On 2 April 2015, Iran and the P5+1 nations (United States, United Kingdom, France, Russia, China and Germany) reached a framework agreement in respect of Iran limiting its nuclear programme in exchange for sanctions relief. This preliminary agreement is the foundation for the final Iran nuclear accord, which will take the form of a Joint Comprehensive Plan of Action ("JCPOA"). The drafting of the JCPOA is due to be finalised by 30 June 2015.

All EU and US businesses should be aware however that existing EU and US sanctions applicable to Iran currently remain unchanged. Sanctions measures which had previously been suspended as negotiations progressed remain suspended.

Current sanctions measures

Iran is currently subject to a range of sanctions imposed by the UN, the EU and US.

Current EU sanctions on Iran include a comprehensive asset freeze against a significant number of Iranian entities and persons, restrictions on the export of certain products to Iran (including equipment for Iran's oil and gas sector and equipment which could be used for the enrichment of uranium), restrictions on the import of Iranian crude oil into the EU, significant restrictions on financial services, including notification and authorisation requirements for any transfer of funds to or from an Iranian person and an arms embargo.

Sanctions measures suspended by the EU include certain oil and petrochemical related sanctions, as well as an increase in the notification/authorisation thresholds for financial transfers to and from Iran.

The US imposes comprehensive sanctions against Iran which mean that, broadly, all transactions in the US or by US persons wherever located with or in Iran are prohibited without prior authorisation. The US has suspended under the JPOA the application of certain extraterritorial sanctions that provide for the imposition of penalties against non-US entities engaging in certain activities involving Iran’s automotive, petrochemical and crude oil industries. It should be noted that all activities undertaken under the authority of the JPOA must be completed during the JPOA including receipt of payment for goods and services provided during the JPOA, which has an expiry date of June 30, 2015 unless extended.

In addition to the above sanctions, in 2012 the EU and the US took an unprecedented step by ordering the Belgium-based Society for Worldwide Interbank Financial Telecommunication (SWIFT) to disconnect Iranian banks from its inter-bank financial messaging system.

Proposed sanctions relief

The P5+1 nations have been engaged in intensive negotiations to reach a comprehensive agreement on Iran’s nuclear programme since February 2014. Since this time the parties have agreed on a rolling temporary suspension of certain EU and US sanctions measures (as noted above) to facilitate ongoing negotiations of the JCPOA.

Under the terms of the framework agreement, Iran will commit to reducing the number of its centrifuges from 19,000 to 6,104 and will reduce its stockpile of enriched uranium. The JCPOA will also impose upon Iran significant new reporting and inspection obligation in relation to its nuclear capabilities. International Atomic Energy Agency ("IAEA") inspectors will have access to Iranian nuclear facilities, centrifuge plans and supply chains.

It is anticipated that EU and US sanctions imposed over the last decade in response to Iran's nuclear programme will be gradually phased out if and when Iran fulfils its obligations under the JCPOA. Similarly post-2006 binding UN Security Council resolutions which impose sanctions are also likely to be lifted in accordance with Iran's compliance with the terms of the JCPOA. Core provisions in the UN Security Council resolutions – those that deal with transfers of sensitive technologies and activities – will be re-established by a new UN Security Council resolution that will endorse the JCPOA and urge its full implementation. Important restrictions on conventional arms and ballistic missiles, as well as provisions that allow for related cargo inspections and asset freezes, will also be incorporated by this new resolution.

No definitive list of those nuclear-related EU and US sanctions which will be lifted has yet to emerge and we await the details of the proposed sanctions relief. Additionally, the timetable for the milestones which must be complied with is as yet unclear, and will be set out in the JCPOA.

Other key details of the agreement are also yet be finalised. For example, the US government has stated that sanctions will be suspended after the International Atomic Energy Agency has verified that Iran has complied with all of its nuclear related steps, whereas the Iranian government maintains that at the time of the start of Iran's nuclear-related implementation work, all sanctions will be withdrawn on a single specified day. The US government has also stated that "if at any time Iran fails to fulfil its commitments...sanctions will snap back into place".1

In addition, not all sanctions will be lifted even if Iran does comply with all of its obligations under the JCPOA. For example, the US Government has made clear that its sanctions based on Iran's support for terrorism and human rights abuses will continue to be in force. This is likely to include the Iranian Transactions and Sanctions Regulations.

Finally, a dispute resolution process will be specified, which will enable any JCPOA participant to seek to resolve disagreements about the performance of JCPOA commitments. If an issue of significant non-performance cannot be resolved through that process, then all previous UN sanctions could be re-imposed.

What does this mean for your business?

None of the agreed terms will be implemented until at least 30 June 2015. As noted above, EU and US sanctions against Iran remain unchanged, and are likely to remain unchanged for the foreseeable future. IAEA verification of Iran's compliance with the JCPOA is required before any sanctions relief will be implemented. It therefore continues to be crucial that legal advice is sought before undertaking any transaction which may involve Iran or Iranian persons.