President Trump announced today the United States’ withdrawal from the Joint Comprehensive Plan of Action and initiated plans to re-impose nuclear-related sanctions that had been suspended under the terms of the 2015 nuclear agreement.
President Trump ordered the Secretary of State and the Secretary of the Treasury to prepare immediately for “the re-imposition of all of the U.S. sanctions lifted or waived in connection with the JCPOA,” making clear that the snap-back of sanctions will be comprehensive and not, as some commentators had predicted, in piecemeal or partial fashion.
Implications for Non-US Persons
The announcement has significant effects for non-U.S. persons, who will again find themselves subject to the possibility of secondary sanctions for engaging in a wide variety of business dealings with Iranian counterparties. The Treasury Department’s Office of Foreign Assets Control (OFAC) published initial guidance establishing wind-down periods for activities involving Iran that were commenced pursuant to JCPOA sanctions relief.
Non-U.S. persons (including non-U.S. subsidiaries of U.S. persons) engaging in activity undertaken pursuant to the U.S. sanctions relief provided for in the JCPOA should take steps necessary to wind down those activities by either August 6, 2018 or November 4, 2018, as applicable, to avoid exposure to restrictive measures under U.S. law.
- 90-day period. Prior to August 6, 2018, persons should wind down business activities relating to:
- the purchase or acquisition of U.S. dollar banknotes by the Government of Iran;
- Iran’s trade 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.
- 180-day period. Prior to November 4, 2018, persons should wind down business activities relating to:
- Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, or 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 designated Iranian financial institutions 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.
Non-U.S. persons conducting sanctioned transactions with Iranian counterparties after the wind-down periods could face penalties including restriction from accessing the U.S. financial system and capital markets; blocking of all property and interest in property that are in the U.S. or under the control of a U.S. person; and prohibition from importing goods, technology, or services into the U.S.
Implications for US Persons
Under the JCPOA sanctions relief, U.S. persons remained broadly prohibited from engaging in transactions with Iranian entities. However, the JCPOA also contained provisions suspending certain primary sanctions, permitting U.S. persons to engage with Iranian counterparties in a few specific contexts, including the importation of Iranian-origin carpet and foodstuffs, and the case-by-case exportation of commercial aircraft and related goods and services. Per OFAC guidance, these authorizations will likewise be revoked following a 90-day wind-down period.
In addition, OFAC announced that it would be revoking two General Licenses issued pursuant to the JCPOA: General License H, which permitted foreign subsidiaries of U.S. companies to engage in certain business activities with Iran, and General License I, which permitted U.S. persons to enter into contingent contracts for activities permitted under the JCPOA. In addition, OFAC announced that it was removing from its website its Statement of Licensing Policy that reflected a favorable approach to licenses for passenger aircraft sales.
Performance of Existing Contracts
OFAC clarified that it would permit non-U.S. persons “to be made whole for debts and obligations owed or due to them for goods or services fully provided or delivered or loans or credit extended to an Iranian party prior to the end of” the applicable wind-down period.
- Supplier Transactions: Even after the applicable wind-down period, OFAC will allow non-U.S. persons to receive payment for goods and services fully provided or delivered to an Iranian counterparty prior to the wind-down period, pursuant to a written contract or written agreement entered into prior to May 8, 2018.
- The provision or delivery of additional goods or services to an Iranian counterparty after August 6, 2018 or November 4, 2018, as applicable, including pursuant to written contracts or written agreements entered into prior to May 8, 2018, may result in the imposition of U.S. sanctions.
- Repayment of Loans or Credits: Similarly, even after the applicable wind-down period, OFAC will allow non-U.S. persons to receive repayment for loans or credits extended to an Iranian counterparty prior to the end of the 90-day or 180-day wind-down period, as applicable, provided that such loans or credits were extended pursuant to a written contract or written agreement entered into prior to May 8, 2018.
- Importantly, any such payments cannot involve U.S. persons or the U.S. financial system, unless the transactions are exempt from regulation or authorized by OFAC.
- The extension of additional loans or credits to an Iranian counterparty after August 6, 2018 or November 4, 2018, as applicable, even if pursuant to previously existing agreements, may result in the imposition of U.S. sanctions.
Engaging in New Business Prior to Wind-Down Deadlines
OFAC stopped short of specifically prohibiting new Iran-related activity by non-U.S. persons, but noted that such activity must cease by the applicable wind-down period. OFAC further suggested that in the event of a potential enforcement action, the initiation of new Iran-related business following today’s announcement could serve as an aggravating factor.
More to Come
This is a developing story, and we expect OFAC and other U.S. agencies to issue additional regulations, orders, and guidance in the coming days and weeks. In addition, of course, there were other parties to the JCPOA, and it remains to be seen whether those parties, particularly the E.U., will seek to preserve the JCPOA and push back against the threat of U.S. secondary sanctions by invoking their own sanctions, trade, and enforcement powers.