On October 13, 2017, the President announced that he will not recertify Iran’s compliance with the Joint Comprehensive Plan of Action (“JCPOA”). The President’s decision will not immediately affect sanctions against Iran, nor will it impact sanctions in the future without further action. The White House also issued a press release discussing the President’s strategy on Iran, which includes a continued focus on the Islamic Revolutionary Guard Corps (“IRGC”), Iran’s ballistic missile program, and Iran’s human rights abuses, but has only a limited immediate impact on the scope of sanctions through certain new designations of Specially Designated Nationals (“SDNs”).
In 2006, the United Nations and European Union imposed sanctions against Iran for its refusal to suspend its nuclear enrichment program. Subsequently, the U.S. put in place extraordinary “secondary” sanctions that threatened “blacklisting” and other measures in order to deter international banks from handling currency transfers and transactions with Iran, discourage international dealings with Iran in shipping and insurance, and stifle global investment in Iran’s most important economic sectors (oil, gas, petrochemical, and automotive). Together with EU sanctions, these “secondary” sanctions put pressure on Iran to enter into a binding nuclear agreement. The JCPOA agreement was entered into by the UN Security Council’s five permanent members (China, France, Russia, the United Kingdom, and the United States) plus Germany, the EU, and Iran on July 14, 2015, and became effective on October 18, 2015.
On January 16, 2016, or “Implementation Day,” the U.S. Secretary of State confirmed that the International Atomic Energy Agency had verified Iran’s compliance with the JCPOA, and the United States lifted its secondary nuclear-related sanctions through the issuance of statutory waivers by the Secretary of State and the ending of several Executive Orders. These secondary sanctions had little impact on U.S. persons1, instead affecting non-U.S. persons2who engaged in transactions with Iran or Iranian businesses. Our earlier briefing provides further details on the impact on non-U.S. persons.
As also discussed in our prior briefing, broad and long-standing sanctions affecting U.S. persons remained and remain in place. These sanctions included the prohibition on importing Iranian-origin goods or services; exporting U.S. goods, technology, and services to Iran and Iranian persons unless permitted by a license issued by the U.S. Office of Foreign Assets Control; and investing in Iran and property held by the government of Iran. Additionally, U.S. financial institutions continued and continue to be prohibited from engaging in most activity involving Iran.
IMPACT OF DECISION NOT TO CERTIFY
Certification of Iran’s compliance is not required under the JCPOA; rather it is required by Congress’s Iran Nuclear Agreement Review Act of 2015, which mandates that every ninety days the President certify to Congress that Iran is in full compliance with the JCPOA and that the suspension of sanctions under the JCPOA continues to be in the national security interests of the United States. On October 13, 2017, President Trump announced that he will not certify; a decision which was due by October 15.
The President’s refusal to certify will not invalidate the JCPOA or automatically re-impose nuclear-related secondary sanctions. Under the 2015 Act, the President’s decision not to certify Iran’s compliance will trigger a sixty-day review period by Congress. During this time, Congress can introduce legislation that would reinstate the secondary sanctions suspended under the JCPOA. Congress is not required to do so, however.
Even if Congress does not act to reinstate the secondary sanctions, the President has the authority to reinstate many of these sanctions. The President could, by executive order, reimpose certain sanctions currently lifted by the JCPOA or could redesignate many entities that were removed under the JCPOA from various sanctions lists.
IRCG DESIGNATION UNDER E.O. 13224
The “Countering America’s Adversaries Through Sanctions Act” (“CAATSA”), signed August 2, 2017, required that the President designate the IRGC as a Specially Designated National (“SDN”) pursuant to the global terrorism Executive Order (E.O.) 13224. See our prior briefingon CAATSA. OFAC so designated the IRGC on October 13, 2017. As other executive orders already designated the IRGC as an SDN, this development does not change the pre-existing obligations of U.S. persons to block any IRGC assets in their possession, nor the prohibition on U.S. persons transacting with the IRGC. However, persons designated under E.O. 13224, which now includes the IRGC, may not avail themselves of the so called “Berman exemptions” to U.S. sanctions relating to personal communication, humanitarian donations, information or informational materials, and travel.
Numerous IRGC affiliates are also included on the SDN list. In addition, under the JCPOA, foreign persons engaging in significant transactions with the IRGC and designated affiliates may be subject to secondary sanctions by the United States (including being designated as a sanctioned entity themselves).
Although President Trump’s declaration does not immediately significantly alter the existing sanctions program against Iran, it is a reminder that the future is quite uncertain in this area. U.S. and foreign persons engaging in permitted business with Iran should continue to include provisions in their agreements that address the risk that the boundaries of what is permitted may change. In particular, parties should take care to ensure that their agreements address the risk of reimposition of secondary sanctions and not only changes in what would be considered a direct violation of U.S. law.