United States: Six Crucial Points About Iran Sanctions Liberalization

Crucial Points

  1. The U.S. government has, by and large, left in place its embargo generally forbidding U.S. companies, citizens and residents, and others in the United States to engage in Iran-related activity.
  2. European Union authorities, on the other hand, have rescinded most EU economic sanctions relating to Iran.
  3. The U.S. government has neutralized most so-called "secondary sanctions" measures that have provided for sanctions against third country companies that engage in specified types of activities relating to Iran.  
  4. The U.S. government has also, for the most part, eliminated the embargo's application to non-U.S. subsidiaries of U.S. companies acting abroad.  Furthermore, the U.S. government has, in limited respects, authorized U.S. parent companies to permit and, to some limited extent, enable their non-U.S. subsidiaries to engage in Iran-related activity.  But U.S. parent companies will need to be careful to avoid support for their non-U.S. subsidiaries' Iran-related activity that could expose the parents to liability for facilitating such activity contrary to sanctions prohibitions – even as to Iran-related activity in which their non-U.S. subsidiaries are permitted to engage.
  5. The U.S. government has announced that it will license certain other activities that are subject to embargo prohibitions, including supply of civil aircraft and parts and components to Iran and imports from Iran of Iranian-origin carpets and foodstuffs.
  6. As companies evaluate their opportunities under the changed sanctions regimes, much could depend on how regulatory authorities interpret and administer the new arrangements.  Furthermore, circumstances regarding Iran sanctions remain fluid and uncertain, particularly given continuing opposition to the Iran nuclear agreement.  Depending on political developments, one or both of U.S. and EU authorities could expand sanctions against Iran at any time.

Introduction

As discussed in our prior alert, on July 14, 2015, after years of negotiations, the P5 Plus 1, comprised of the permanent United Nations Security Council members (the United States, the United Kingdom, France, Russia and China) and Germany, and the European Union ("EU") reached agreement with Iran on the Joint Comprehensive Plan of Action ("JCPOA") regarding Iran's nuclear program.  On January 16, 2016, following the International Atomic Energy Agency's reported verification of Iran's implementation of key nuclear-related measures under the JCPOA, the United States and the EU liberalized their nuclear-related sanctions on Iran ("Implementation Day").

As to the context for this liberalization, the United States imposes an embargo on Iran-related activity of U.S. persons (individuals and entities) and entities that are owned or controlled by U.S. persons.  The U.S. government also administers "secondary sanctions" measures, which provide for sanctions against non-U.S. persons in response to their engagement in certain types of activity regarding Iran, including activity involving Iran's financial, energy and shipping sectors.  EU sanctions have generally forbidden certain activity related to Iran by nationals of EU member states and persons in the EU in these same sectors. 

As they understand to be contemplated by the JCPOA, U.S. and EU authorities have, as of January 16, 2016, provided relief regarding some of these sanctions measures while others remain applicable.  In this regard, U.S. and EU authorities committed in the JCPOA to eliminate sanctions that were imposed to address Iran's nuclear program.  As discussed below, this has resulted in broad lifting of the EU's Iran-related sanctions since most of those sanctions were established in response to Iran's nuclear program.  Most U.S. sanctions regarding Iran remain in place, however, because the U.S. government established most U.S. sanctions for reasons apart from Iran's nuclear program, including addressing international terrorism and proliferation of weapons of mass destruction.

U.S. Sanctions Relief

A. U.S. Secondary Sanctions

With some exceptions, U.S. sanctions liberalization under the JCPOA is limited to U.S. nuclear-related secondary sanctions measures.  Secondary sanctions measures are designed to deter non-U.S. persons from engaging in various Iran-related activities.  Secondary sanctions measures (statutes and executive orders) authorize, and sometimes direct, the President to impose sanctions on the non-U.S. persons who engage in specified Iran-related activities. 

On January 16, the U.S. government announced that it is carrying through on its JCPOA commitments to terminate or suspend secondary sanctions measures relating to activities in the following sectors of Iranian economy:  (i) finance and banking, including such as provision of loans, investments, securities, foreign exchange services (including Iranian rial-related transactions), specialized financial messaging services and purchase, subscription to and facilitation of the issuance of Iranian sovereign debt, (ii) energy and petrochemicals, including activities such as investments, exports, acquisitions, sales, transportation and marketing, (iii) insurance, including provision of underwriting services, insurance and re-insurance, (iv) shipping, shipbuilding and ports, (v) gold and other precious metals, (vi) software and metals, and (vii) the automotive sector. 

