associated services. To qualify for this exception, the transactions must not involve individuals or entities listed on OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”), with the exception of the petrochemical companies listed in the Annex to the Guidance and certain Iranian depository institutions listed pursuant to Executive Order 13599 (“EO 13599”). (Guidance § I). Outside of the exceptions noted in the Guidance, sanctions may still be imposed on persons who provide goods, services, technology or support that contribute to the maintenance or expansion of Iran’s domestic production of petrochemical products. (Executive Order 13590, § 201 of the Iran Threat Reduction and Syria Human Rights Act of 2012); 2. allow for the sale, supply or transfer by non-US persons to Iran of significant goods or services used in connection with the automotive sector of Iran, as well as any associated services. 3 To qualify for this exception, the transactions must not involve individuals or entities listed on the SDN List, with the exception of certain Iranian depository institutions listed pursuant to EO 13599. (Guidance § II); 3. allow for the sale by non-US persons of gold and precious metals to or from Iran, as well as the provision of associated services, provided that the funds for these purchases of gold and precious metals do not come from “restricted funds,” and provided that the transactions do not involve individuals or entities listed on the SDN List, with the exception of certain political subdivisions, agencies, or instrumentalities of the Government of Iran listed pursuant to EO 13599, or any Iranian depository institutions listed pursuant to EO 13599. 4 (Guidance § III); 4. authorize a favorable licensing policy regime (to be administered by OFAC) for transactions involving US persons (including US owned or controlled foreign entities) or non-US persons related to the safety of Iran’s civil aviation industry, as well as associated services. Transactions involving individuals or entities listed on the SDN List, other than Iran Air or Iranian depository institutions listed pursuant to EO 13599, remain subject to sanctions. (Guidance § IV) 5 ; 5. enable Iran’s current customers of crude oil to continue to purchase their current average amounts, and authorize associated services including insurance and transportation services. 6 Transactions involving individuals or entities listed on the SDN List, other than the National Iranian Oil Company, the National Iranian Tanker Company or Iranian depository institutions listed pursuant to EO 13599, remain subject to sanctions. (Guidance § V); 6. enable the repatriation of $4.2 billion of Iranian revenue currently held abroad and, in this connection, has temporarily authorized a limited number of transactions for the release of certain funds to Iran to be received by a number of participating foreign financial institutions. The release of funds will be implemented through eight installments to occur during the JPOA Period and are contingent upon Iran fulfilling its obligations under the JPOA. (Guidance § V, Guidance FAQ Question 8); and 7. establish, with the P5+1 and Iran, a mechanism for humanitarian trade transactions to further facilitate the purchase of and payment for the export of food, agricultural commodities, medicine, and medical devices to Iran. This mechanism may also be used to enable Iran’s payments of UN obligations, Iran’s payments for medical expenses incurred abroad by Iranian citizens, and Iran’s payments of an agreed amount of governmental tuition assistance for Iranian students studying abroad. (Guidance § VI). In order to implement the temporary sanctions relief described above, the USG has issued limited waivers of sanctions under various Iranian sanctions laws, including the National Defense Authorization Act for Fiscal Year 2012, the Iran Threat Reduction and Syria Human Rights Act of 2012, the Iran Sanctions Act of 1996, and the Iran Freedom and Counter-Proliferation Act of 2012. Aside from the commitments for sanctions relief listed above, the US Iranian sanctions regime remains in place and is broad in scope, extending to all transactions with Iran by US persons and US controlled persons. EU Sanctions Regime On January 20, 2014, the EU Council adopted two legislative measures, suspending certain EU sanctions against Iran. 7 Amidst intensifying political pressure on Iran over recent years, the EU has adopted a tough sanctions regime 8 , primarily based on two main pillars: Council Regulation (EU) No 267/2012 and Council Decision 2010/413/CFSP impose restrictive measures designed to undermine Iran’s nuclear program, while Council Regulation (EU) No 359/2011 and Council Decision 2011/235/CFSP impose restrictive measures on persons responsible for human rights violations and internal repression. The latest EU temporary sanctions relief measures amend (and partially suspend) the two former texts only, and thereby those sanctions targeting Iran’s nuclear program, while leaving untouched the latter two measures concerning human rights violations and internal repression. The amendments to EU sanctions targeting Iran’s nuclear program are designed to lift temporarily certain restrictions on Iran. But this relief is subject to review after six months, and any renewal will likely depend on Iran having fulfilled its obligations under the JPOA. It is envisaged that this “first step” to an easing of EU sanctions on Iran may then be prolonged and extended, subject to a comprehensive agreement over Iran’s nuclear program. In the meantime, and for a six-month-period until July 20, 2014, the EU has: 1. suspended the prohibition on the provision of insurance and transport in relation to certain Iranian crude oil products (the relief is limited to petroleum oils and oils obtained from bituminous minerals and crude, and it is still prohibited to import these products into the EU from Iran) (Article 11 of Council Regulation (EU) No 267/2012); 2. suspended the prohibition on the import, purchase or transport of any Iranian petrochemical products, so long as no designated party under the EU’s asset freeze provisions is involved. (Article 