On May 8, 2018, President Trump announced his decision to terminate participation by the United States in the Joint Comprehensive Plan of Action (JCPOA) and issued a National Security Presidential Memorandum (NSPM) directing the Secretaries of State and Treasury to re-impose, after a wind-down period, all sanctions that had been lifted or waived in connection with the JCPOA. A full description of the terms of the JCPOA and the sanctions that were lifted in President Obama’s administration can be found in our prior client alerts: The Iran Nuclear Deal: Nuclear Sanctions Lifted for Foreign Companies, Restrictions on US Firms Remain; and The Iran Nuclear Deal: Setting the Path Forward to Lift International Economic Sanctions.
Consistent with the NSPM, the Department of State and the Treasury Department’s Office of Foreign Assets Control (OFAC) began immediately to implement the NSPM, including termination of the current waivers and issuance of new waivers providing for 90-day and 180-day wind-down periods of sanctioned activities. To implement U.S. obligations under the JCPOA, the Obama Administration eased primary sanctions that barred U.S. persons and their foreign affiliates from engaging in transactions with or involving Iran, and waived secondary sanctions applicable to non-U.S. persons engaging in certain transactions involving Iran’s energy sector and other activities. OFAC announced that it “expects that all the U.S. nuclear-related sanctions that had been lifted under the JCPOA will be re-imposed and in full effect” by November 4, 2018. Following is a summary of the sanctions affected by the wind-down periods.
Sanctions to be re-imposed after 90-day wind-down period ending August 6, 2018
After August 6, 2018, the U.S. Government will re-impose sanctions covering–
- The purchase or acquisition of U.S. dollar banknotes by the Government of Iran;
- Trade with Iran 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.
OFAC will also revoke authorizations permitting imports of Iranian-origin carpets and foodstuffs into the United States as well as activities undertaken in connection with the sale of commercial passenger aircraft and related parts and services.
Sanctions to be re-imposed after 180-day wind-down period ending November 4, 2018
After November 4, 2018, the U.S. Government will re-impose sanctions covering–
- Transactions involving Iran’s port operators, and shipping and shipbuilding sectors, including the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, and 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 Iranian financial institutions designated 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.
General License H
OFAC will also revoke General License H, which authorized U.S.-owned and controlled foreign entities from engaging in certain activities with the Government of Iran and persons subject to Iranian jurisdiction “as soon as is administratively feasible.” Upon revocation, OFAC will issue a revised general license to authorize the wind-down of pre-May 8, 2018 activities undertaken pursuant to General License H. At that time, OFAC will authorize only wind-down of pre-May 8 business.
Section 1245(d) of the NDAA directs the imposition of sanctions on foreign financial institutions based in countries that do not significantly reduce their purchases of Iranian crude oil, as determined by the Department of State. Prior to the JCPOA, the State Department had granted waivers for 10 members of the European Union, China, India, Malaysia, Korea, Singapore, South Africa, Sri Lanka, Taiwan, and Turkey after finding that those countries had sufficiently reduced their imports of Iranian crude oil. Consistent with the JCPOA, the State Department issued a general waiver of the section 1245 sanctions.
The NSPM directs the State Department to resume efforts to reduce the sale of Iranian crude oil and to re-impose sanctions under section 1245(d) after a 180-day wind-down period. The State Department will engage in consultations with countries currently purchasing Iranian crude and will evaluate exceptions to the sanctions for countries making significant reductions in crude oil purchases from Iran.
Implications for U.S.-Based Companies
For most U.S. businesses, the JCPOA provided little relief from the U.S. embargo of commerce with Iran. General License I, authorizing negotiations of contracts for sales of commercial passenger aircraft sales to Iran, is a notable exception, and General License H is of value for many U.S.-based companies having subsidiaries in countries that permitted business with Iran. The NSPM will close the door on the limited openings for U.S. businesses afforded by General Licenses H and I, as well as other authorizations. U.S. companies will need to commence wind down activities promptly, including activities of their foreign subsidiaries, that were permitted by the waivers and authorizations issued to implement the JCPOA.
Implications for Non-U.S. Companies
Non-U.S. companies also must assess whether their activities involving Iran will potentially subject them to the revived secondary sanctions. Those sanctions target certain sectors of the Iranian economy, including the energy, petrochemical, automotive, shipping, and financial and banking sectors. Non-U.S. companies also should take care to note the reinstatement of over 400 individuals and entities (including, for example, NIOC and many financial institutions) to the U.S. list of Specially Designated Nationals (SDNs) and related lists. Secondary sanctions may result from engaging in transactions with those and other Iranian SDNs.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Theodore Kassinger, an O'Melveny partner licensed to practice law in the District of Columbia and Georgia, Greta Lichtenbaum, an O'Melveny partner licensed to practice law in the District of Columbia, and David J. Ribner, an O'Melveny counsel licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.