Today, President Trump announced “that the United States will withdraw from the Iran nuclear deal” and issued a National Security Presidential Memorandum (NSPM) “to begin reinstating” the “highest level” of economic sanctions on Iran. Today’s action sets in motion the termination of all or nearly all of the sanctions relief offered by the United States that formed the cornerstone of the Iran nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA). While the JCPOA is technically still in force, with the United States no longer a participating party, this move by the Trump Administration could lead to its unraveling in the near future. In the meantime, any activity relating to Iran is once again subject to a high level of risk and legal uncertainty.
While the narrow authorizations that arose out of the JCPOA for U.S. companies and their foreign subsidiaries to operate in or trade with Iran either will be revoked, it is less clear how the Administration will implement so-called “secondary sanctions” targeting non-U.S. companies’ activity in Iran. While those secondary sanctions are now back in effect (subject to 90-day and 180-day wind-down provisions described below), other countries remain united in their support for the deal, which could raise challenges for the U.S. Government’s efforts to restrain companies outside the United States from engaging in activity that is not only lawful, but in some cases encouraged, by their own governments.
There are numerous documents explaining these developments including:
- OFAC Frequently Asked Questions (FAQs)
- A statement from OFAC
- A Department of the Treasury press release
- A statement from Secretary of State Mike Pompeo
Which sanctions will be reimposed and when?
Not all of the Iran sanctions that were lifted pursuant to the JCPOA have been fully put back into effect today, but they all will be within the next 180 days, barring additional developments. Below is a summary of how this process is expected to work over the coming months.
Primary sanctions (targeting U.S. companies and their foreign subsidiaries)
The limited opportunity to engage in Iran’s commercial passenger aircraft sector is coming to an end. OFAC has stated that it will no longer consider pending license applications and will revoke by August 6, 2018 specific licenses already issued under its Statement of Licensing Policy (SLP) for exporting or reexporting to Iran commercial passenger aircraft and related parts and services. This will doubtless cause significant contractual issues and business disruption for the many companies that had relied on these specific authorizations issued by OFAC.
OFAC intends, “as soon as administratively feasible,” to announce in the Federal Register the revocation of General License H (for certain activities by US-owned or controlled foreign entities), General License I (for contingent contracts under the commercial passenger aircraft SLP), and the general licenses at 31 C.F.R. §§ 560.534 and 560.535 (relating to trade in Iranian-origin carpets and foodstuffs). OFAC said it would replace those authorizations with wind-down provisions.
Secondary sanctions (targeting non-U.S. companies)
The Administration has set out a 90-day wind-down period ending on August 6, 2018, after which it will reimpose secondary sanctions related to:
- The purchase or acquisition of U.S. dollar banknotes by the Government of Iran;
- Iran’s trade in gold or precious metals;
- 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;
- 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;
- The purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
- Iran’s automotive sector.
There will be a 180-day wind down period, ending November 4, 2018, after which the US government will reimpose secondary sanctions related to:
- 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;
- 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;
- Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA);
- The provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010 (CISADA);
- The provision of underwriting services, insurance, or reinsurance; and
- Iran’s energy sector.
Restoration of sanctions list designees
No later than November 5, 2018, OFAC will restore names to the Specially Designated Nationals (SDN) that had been removed pursuant to the JCPOA, including those on the “EO 13599 List” designated solely due to their affiliation with the Government of Iran or the Iranian financial sector. Once restored to the SDN list, those that are subject to secondary sanctions will have in their SDN list entry the notation “Additional Sanctions Information – Subject to Secondary Sanctions.”
Oil trade sanctions
The US Government will resume its effort to reduce Iran’s crude oil exports under § 1245(d) of the 2012 NDAA. After 180 days from today, the “significant reduction” exceptions will be evaluated by the State Department for countries (and financial institutions under their jurisdiction) to avoid sanctions for continuing to import Iranian oil. OFAC’s FAQs state that countries seeking such an exception should reduce their volume of crude oil purchases from Iran during this 180 day wind down period.
New deal possible?
A White House fact sheet summarizing today’s developments states that President Trump will “work to assemble a broad coalition of nations to deny Iran all paths to a nuclear weapon and to counter the totality of the regime’s malign activities.” However, the fact sheet sets a high bar for the conditions that must be met, which raises some doubt about whether this goal can be achieved. Among the conditions are that Iran must “never have an ICBM, cease developing any nuclear-capable missiles, and stop proliferating ballistic missiles to others.” Iran must also “cease its support” for Hezbollah and other groups, and “end its publicly declared quest to destroy Israel.”
Meanwhile, the reactions from other governments have been forceful. EU High Representative Federica Mogherini stated that
the nuclear deal with Iran is crucial for the security of the region, of Europe and of the entire world. The European Union is determined to preserve it. We expect the rest of the international community to continue to do its part to guarantee that it continues to be fully implemented, for the sake of our own collective security.
Prime Minister Theresa May, Chancellor Angela Merkel and President Emmanuel Macron also issued a joint statement emphasizing their continuing commitment to the JCPOA, and the UK Office of Financial Sanctions Implementation has underscored that the UK will continue to implement the JCPOA.
In this environment, it is difficult to imagine how the Trump Administration will be able to take significant action against non-U.S. companies under its newly restored secondary sanctions authorities without facing heated resistance from other governments. A “new deal” may be the best path forward for all parties, but it is not clear if that will be achievable.
In the days ahead, we will issue a more detailed advisory summarizing today’s developments and assessing the compliance challenges that companies will face in the Iran sanctions context.