As the JCPOA requires, the U.S. government has also removed over 400 individuals and entities from the U.S. Office of Foreign Assets Control's ("OFAC") List of Specially Designated Nationals and Blocked Persons ("SDN List") and other OFAC-administered lists of sanctioned persons.  Organizations removed from these lists include, for example, the Central Bank of Iran and other Iranian financial institutions, the National Iranian Oil Company, the Naftiran Intertrade Company and the National Iranian Tanker Company.  As a result, secondary sanctions measures no longer prescribe sanctions against non-U.S. persons who engage with these organizations in activities that would otherwise be sanctionable under secondary sanctions measures1.

Some secondary sanctions measures remain in place and continue to provide for sanctions against non-U.S. persons who engage in certain types of Iran-related activity.  Surviving secondary sanctions measures still cover, in particular, a variety of types of activities with persons on the SDN List.  As a result, non-U.S. companies should continue to exercise caution in their dealings with Iran even if their Iran-related dealings are no longer subject to sanctions prohibitions imposed by their home countries.

B. U.S. Primary Sanctions

The U.S. embargo of Iran generally forbids business with and in Iran by "U.S. persons" – U.S. citizens and residents, companies and other legal entities organized under U.S. law (including their non-U.S. branches), and all persons while acting in the United States.  The U.S. government imposed the embargo mainly for anti-terrorism reasons.  In 2012, the U.S. government broadened the embargo to cover entities that are owned or controlled by U.S. persons and established or maintained outside the United States, thereby extending the embargo to non-U.S. subsidiaries of U.S. companies ("non-U.S. subsidiaries"). 

With limited exceptions, the JCPOA does not rescind the U.S. embargo of Iran.  So the embargo generally continues to forbid U.S. persons to engage in most transactions and other dealings relating to Iran.

The most important relaxation of the U.S. embargo of Iran relates to its application to non-U.S. subsidiaries.  The U.S. government has published a "general license" (General License H), which authorizes most activities relating to Iran by non-U.S. subsidiaries.  Some embargo prohibitions continue to apply to non-U.S. subsidiaries, however.  Further, challenging questions remain about U.S. parent companies' legal exposure under the embargo in connection with their non-U.S. subsidiaries' dealings with Iran even if the subsidiaries are authorized to undertake them.

General License H leaves some Iran-related activities of non-U.S. subsidiaries subject to U.S. embargo prohibitions.  These activities include, among others:

  • supply to Iran or the Iranian government of U.S.-origin goods, services and technology;
  • supply to Iran or the Iranian government of goods, services and technology that include U.S.-origin content and, on that basis, are generally export licensable to Iran under U.S. export controls;
  • activities that involve persons on the SDN List;
  • engagement of U.S. banks to process Iran-related transactions; and
  • transactions that involve military, paramilitary, intelligence or law enforcement arms of the Iranian government.

In addition, U.S. citizens and residents remain subject to embargo prohibitions notwithstanding that they are employed by or otherwise affiliated with non-U.S. subsidiaries (or any other non-U.S. entities).

General License H resolves some, but not all, questions about U.S. parent companies' legal exposure for their non-U.S. subsidiaries' dealings with Iran.  At issue is an embargo provision that generally forbids U.S. persons to assist or otherwise facilitate non-U.S. persons' dealings with Iran that the embargo prohibits U.S. persons to undertake.  Due to this prohibition on "facilitation," many U.S.-based multinationals forbade their worldwide operations to pursue Iran-related business even before the embargo was extended to non-U.S. subsidiaries in 2012.

General License H authorizes U.S. parent companies to engage in a limited range of transactions to permit or enable non-U.S. subsidiaries to engage in Iran-related activity.  First, such U.S. persons are authorized to engage in activities related to establishment or alteration of their or their non-U.S. subsidiaries' operating policies and procedures necessary to allow for authorized Iran-related operations of the non-U.S. subsidiaries.  Second, such U.S. persons may make available to their non-U.S. subsidiaries any automated and globally integrated computer, accounting, email, telecommunications or other business support system, platform, database, application or server necessary to store, collect, transmit, generate or otherwise process documents or information related to authorized operations ("Authorized Business Support Systems").  These Authorized Business Support Systems must be passively operated without any human intervention in the United States and, as regards non-U.S. subsidiaries' Iran-related dealings, may not be used in connection with any transfer of funds to, from or through a U.S. depository institution or U.S.-registered broker or dealer in securities.  

General License H does not authorize U.S. parent companies or U.S. person individuals to be involved in the Iran-related operations of a non-U.S. subsidiary, including by approving, financing, facilitating or guaranteeing any Iran-related transaction by the non-U.S. subsidiary.  By and large, then, the facilitation prohibition remains in effect with respect to U.S. parent companies' dealings with their non-U.S. subsidiaries.

