On November 5, 2018, the United States completed re-imposing sanctions on Iran that had been lifted or waived under the Joint Comprehensive Plan of Action (JCPOA). Yesterday marks the end of the 180-day wind-down period for activities involving Iran that were conducted in reliance on the JCPOA sanctions relief. Most of the measures re-imposed are secondary sanctions that will affect non-U.S. persons who conduct business with Iran, although it remains to be seen how the United States will implement its secondary sanctions authority. U.S. persons continue to be subject to the embargo against Iran, and foreign subsidiaries of U.S. companies are once again fully subject to the same embargo. The Treasury Department's Office of Foreign Assets Control (OFAC) issued FAQs on yesterday's actions, including the designation of additional sanctioned persons.
The sanctions that are now in effect again, effective November 5, include:
- U.S.-owned or controlled foreign entities doing business with Iran under General License H must have wound down and completely ceased all activity.
- Secondary sanctions on transactions involving the Iranian energy, ship building, shipping, and finance sectors.
- Sanctions on the energy sector primarily include those on the oil and gas industry—specifically on petroleum-related transactions with entities including the National Iranian Oil Company, Naftiran Intertrade Company Sàrl, and the National Iranian Tanker Company, such as buying petroleum, petroleum products, or petrochemical products from Iran.
- Sanctions on foreign financial institutions transacting with the Central Bank of Iran and designated Iranian financial institutions.
Addition sanctions imposed by this action include:
- Persons placed on the E.O. 13599 List under the JCPOA are once again listed on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List). This means that secondary sanctions can again be imposed on foreign persons who engage in certain transactions involving those persons.
- OFAC has the authority to impose blocking sanctions on any person found to be conducting unauthorized activity related to Iran.
- OFAC placed 700 individuals and entities on the SDN list, including those in the Iranian banking, shipping, and aviation sectors. This group includes 300 persons that were removed from the list when the JCPOA was enacted.
Some countries may still temporarily purchase oil and gas from Iran without facing repercussions in the United States. The countries that received these temporary waivers include China, India, Greece, Italy, Taiwan, Japan, Turkey, and South Korea. Notably, the European Union (EU) as a whole did not receive a waiver. According to Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin, these countries are being given more time to reduce their imports and dependence on Iranian oil. The Secretaries have said the revenue from the purchased oil will be in foreign accounts and can only be used by Iran for humanitarian and non-sanctioned purposes.
The full effect of the new sanctions still remains to be seen. OFAC and the State Department retain a great degree of discretion in imposing secondary sanctions, and how aggressively they will do so is uncertain, particularly with respect to EU companies. Treasury Secretary Steven Mnuchin stated that any person who evades these sanctions risks losing access to the U.S. financial system and economy. Notable, the international banking messaging system, SWIFT, has suspended access for certain Iranian banks without mentioning U.S. sanctions.
As a result of these new measures, non-U.S. entities once again face risk of secondary sanctions for doing business with prohibited Iranian entities and sectors. Foreign financial institutions also are now at risk of violating U.S. sanctions laws for involvement in any prohibited transactions. The full snap back of JCPOA sanctions relief underscores the Trump Administration’s aggressive position towards Iran. While it remains to be seen how the secondary sanctions authority will be used, there is every reason to believe that the current administration may impose sanctions more readily (and potentially against allied countries) than previous administrations.
U.S. businesses should thoroughly review their engagements with foreign businesses that may be involved with Iran. Foreign businesses in the affected sectors should ensure compliance with U.S. sanctions regimes to avoid facing serious repercussions and losing access to the U.S. economy.