United States: Iran Sanctions: Change Is Coming, But Risks And Uncertainties Remain

The Joint Comprehensive Plan of Action ("JCPOA") that was signed on July 14, 2015 among Iran and the United States, Germany, UK, France, Russia and China (referred to as "P5+1" in the United States and "E3+3" in the EU) could lead to a dramatic reduction in international sanctions against Iran and has the potential to open up major business opportunities in Iran for global companies. Over the short term, however, not much is going to change, as formal implementation of the JCPOA and enactment of sanctions relief is at best many months away. Set forth below is a brief summary and outline of JCPOA implementation and potential sanctions relief.

CONDITIONS TO EFFECTIVENESS

It is important to emphasize that implementation of sanctions relief under the JCPOA is subject to the satisfaction of certain conditions, and also to U.S. political considerations. One condition was quickly satisfied on July 20, 2015, when the JCPOA was endorsed by the UN Security Council. The second major condition ("Implementation Day") will occur only following International Atomic Energy Agency (IAEA) verification that Iran has implemented certain specified measures as detailed in the JCPOA, including decommissioning and dismantling portions of Iran's nuclear development program. Initial reports from governmental authorities, such as the German Federal Office for Economic Affairs and Export Control (BAFA), indicate that implementation and IAEA verification of these measures is not likely to occur until the first quarter of 2016. Until Implementation Day, the P5+1/E3+3 have agreed that all existing Iran sanctions, including sanctions with extraterritorial effect (that is, applicable to non-U.S. and non-EU persons), will remain in place. We note that since November 2013, when Iran and the P5+1/E3+3 reached an initial understanding on Iran's nuclear program, limited sanctions relief has been in effect and such relief will remain in effect until Implementation Day.

There are also political complexities that may affect ultimate sanctions relief, at least for U.S. companies. The JCPOA represents a national executive level agreement among the P5+1/E3+3 and, as such, does not require approval by the U.S. Congress or the national legislative bodies of the other P5+1/E3+3 countries. However, under the 2015 Iran Nuclear Agreement Review Act, the Obama administration cannot act on sanctions relief until the U.S. Congress completes a 60-day review of the JCPOA. There has been strong opposition from both parties in the U.S. Congress, but opponents will need to have a two-thirds vote in both houses in order to block the JCPOA and override a certain Presidential veto. At this stage, the outcome of such a vote is not certain.

Looking towards the longer term, however, following Implementation Day, new commercial opportunities can be expected for EU and other non-U.S. companies in key sectors such as oil, gas and petrochemicals, as discussed more fully below. Given the longstanding U.S. and EU sanctions against Iran, the reduction of sanctions envisioned by the JCPOA will provide Iran with a real opportunity to return to the global economy.

KEY DATES UNDER THE JCPOA

The following is a timeline of key dates and milestones:

  • "Adoption Day": Given UNSC endorsement of the JCPOA on July 20, 2015, Adoption Day will be October 18, 2015. On that date, the P5+1/E3+3 parties will begin to make preparations for implementing the JCPOA.
  • "Implementation Day": Following confirmation by the IAEA that Iran has adopted the JCPOA-required measures, the JCPOA reduction of U.S. and EU sanctions will be implemented. It is expected this may occur in the first quarter of 2016.
  • "Transition Day": This day will occur eight years after Adoption Day or as soon as the IAEA determines that Iranian nuclear material is being used only for peaceful purposes, whichever comes sooner. On Transition Day, (i) all provisions of the EU Regulation implementing nuclear proliferation sanctions that were not removed on Implementation Day will be terminated and (ii) all remaining U.S. secondary sanctions against Iran (i.e., sanctions applicable to non-U.S. persons and entities) will be terminated.
  • "UNSCR Termination Day": Ten years after Adoption Day, the UNSC will no longer be seized of the Iranian nuclear issue and all remaining EU sanctions will be terminated.

