President Trump has decided to decertify the Iran nuclear deal, better known as the Joint Comprehensive Plan of Action (JCPOA), and outlined the administration's more aggressive approach toward Iran. Congress now has 60 days to introduce legislation to reimpose sanctions against Iran. President Trump stated that he will work closely with Congress to “fix” the JCPOA, but if they are unable to reach a satisfactory agreement, he is prepared to terminate the United States' participation in the JCPOA. As part of the administration's new strategy, it also imposed sanctions on several entities for supporting the Islamic Revolutionary Guard Corps (IRGC). Otherwise, these recent developments do not immediately change the legal landscape for U.S. businesses. They do, however, set the stage for the potential reimposition of Iran sanctions, which may directly or indirectly lead to a breach of (or withdrawal from) the JCPOA. Due to this increased risk, U.S. businesses and foreign subsidiaries should plan for the potential snapback of Iran sanctions in their compliance policies and contracts.
New Iran Strategy
President Trump’s speech and corresponding fact sheet indicate that U.S. policy toward Iran will be focused on opposing Iran’s efforts to improve its ballistic weapons program, countering Iran’s regional influence, particularly that of the IRGC, and preventing Iran from obtaining a nuclear weapon. The centerpiece of this policy is President Trump’s failure to certify Iranian compliance with the JCPOA. Specifically, he announced that the administration “cannot and will not” certify that the suspension of U.S. sanctions against Iran is “appropriate and proportionate” to the measures taken by Iran to terminate its nuclear program. While the administration has been careful not to say that Iran is currently in violation of the JCPOA, it does say that Iran has committed violations (which were subsequently cured) and that “Iran is not living up to the spirit of the deal.”
The President is required to certify Iranian compliance with the JCPOA every 90 days pursuant to the Iran Nuclear Agreement Review Act of 2015 (INARA), a law passed in opposition to the Obama administration’s negotiation of the JCPOA. Previously, President Trump has certified Iranian compliance, pending a strategic review of U.S. policy toward Iran and simultaneously tightening sanctions where permissible under the JCPOA framework. The decertification does not itself affect the JCPOA or its sanctions waivers, which remain in force. INARA provides that when the President fails to make such a certification, Congress may use expedited consideration on a bill that reimposes sanctions against Iran, so long as the bill is introduced within 60 calendar days of the decertification. Such a bill will be eligible for expedited consideration until December 12, 2017.
Senator Corker, one of the architects of INARA, and Senator Cotton, the lone Senator to vote no on its passage, are working on legislation to “fix” the perceived problems with the JCPOA. They have published a fact sheet in advance of introducing the bill, which will alter the U.S. implementation of the JCPOA by effectively removing its 8, 10, and 15-year sunset clauses. Under the Corker-Cotton plan, the International Atomic Energy Agency’s verification powers would be bolstered and U.S. sanctions would automatically snap back if Iran violated certain restrictions, including a limitation on Iran’s centrifuge program. Currently, the JCPOA provides for such restrictions to sunset in 10 to 15 years. Though the fact sheet does not detail which sanctions would snap back, it is likely that the bill will contemplate reimposition of secondary sanctions and/or revocation of General License H, which allows foreign subsidiaries of U.S. companies to do business with Iran. The United States continues to maintain a comprehensive primary sanctions program against Iran.
Acting pursuant to President Trump’s new Iran strategy and the recently enacted Countering America’s Adversaries Through Sanctions Act, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated the IRGC as a Specially Designated National (SDN). The IRGC was designated pursuant to Executive Order 13224, which provides for sanctions against global terrorists. As we previously reported, this gesture is largely symbolic, as the IRGC had already been designated as an SDN pursuant to several other executive orders. OFAC also issued FAQs about this designation which note that the IRGC’s designation pursuant to EO 13224 means that the “Berman exemptions” relating to personal communication, humanitarian donations, information or informational materials, and travel are no longer available for transactions with the IRGC. The FAQs also note that the U.S. Department of State did not designate the IRGC as a Foreign Terrorist Organization, a designation that would have imposed significant secondary sanctions against foreign persons that deal with the IRGC. OFAC also designated a Chinese entity, Wuhan Sanjiang Import and Export Co., Ltd., for proliferation activities related to an affiliate of the IRGC, and three Iranian entities for providing support to the IRGC or Iran’s ballistic missile program.
The international reaction to President Trump’s announcement has been immediate and negative. The European Union issued a press release of a joint statement by the EU’s 28 foreign ministers reaffirming the EU’s commitment to the “continued full and effective implementation of all parts of the JCPOA.” The joint statement noted that the EU considers Trump’s action as “being in the context of an internal US process.” At the Foreign Affairs Council in Luxembourg on October 16, 2017, the EU foreign minister noted that the IAEA has consistently verified that Iran is in compliance with its commitments under the JCPOA. France, Germany, and the United Kingdom also issued a separate declaration that they “stand committed to the JCPOA and its full implementation,” and that the JCPOA is in the “shared national security interest” of the three nations. Russia and Iran also issued statements showing opposition to Trump’s refusal to certify.
These recent changes in U.S. policy toward Iran do not yet have any concrete impact on U.S. businesses and their operations, including those who do business with Iran. The JCPOA remains fully in effect. The United States cannot technically “amend” the JCPOA, which is a multilateral agreement. All other parties have stated that they will not reopen or renegotiate the terms of the JCPOA. Rather, the Corker-Cotton plan would change how the United States implements the JCPOA. The fact sheet states that it would not “conflict with the JCPOA upon passage.” However, the unavoidable result is that any reimposition of nuclear sanctions against Iran – either in the near term or under a future framework tied to Iran’s conduct – would be considered a breach of the JCPOA by Iran. In that situation, Iran may then restart its nuclear program without regard to the JCPOA’s restrictions.
The actions taken by the Trump administration and Congress do indicate a significant shift in U.S. policy toward Iran. While these players claim that they seek to strengthen the JCPOA, given the international opposition, it is difficult to see how the United States can accomplish its stated goals without withdrawing from, or breaching, the JCPOA. While future developments are uncertain, U.S. withdrawal is now a future possibility. This increases the risk that additional sanctions may be imposed or previously waived sanctions may be reimposed in the future, including the revocation of General License H. U.S. companies or their subsidiaries that do business with Iran should monitor sanctions developments closely, and prepare their compliance policies and contracts for the potential snapback of Iran sanctions.