Finally, the U.S. government has announced that it will, on a transaction-by-transaction basis, license the export, reexport, sale, lease or transfer of commercial passenger aircraft and related parts and services to Iran, provided that the licensed items are used exclusively for commercial passenger aviation and do not involve any person on the SDN List.  Further, the United States is issuing general licenses allowing for the importation into the United States of Iranian-origin carpets and foodstuffs, including pistachios and caviar, and related transactions.

EU Sanctions Relief

On January 16, the most complex sanctions regime yet embarked upon by the EU moved to a new phase.  While most EU economic sanctions have been rescinded, considerable challenges remain for business in Iran, most notably corruption and the extensive involvement of designated persons in Iranian business, particularly those related to the Revolutionary Guard.

The sanctions imposed by EU Regulation 267/2012 (as amended pursuant to the JCPOA) have been lifted.  Terminated sanctions include those that represented the heart of EU restrictions regarding Iran, including those relating to the financial; oil, gas and petrochemical; shipping, shipbuilding and transport; software; and gold and other metals sectors.  Notably, then, EU sanctions no longer extend to the following types of activities:  (i) funds transfers between the EU and Iran (with the exception of those entities and persons who remain on the designated persons list), including financial messaging services and the opening of bank accounts, (ii) importation of Iranian crude oil and petroleum products, natural gas or petrochemical products, and restrictions on related financing, joint ventures and investment, (iii) engagement in the Iranian transportation sector, (iv) the provision of certain software, or (v) buying and selling gold and other precious metals and diamonds as well as, where authorized, the sale of graphite and raw or semi-finished metals, such as aluminium and steel to Iranian persons. 

New EU guidance provides that any service that would ordinarily be associated with the activity relieved from the restraints of the sanctions is now permitted.  This means that all brokering, financial, technical and insurance services related to such investment and trade are permitted.

EU legislation continues to require unusually far-reaching export controls with respect to Iran.  These restraints include the following:

  • Software: Prior authorization is still required for supply of software designed specifically for use in Iran's nuclear or military industries.
  • Certain commodities:  Prior authorization is still required to supply Iranian persons with graphite, raw and semi-finished metals.
  • Items covered by non-proliferation or dual use controls:  EU member authorities must continue to administer restrictions on supply to Iran of goods covered by the EU Common Military List, the Missile Technology Control Regime List and the Nuclear Suppliers Group List.

The competent regulatory authorities for interpretation and enforcement of the remaining sanctions and licensing regimes are the 28 EU Member States.  Although authorities among the Member States are obligated to report and consult on enforcement policy, there remains the possibility of some inconsistency in early decisions as the competent regulatory authorities find their way.  New EU guidance provides some comfort, however, by confirming that approval for exports of dual-use items granted in one Member State is valid in all others.

What Happens Next

As companies assess opportunities under the changed sanctions regimes, much could depend on how regulatory authorities interpret and administer the new arrangements. There are novel aspects to Implementation Day sanctions liberalization measures, and companies should be sensitive to authorities' pronouncements on them.  As noted above, there may be inconsistencies among regulators' application of sanctions provisions within the EU.

Beyond interpretive challenges, the durability of Implementation Day sanctions relief is uncertain. The JCPOA authorizes the United States and the EU to reimpose sanctions, in whole or in part, upon "significant" nonperformance of the JCPOA by Iran (sanctions "snapback"). "Snapped back" sanctions could prohibit activity to which companies have committed contractually.  Given EU authorities' and the Obama Administration's commitment to the JCPOA, the risk of sanctions snapback may currently be limited, particularly given the parties' indication that they will subject alleged agreement violations to a JCPOA dispute settlement process prior to any sanctions snapback.

At the same time, preservation of JCPOA sanctions relief depends on a variety of circumstances, including political support for the JCPOA.  In this regard, strong opposition to the JCPOA remains in the United States.  It appears that majorities of both houses of the U.S. Congress continue to oppose the JCPOA.

Under U.S. law, the JCPOA is an "executive agreement" – a commitment by the President – without foundation or protection in U.S. legislation. To the contrary, opponents of the JCPOA in the Congress are pursuing legislation that could reverse U.S. sanctions liberalization. It appears that, today, the President could defeat such legislative attack through vetoes that would not be overridden. But events could weaken the President's hand. And the United States will have a new president roughly a year from now. Since the JCPOA is not protected by statute, the new president could withdraw U.S. JCPOA commitments, including those to sanctions relief.

Even the current U.S. Administration has taken action that could weaken the JCPOA. On January 17, the Administration imposed additional sanctions in reaction to Iranian missile-related activity. OFAC added several persons to the SDN List.  Iran contends that these additional sanctions violate the JCPOA. This and similar developments could lead to partial or wholesale unraveling of JCPOA sanctions liberalization.

Footnotes

1 Because the Iranian government controls these organizations, however, primary sanctions continue to forbid U.S. persons to deal with them.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.

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.