EXTENT OF SANCTIONS RELIEF

U.S. sanctions relief under the JCPOA is primarily focused on lifting nuclear proliferation-related "secondary" sanctions against non-U.S. persons and entities. These secondary sanctions were implemented beginning in 2010 in an attempt to deter non-U.S. persons and companies from trading with Iran. On Implementation Day, most of the U.S. secondary sanctions will be terminated. This will include removing many Iranian persons and entities from the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC") list of Specially Designated Nationals and Blocked Persons ("SDNs").

However, certain U.S. secondary sanctions will remain in place. For example, non-U.S. financial institutions will remain subject to penalties for engaging in dollar-denominated transactions with Iran, and for dealing with certain Iranian banks and the Iran Revolutionary Guards Corp. Secondary sanctions against non-U.S. persons supporting Iranian terrorist activities, nuclear proliferation and human rights violators, among others, will also remain in place.

Most importantly, U.S. "primary sanctions" that apply directly to U.S. persons and entities and generally prohibit direct transactions between the U.S. and Iran will remain in place. Under the JCPOA commitments of the U.S., foreign subsidiaries of U.S. companies may, however, benefit from sanctions relief. In addition, OFAC is expected to relax some licensing policies for U.S. persons and entities, but OFAC licenses will still be required for most direct U.S. transactions with Iran. OFAC is expected to shortly issue formal guidance on the JCPOA implementation.

Relief of EU sanctions will have a broader impact. As of Implementation Day, EU sanctions restricting Iran's financial institutions will be lifted. The more restrictive measures affecting Iranian insurance, oil-and-gas, petrochemical and transportation sectors will also be removed. Following sanctions relief, other permitted activities for EU companies will include:

  • joint ventures, taking an ownership interest or establishing new correspondent banking relationships by Iranian banks with EU banks;
  • EU persons (including financial institutions) opening representative offices, subsidiaries or bank accounts or creating joint ventures in Iran; and
  • granting financial loans and credits to, acquiring or extending participation in, and creating joint ventures with, any Iranian persons engaged in the oil, gas and petrochemical industries. Further clarification around these points is expected as negotiations progress to the next stage.

While EU companies may have advantages over U.S. companies in engaging with Iran, EU companies also must be careful about compliance with the U.S. secondary sanctions that may also apply to non-U.S. financial institutions (including EU financial institutions), and with the U.S. primary sanctions applicable to U.S. persons working outside the U.S., including at EU companies.

EXERCISING CAUTION

Iran may now present itself as a place of new opportunity for investors, and many companies are signing up agreements in advance of Implementation Day. However, those looking to enter the Iranian market should act with caution and discretion. This is because continued sanctions relief ultimately depends on Iran's ongoing compliance with its obligations under the JCPOA. In the event that Iran fails to comply with its JCPOA obligations, the P5+1/E3+3 can "snap back" existing sanctions. This would bring the existing sanctions immediately back into force.

The risk of a snap-back is coupled with the risks from the challenges the P5+1/E3+3 and Iran would inevitably face when trying to implement the JCPOA. This might delay sanctions relief or even, in a worst case scenario, see the JCPOA collapse entirely. It is also very likely that any failure to reach Implementation Day, or any subsequent failure of Iran to adhere to its JCPOA commitments, will result in the United States and the EU imposing additional sanctions on Iran.

Companies interested in the Iranian market will also have to navigate a plethora of compliance-related issues. As noted above, U.S. primary sanctions and certain U.S. secondary sanctions will remain in place. The EU also maintains its own lists of Iranian parties that will remain prohibited business partners for EU persons.

NEW OPPORTUNITIES

The relaxation of sanctions promises to create wide-ranging opportunities for investment in Iran. In the immediate future, the Iranian economy will be boosted by the freeing up of an estimated US$100 billion worth of Iranian assets that have been frozen by the United States and EU as a result of international sanctions. This is equivalent to approximately one-quarter of Iran's GDP. As time goes on, companies will evaluate and act on projects to develop Iran's oil, gas and petrochemical sectors, as well as financial services, insurance, transportation and other key sectors.

However, as discussed above, there are many uncertainties and risks on the road to a new beginning for Iran's economic relationship with the outside world.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions