On December 15, 2016, the Iran Sanctions Extensions Act became law (P. Law 114-277) without the President’s signature. The Act extends the authority to impose sanctions under the Iran Sanctions Act of 1996 from December 31, 2016 until December 31, 2026.
The Iran Sanctions Act (“ISA”) is one of the primary U.S. statutes that provides legal authority for U.S. secondary sanctions (i.e., sanctions primarily targeting non-U.S. companies engaging in certain Iran-related activities) targeting Iran. Most of its provisions have been suspended under the Joint Comprehensive Plan of Action (“JCPOA”). H.R. 6297 does not impose new sanctions targeting Iran and does not affect other U.S. sanctions measures such as those under the Iranian Transactions and Sanctions Regulations and the Export Administration Regulations. The extension of the ISA’s terms does not change the state of current U.S. primary or secondary sanctions targeting Iran.
The White House issued a statement on December 15, 2016 that affirms this understanding, stating in relevant part that an extension of the ISA, while unnecessary, is consistent with the U.S. Government’s commitments under the JCPOA. The Obama Administration emphasized that it has used, and continues to use, necessary authorities to waive relevant sanctions, enforce those sanctions that are outside of the scope of the JCPOA, and re-impose sanctions if necessary in the event that Iran should fail to meet its commitments under the JCPOA. In this regard, Secretary of State Kerry issued a statement on the same day as the White House to announce that the U.S. State Department will renew ISA-related waivers under the JCPOA.
Update to Joint Comprehensive Plan of Action FAQs
On December 15, 2016, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) updated the Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions Under the Joint Comprehensive Plan of Action. OFAC updated FAQs M.4 and M.5 to provide additional clarity in the event sanctions “snap back” into place under the JCPOA.
FAQ M.4 provides that, in the event of snap back, U.S. sanctions will not be imposed retroactively to target legitimate activity undertaken between “Implementation Day” of the JCPOA (i.e., after January 16, 2016) and the snap-back date. However, transactions conducted after snap back occurs could be sanctionable to the extent they implicate activity for which sanctions have been re-imposed.
Under FAQ M.5, OFAC explained that the U.S. Government will provide non-U.S. and non-Iranian persons a wind-down period of 180 days in the event of snap back to resolve any commitments such parties may have agreed to pursuant to a written agreement or contract in an effort to minimize the impact of re-imposed sanctions on legitimate Iran-related activities by parties prior to snap back. This would include payment or goods or services owed to Iranian parties, payment of debts and obligations owed to non-U.S. parties, etc. However, any such payments would need to be consistent with U.S. sanctions (e.g., may not involve the U.S. financial system or U.S. persons).
To the extent that snap back results in the revocation of general or specific licenses issued by OFAC (e.g., General License H), OFAC states in FAQ M.5 that the U.S. Government would also provide U.S. persons and owned or controlled non-U.S. entities with a similar 180-day period to wind down operations in, or business involving, Iran conducted pursuant to an OFAC authorization, as well as receive payments owed under contracts entered into prior to snap back for goods or services fully provided or delivered. With the exception of goods or services necessary for a wind-down of operations during the 180-day period, providing other goods or services or loans or credits to Iranian counterparties after snap back could result in penalties unless such activities are otherwise authorized. There is a risk that the next U.S. administration could take a different approach from that outlined in these FAQs in the event of snap back under the JCPOA.
Issuance of General License J-1
Lastly, OFAC issued General License J-1 “Authorizing the Reexportation of Certain Civil Aircraft to Iran on Temporary Sojourn and Related Transactions” on December 15, 2016. The only change made by General License J-1 is that it now authorizes non-U.S. airlines using “Eligible Aircraft” on Iranian routes to enter into code sharing arrangements with Iranian airlines that are not Specially Designated Nationals. Such code sharing arrangements were not permitted under General License J. General License J-1 took effect on December 15, 2016, and replaces and supersedes General License J in its entirety.
For additional information, please contact Kerry B. Contini, Alexandre (Alex) Lamy or Meghan Hamilton, or any member of the U.S. Outbound practice from whom you normally seek export control and trade sanctions advice. Check our Sanctions blog for future updates.