13 of Council Regulation (EU) No 267/2012). The suspension will also cover the provision of all related services, such as financing, financial assistance, insurance and reinsurance, including for third states; 3. suspended the prohibition on trade in gold and precious metals (while the trade in diamonds is still prohibited) with the government of Iran, its public bodies and the Central Bank of Iran, or persons and entities acting on their behalf. (Article 15 of Council Regulation (EU) No 267/2012). The suspension will also allow the provision of related services, such as transportation. But the relief will not enable Iran to accept gold and precious metals as payments for any transaction that remains subject to EU restrictive measures; 4. enabled EU Member States to authorize, at their discretion, the release of frozen funds or economic resources to the Iranian Ministry of Petroleum, if such funds or economic resources are necessary for the execution of contracts for the import or purchase of certain petrochemical products (Article 28b now provides for this derogation from Article 23(2) and (3) of Council Regulation (EU) No 267/2012); A Member State making such an authorization must then inform the other Member States and the European Commission within four weeks of the authorization being granted; 5. extended the scope for limited financial transfers for non-sanctioned trade (Articles 30 and 30a of Council Regulation (EU) No 267/2012), including for humanitarian purposes, such as food and medicines. The EU has increased by a factor of ten all EU authorization thresholds 9 , allowing more financial transfers to and from Iran to be processed without authorization requirements. However, the threshold at which any transaction must be notified to the relevant Member State remains unchanged at €10,000; 6. suspended the prohibition on making available vessels for the transport or storage of oil and petrochemical products (Article 37b of Council Regulation (EU) No 267/2012); and 7. agreed not to pursue new nuclear-related EU sanctions; this commitment is subject to Iran’s compliance with its commitments under the JPOA and without prejudice to any other restrictive measures which will remain in force. While noting that the voluntary relief measures it has committed to are proportionate with the measures taken by Iran, the EU also stresses that these measures are reversible and that its core sanctions architecture remains in place. 10 Indeed, various restrictive measures targeting Iran’s nuclear program remain in place. These include: 1. a general ban on all transactions between European and Iranian banks. EU citizens and banks (as well as foreign banks and persons conducting business within the EU) may engage with Iranian banks and financial entities, their subsidiaries and branches only if a transaction is explicitly authorized in advance by relevant national authorities; 2. an export ban (including related technical or financial assistance) on graphite, raw or semifinished metals, such as aluminum and steel, that could be used to make machinery for Iran’s nuclear and missile program; 3. an export ban on key equipment for the Iranian oil, gas and petrochemical industries; 4. a ban on the import, purchase and transport of natural gas (as well as on financing, insurance and brokering services related to these activities) from Iran; 5. a ban on export credits, guarantees or insurance for trade with Iran; a ban on the use of vessels belonging to EU citizens and companies for transporting or storing Iranian oil and petrochemical products; 7. a prohibition on EU persons assisting in the construction of new oil tankers for Iran (including the provision of technical or financial assistance); 8. a prohibition on the sale, supply or transfer to Iran of key naval equipment and technology for ship building and maintenance (including the provision of related technical assistance and training). This ban does not apply only to EU citizens and transactions originating from EU territory, but extends to transactions involving vessels and aircraft flying under the flag of a Member State, even if the vessel or aircraft did not depart from a Member State's airport or harbor; 9. a ban on providing flagging and classification services for Iranian oil tankers and cargo vessels; 10. asset freezes/travel bans on Iranian entities and individuals, including state-owned entities active in the oil and gas industry (notably, subsidiaries of the National Iranian Oil Company (NIOC), Naftiran Intertrade Company Ltd and Petropars Ltd.) and in the financial sector; 11. an arms embargo (including certain goods and technology related to nuclear enrichment or nuclear weapon systems, nuclear materials and facilities, certain chemicals, electronics, sensors and lasers, navigation and avionics); 12. export and import bans on dual-use goods and technology, e.g., telecommunication systems and equipment, information security systems and equipment, nuclear technology and low-enriched uranium; and 13. a ban on investment by Iranian nationals and entities in uranium mining and the production of nuclear material and technology within the EU. Conclusion The US and EU have provided temporary and limited sanctions relief to Iran for the duration of the JPOA Period. However, companies should be mindful that the recent US and EU measures described above will not affect many of the US and EU restrictions that remain in place. It is conceivable, depending on diplomatic and political developments over the next few months, that the US and EU sanctions on Iran may be further retracted in the next 12-18 months. However, if Iran fails to meet its obligations under the JPOA or any subsequent related agreement, it is likely that the US and EU would revoke the sanctions relief described above, and could also implement additional sanctions measures. Companies involved in transactions with an Iranian nexus or that have other dealings with Iranian individuals or entities should therefore continue to proceed with caution, and complete all necessary diligence and obtain any necessary licenses or authorizations prior to engaging in such transactions or activities.