Withdrawal Triggers Re-Imposition of “Secondary” Iran Sanctions Following Wind-Down Periods
On May 8, 2018, the President issued a National Security Presidential Memorandum (the “Memorandum”) announcing that the United States will “take all appropriate steps to cease participation in the [Joint Comprehensive Plan of Action (‘JCPOA’)]” and “immediately begin taking steps to re-impose all United States sanctions lifted or waived in connection with the JCPOA.” This action reverses the January 16, 2016 decision by the United States to lift its “secondary” sanctions consistent with its commitments under the JCPOA and, as a consequence, imperils non-U.S. companies, including those that are owned or controlled by U.S. companies,1 that continue to engage in certain Iran-related transactions after the conclusion of the 90-day and 180-day wind-down periods established by the Memorandum. Additional information regarding the re-imposition of sanctions may be found in the statement issued by the Office of Foreign Assets Control, U.S. Department of the Treasury (“OFAC”) and in Frequently Asked Questions published by OFAC following the issuance of the Memorandum.
Re-Imposition of Sanctions Following 90-Day Wind-Down Period
As noted above, the nuclear-related “secondary” sanctions, which are set forth in a number of statutes and Executive Orders, targeting Iran-related transactions undertaken by non-U.S. persons will not “snap back” into place until the expiration of the wind-down periods specified in the Memorandum. Please note that OFAC will permit non-U.S., non-Iranian persons to receive payments even after the expiration of the relevant wind-down periods in connection with contractual arrangements for the delivery or provision of goods or services entered into prior to May 8, 2018, that were consistent with U.S. sanctions in effect at the time such goods were delivered or services provided. The same does not appear to be true for U.S. persons.
The Memorandum establishes a 90-day wind-down period (i.e., through August 6, 2018) for the re-imposition of sanctions relating to the following activities:
- 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
- Transactions involving Iran’s automotive sector.
Furthermore, the Unites States intends to revoke the authorizations for U.S. persons, whether general or specific, relating to the importation of Iranian-origin carpets and foodstuffs,2 activities relating to the export or reexport to Iran of commercial passenger aircraft and related parts and services,3 and activities relating to the execution of contingent contracts4 in accordance with the commercial passenger aviation licensing policy authorizing the issuance of specific licenses.
Re-Imposition of Sanctions Following 180-Day Wind-Down Period
The Memorandum establishes a 180-day wind-down period (i.e., through November 4, 2018) for the re-imposition of the following sanctions:5
- Sanctions on 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;
- Sanctions on petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and the National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
- Sanctions on 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);6
- Sanctions on 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);
- Sanctions on the provision of underwriting services, insurance, or reinsurance; and
- Sanctions on Iran’s energy sector.
Revocation of General License H
The United States also announced its intention to revoke General License H,7 effective November 5, 2018. Pursuant to General License H, which may be found here, entities owned or controlled by a U.S. person that are established and maintained outside the United States were permitted to engage in transactions, subject to certain conditions, directly or indirectly with the government of Iran or persons subject to the jurisdiction of the government of Iran (including persons in Iran). In addition, General License H authorized U.S. persons, such as U.S. parent companies, to establish or alter existing policies or procedures to allow these transactions and authorized U.S. persons to make available to owned or controlled non-U.S. affiliates any automated and globally integrated business support systems, platforms, databases, applications, or servers. Otherwise, however, U.S. persons could not be involved in any day-to-day activity pertaining to their owned or controlled affiliates’ trade with Iran.
Effective November 5, 2018, the U.S. Government also will re-impose the sanctions that applied to those persons that were removed from the List of Specially Designated Nationals and Blocked Persons (“SDN List”), as well as certain other lists administered by OFAC, on January 16, 2016. Specifically, effective January 16, 2016, non-U.S. persons generally were no longer subject to nuclear-related “secondary” sanctions risk for engaging in transactions with the more than 400 individuals and entities that OFAC had removed from the SDN List, the Foreign Sanctions Evaders List, and the Non-SDN Iran Sanctions List. These included certain “government of Iran” and “Iranian financial institution” entities that were removed to a separate “E.O. 13599 list.” As a result of the inclusion of entities on the SDN List and other lists, non-U.S. persons again will be at risk of U.S. sanctions for dealing with such entities. U.S. persons still are required to block the property and interests in property of such persons and are prohibited from engaging in any transactions with such persons.
In light of the issuance of the Memorandum, U.S. and non-U.S. persons alike should undertake to catalogue their interactions with Iranian counterparties to assess: (i) what, if any, primary embargo or “secondary” sanctions risk might attend to their continued engagement with these counterparties, including as a result of the addition of the counterparties to the SDN List; (ii) the terms of their agreements, including, in particular, any force majeure clauses, in the event a termination is warranted prior to the expiration of the applicable wind-down period; and (iii) whether corporate policies or procedures may need to be revisited, despite the fact that the other parties to the JCPOA themselves might not take action to reimpose sanctions against Iran.