On May 8 2018 President Trump announced that the United States is withdrawing from the Joint Comprehensive Plan of Action (JCPOA).
Before former President Obama left office in late 2016, the Department of the Treasury's Office of Foreign Assets Control (OFAC) published a list of FAQs to address the possibility of revoking the relaxed sanctions on Iran. The so-called 'snapback' would re-impose certain secondary sanctions on non-US persons for certain dealings with Iran.
On May 8 2018 OFAC published new FAQs explaining how the re-imposition of sanctions will go into effect. While the new FAQs leave a number of issues undecided, some of the key takeaways are outlined below.
The US government will provide either a 90 or 180-day period for persons to wind down operations previously authorised under the JCPOA and entered into before May 8 2018. Some sanctions will be re-imposed after a 90-day wind-down period (August 6 2018) and other sanctions will be re-imposed after a 180-day wind-down period (November 4 2018).
Except for goods or services necessary to wind down operations in or business involving Iran entered into before May 8 2018 during the 90 or 180-day wind-down periods, the provision or delivery of additional goods or services and the extension of additional loans or credit to an Iranian counterparty after the wind-down period, including pursuant to contracts entered into before May 8 2018, may result in US sanctions being imposed.
While sanctions will not apply retroactively to authorised transactions entered into before May 8 2018 or to authorised transactions that occurred during a wind-down period, transactions conducted after these periods could be subject to penalties (if subject to US laws) or secondary sanctions to the extent that they involve conduct for which sanctions have been re-imposed. Contracts entered into before the snapback will not be grandfathered past the applicable 90 or 180-day wind-down period.
US-owned or controlled foreign entities will have a 180-day wind-down period for transactions under General Licence H. US persons will have a 90-day wind-down period under the other licences that were issued under the JCPOA on January 16 2016.
Effective November 5 2018, US-owned or controlled foreign entities may no longer wind down certain activities involving Iran that were previously authorised under General Licence H. OFAC intends to replace General Licences H and I, as well as the general licences in Sections 560.534 and 560.535 relating to trade in Iranian-origin carpets and foodstuffs, with more narrowly scoped authorisations to allow US persons and (as appropriate) US-owned or controlled foreign entities to engage in transactions ordinarily incident and necessary to wind down previously authorised activities.
The detailed provisions of the revised authorisations – including General Licence H – remain unknown. In other words, it is unclear which wind-down activities will be authorised under the revised General Licence H or the other general licences. However, the new authorisations are expected to permit the receipt of payments under written agreements that were entered into before May 8 2018.
If a non-US, non-Iranian person is owed payment at the time of the end of the wind-down period for goods or services (as well as owed repayment for loans or credits extended) fully provided or delivered to an Iranian counterparty before the end of the wind-down period pursuant to contracts entered into before May 8 2018, the US government will not impose sanctions on the non-US, non-Iranian person for receiving payment for those goods and services. Any payments must be consistent with US sanctions, including that payments cannot involve US persons or the US financial system.
The FAQs address only actions taken on January 16 2016 in connection with the JCPOA. Neither Trump nor OFAC has mentioned changing any of the general licences that predated the JCPOA, including:
- the general licence for agricultural, medicine and medical devices; or
- General Licence D-1 (General Licence with Respect to Certain Services, Software and Hardware Incident to Personal Communications).
There is no indication that these non-JCPOA general licences will be revoked or revised. However, the return of a number of Iranian banks to the specially designated nationals (SDN) list by November 5 2018 (see below) may make payment more difficult.
The 90-day wind-down period (August 6 2018) applies to some secondary and primary sanctions.
Secondary sanctions involving non-US persons
Applicable secondary sanctions involving non-US persons include:
- the purchase or acquisition of US dollar banknotes by the Iranian government;
- 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 (eg, aluminium and steel), coal and software for integrating industrial processes;
- significant transactions relating 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 of, subscription to or facilitation of the issuance of Iranian sovereign debt; and
- Iran's automotive sector.
Primary sanctions involving US persons
In addition to lifting certain secondary sanctions on non-US persons, the JCPOA authorised certain primary sanctions applicable to US persons, several of which will be re-imposed after August 6 2018, including:
- the import into the United States of Iranian-origin carpets and foodstuffs and certain related financial transactions pursuant to general licences under the Iranian Transactions and Sanctions Regulations (31 CFR, Part 560);
- activities undertaken pursuant to specific licences issued in connection with the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (JCPOA SLP); and
- activities undertaken pursuant to General Licence I relating to contingent contracts for activities eligible for authorisation under the JCPOA SLP. OFAC:
- has rescinded the JCPOA SLP and will no longer consider applications; and
- expects to revoke any existing specific licences issued under the JCPOA SLP, but will authorise related wind-down activities until August 6 2018.
The 180-day wind-down period (November 4 2018) applies to the remaining secondary sanctions, as well as the primary sanctions lifted by General Licence H.
Secondary sanctions involving non-US persons Applicable secondary sanctions involving non-US persons include:
- Iran's port operators and shipping and shipbuilding sectors, including on:
- the Islamic Republic of Iran Shipping Lines;
- South Shipping Line Iran; or
- their affiliates;
- petroleum-related transactions – including the purchase of petroleum, petroleum products or petrochemical products from Iran – with, for example:
- the National Iranian Oil Company;
- the Naftiran Intertrade Company; and
- the National Iranian Tanker Company;
- transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defence Authorisation Act for fiscal year 2012;
- the provision of specialised 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 2010;
- the provision of underwriting services, insurance or reinsurance; and
- Iran's energy sector.
Primary sanctions involving US persons US-owned or controlled foreign entities will have a 180-day wind-down period. However, as OFAC has yet to reissue General Licence H, the scope of the authorised wind-down activities remains unclear.
Effective November 5 2018, US-owned or controlled foreign entities may no longer wind down certain activities involving Iran that were previously authorised under General Licence H. OFAC intends to replace General Licence H with a more narrowly scoped authorisation to allow US-owned or controlled foreign entities to engage in transactions ordinarily incident and necessary to wind down previously authorised activities.
The US government will also re-impose sanctions on persons that were removed from the SDN list as part of the JCPOA on January 16 2016. OFAC expects to return persons from the EO 13599 List (ie, persons meeting the definitions of 'Government of Iran' or 'Iranian financial institution') to the SDN list by November 5 2018.
The move is not effective immediately in order to facilitate wind-down activities by non-US, non-Iranian persons involving EO 13599 List persons with whom transactions were authorised under the JCPOA. However, beginning November 5 2018, activities with most persons moved from the EO 13599 List to the SDN list will be subject to secondary sanctions, identifiable by the following notation on their SDN list entry: "Additional Sanctions Information – Subject to Secondary Sanctions".
For further information on this topic please contact Kay C Georgi, Regan K Alberda, Lamine Hardaway or Sylvia G Costelloe at Arent Fox LLP by telephone (+1 202 857 6000) or email ([email protected], [email protected], [email protected] or [email protected]). The Arent Fox LLP website can be accessed at www.arentfox.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.