On January 12, 2018, President Trump maintained the Iran nuclear deal, the Joint Comprehensive Plan of Action (JCPOA), by extending sanctions waivers, while simultaneously threatening that he would not do so again without a renegotiation of the deal to be less favorable to Iran. Additionally, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) sanctioned 14 entities and individuals for supporting Iranian weapons proliferators and human rights abuses in Iran. Other than the additional designations, these recent developments do not immediately change the legal landscape for U.S. businesses. President Trump continues to threaten to withdraw from the JCPOA, but thus far, has not taken concrete steps to do so over the past year. However, the situation remains fluid and any re-imposition of Iran sanctions by the United States 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 snap-back of Iran sanctions in their compliance policies and contracts.

President Trump issued a statement warning that the United States will not continue to waive sanctions without a renegotiation or amendment of the JCPOA. The statement calls upon both Congress and European allies to work with the Trump administration to “fix” the administration’s perceived flaws in the JCPOA. The Trump administration has expressed a desire to implement a follow-on agreement with European parties to the JCPOA that would require all parties to reimpose sanctions if Iran crosses certain “trigger points.”

President Trump outlined four critical requirements for any law or deal that he signs:

  • Iran must allow immediate inspections at all sites requested by international inspectors;
  • Iran must be forbidden from acquiring a nuclear weapon;
  • The restrictions on Iran must not have an expiration or sunset date, unlike the current ten-year sunset period; and
  • U.S. legislation must state that Iranian long-range missile programs are subject to the same sanctions as Iranian nuclear program, providing for sanctions in the event of Iranian development or testing of long-range missiles.

Previously, European parties to the JCPOA have lauded its success and have not shown any desire to renegotiate it. European allies urged Trump to renew the sanctions waivers, saying there is “no alternative” to maintaining the status quo. Germany’s Foreign Minister Sigmar Gabriel, alongside his French and British counterparts and the EU foreign policy chief Federica Mogherini (after meeting Iranian Foreign Minister Mohammad Javad Zarif) confirmed last Thursday their commitment to “protect [the JCPOA] against every possible decision that might undermine it.” Javad Zarif condemned President Trump’s statement as an attempt to undermine the JCPOA and stated that the United States must “bring itself into full compliance, just like Iran.” President Trump will next be faced with the decision of whether to extend sanctions waivers under the JCPOA in 120 days, by May 12, 2018.

A “snap-back” of sanctions against Iran could reimpose secondary sanctions affecting non-U.S. persons and/or revoke General License H, which allows non-U.S. subsidiaries of U.S. companies to conduct certain business in Iran. The United States continues to maintain a comprehensive primary embargo against Iran, prohibiting all U.S. persons from conducting most transactions with Iran. However, as part of the JCPOA, the EU and its member states have removed most sanctions against Iran. This adds another potential layer of uncertainty – if the United States snaps back sanctions against Iran, the EU may not follow, and instead, may maintain the JCPOA as currently implemented. Such a scenario could set the stage for a conflict of laws, where EU companies will be forced to decide whether to comply with U.S. secondary sanctions against Iran or the EU’s blocking regulation, which prevents companies from complying with unsanctioned foreign boycotts. The EU Ambassador to the United States has already threatened to use the blocking regulation in the event of a U.S. withdrawal or sanctions snap-back.

On the same day, Treasury Secretary Mnuchin issued a statement noting that the U.S. government continues to target Iran’s human rights abuses and ballistic missile program with the additional 14 designations. Five individuals were sanctioned, including two Chinese individuals and the head of the Iranian judiciary. The nine sanctioned entities include a Chinese chemical company, a Malaysian telecom company, and seven Iranian companies and governmental agencies or instrumentalities.

Key Takeaways

The Trump administration continues to employ harsh words and additional sanctions designations against Iran, while simultaneously preserving the core framework of the JCPOA, including key sanctions waivers. While President Trump has ratcheted up the rhetoric and placed more explicit demands that are unlikely to be met, he has been threatening to withdraw from the JCPOA for over a year without doing so. U.S. sanctions against Iran will be revisited by the President in 120 days. President Trump indicated that he will not extend sanctions waivers at that time absent a bipartisan bill or agreement with European allies (not Iran) to modify several terms of the JCPOA. It is unlikely that such a complex piece of legislation or agreement would be completed by that time, and the other JCPOA parties have not indicated any interest in renegotiating its terms. Although President Trump appears to be backing himself into a corner that might require withdrawal from the JCPOA (or taking action that would be considered by others to breach the agreement), it is important to note that he has continued to maintain the JCPOA in force for over a year.

Nevertheless, companies doing business with Iran should continue to monitor developments in U.S. sanctions policy. Additional designations, legislation, or executive action may affect the Iran-related activities of both U.S. and non-U.S. companies. In particular, they should ensure that any transactions and agreements account for the possibility of a U.S. sanctions “snap back” or additional U.S. sanctions on Iran.