On December 15, 2016, OFAC amended Frequently Asked Question (FAQ) No. M.5 to provide more clear guidance about how it would treat business activities in Iran by non-U.S., non-Iranian persons should those activities become prohibited or sanctionable as a result of a “snapback” into effect of economic sanctions provisions that are currently modified or suspended pursuant to the Joint Comprehensive Plan of Action (JCPOA), for example due to a breach of the agreement. OFAC’s past guidance on this topic provided that the agency would work with companies to minimize the impact of newly-imposed sanctions on their “legitimate” activities. Many viewed this as little assurance about allowing any wind down period, which increased the risk on the front end of engaging in any Iran-related activity pursuant to the JCPOA. OFAC did, however, state in FAQ M.4 that “the United States has committed not to retroactively impose sanctions for legitimate activity undertaken after Implementation Day.” So, while there was no guarantee of a wind down period, they would not enforce retroactively provisions that snapped back. But nor would there be any grandfathering of pre-snapback contracts.

OFAC’s new FAQ is intended to provide more detailed guidance and assurance, noting that, as “as a general matter,” there will be a 180-day wind down period for non-U.S., non-Iranian persons in a snapback scenario. In addition to some uncertainty about whether there may be unstated exceptions to this guidance (which one would hope would only allow upward departures from the 180-day time limit), there are several explicit caveats. First, the business must have been “consistent with” the JCPOA at the time. Second, it must have been undertaken pursuant to a written agreement concluded prior to the snapback date. Third, “any payments would need to be consistent with U.S. sanctions, including that payments could not involve U.S. persons or the U.S. financial system, unless the transactions are exempt from regulation or authorized by OFAC.” While not entirely clear, it does sound as though OFAC would allow payments through the U.S. financial system if they were generally or specifically licensed to use such mechanisms prior to the snapback date, i.e. without requiring parties to apply for specific licenses for wind down payments.

OFAC’s basic policy in setting out this wind down period is to allow parties “to be made whole” in the event of a snapback, but only “for debts and obligations for goods or services fully provided or delivered or loans or credit extended to an Iranian party prior to snapback.” In other words, companies would not be made whole for pending orders or any post-snapback activities, even if contractually bound. The upshot is that most long-term investors would not be made whole, except to the extent they can recover their investment in the form of a payment, which it sounds like would have to be made within 180 days, or removing goods or personnel from the country. While the FAQ is not entirely clear on this point, OFAC may only allow payment on debts owed as of the snapback date, although it may also allow payment on debts maturing through the end of the 180-day snapback period, provided that the goods or services were “fully provided or delivered” prior to the snapback date. Not surprisingly, as OFAC does not allow grandfathering, it would not allow the provision of additional goods or services, including credit, to an Iranian counterparty after snapback, even if pursuant to a pre-snapback contract, except if “necessary to wind down” the business during the 180-day period. Again, though, it sounds like any payments even in such a case would need to be completed within 180 days.

Any who may see this move by OFAC as materially changing the balance of risks in considering Iran-related business should recall that it can be reversed by the incoming Trump Administration, which has not committed to upholding the Obama Administration’s policy under the JCPOA.