United States: US Announces Withdrawal From The Joint Comprehensive Plan Of Action And Re-Imposition Of Sanctions

In a sweeping action with immediate consequences for both US and non-US Persons1, President Trump announced the withdrawal of the US from the Joint Comprehensive Plan of Action (JCPOA) on May 8, 2018. Following this announcement, the Department of the Treasury's Office of Foreign Assets Control (OFAC) issued new frequently asked questions (FAQs) that detail which sanctions will be re-imposed, the timeline for a full reinstatement of sanctions and how parties will be permitted to wind down existing operations inconsistent with the reinstated sanctions.2

The process initiated on May 8, once fully implemented, will essentially amount to a complete return to pre-JCPOA US Iran sanctions. The move can best be described as a hard exit from the Iran deal, requiring anyone with Iran-related business and operations to promptly assess their risk and develop a plan to wind down operations as needed. The decision by the president is in fact not a "snapback" mechanism under the JCPOA, but rather a unilateral withdrawal from the pact and a reinstatement of US sanctions against Iran. Accordingly, it remains to be seen how the other parties to the JCPOA will react, especially given the intentionally global applications and impacts of the secondary sanctions.

Iran sanctions under the JCPOA

The JCPOA is an agreement reached in 2015 between Iran and the P5+1 -- consisting of the five permanent members of the United Nations Security Council (China, France, Russia, the United States, and the United Kingdom) plus Germany. For a more detailed look at the JCPOA as it stood on Implementation Day (January 16, 2016), you can review our alert here

The US sanctions relief under the JCPOA consisted primarily of the US:

  • Waiving or suspending the imposition of most of the secondary sanctions imposed on non-US Persons for conduct occurring entirely outside the United States;
  • Issuing certain general licenses, including General License H, which permitted non-US entities owned or controlled by US Persons to engage in transactions involving Iran;
  • Adopting a favorable licensing policy concerning commercial aviation exports to Iran and related transactions; and
  • Removing approximately 400 Iranian individuals and entities from the List of Specially Designated Nationals and Blocked Persons (the SDN List), with the primary effect being that non-US Persons were no longer subject to secondary sanctions for engaging in significant transactions with such SDNs.

Every aspect of this relief will now terminate. While the Department of State will continue to waive, for the next 90 to 180 days, certain statutory secondary sanctions, those sanctions will be re-imposed according to the timeframe set out in OFAC's FAQ. Parties engaging in transactions subject to sanctions must wind them down or face sanctions risk following the end of the wind-down periods. New transactions are, in general, not authorized, and OFAC will be individually reviewing and rescinding specific licenses issued during the period that the US was engaged in the JCPOA. Persons and entities that had been removed from the SDN List will now be added back to that list.

Below, we summarize the timing for the re-imposition of sanctions and relevant wind-down periods.

Reinstatement of sanctions following 90-day and 180-day wind down periods

To alleviate the impact of sanctions on activities authorized under the JCPOA prior to May 8, 2018, OFAC will delay re-imposition of sanctions and provide 90-day and 180-day wind-down periods for different categories of activity involving Iran that had been consistent with the sanctions relief afforded under the JCPOA. OFAC has made clear that these are truly wind-down periods, not grace periods under which Iran-related business may continue as usual.3 OFAC has advised that this should be viewed as reinstatement of sanctions immediately, though subject to waivers, rather than a continuation of the JCPOA for either 90- or 180-day periods.

The 90-day wind-down period ends on August 6, 2018, and the 180-day period ends on November 4, 2018. On those dates, waivers from enforcement will terminate, and virtually all transactions will be subject to enforcement, other than certain wind-down payments authorized by OFAC. By November 4, virtually all authorizations established under the JCPOA with respect to US sanctions will have been terminated.

90-day waiver of sanctions

The US may penalize transactions relating to the following activities after a 90-day wind-down period ending on August 6, 2018:

  • The purchase or acquisition of US dollar banknotes by the government of Iran
  • 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
  • Transactions involving Iran's trade in gold or precious metals
  • Transactions involving Iran's automotive sector

The re-imposition of dollar banknote sanctions on Iran is intended to further isolate Iran and put economic pressure on its government. Whether this will change anything in practice is subject to debate. This is because dollar-denominated transactions involving Iran were not per se prohibited under the JCPOA sanctions relief; however, USD-denominated transactions involving Iran remained effectively prohibited because US financial institutions remained prohibited from clearing them. In addition, Iran has taken steps to reduce its dependence on the dollar.

The restoration of sanctions on Iran's automotive sector is also presumably aimed at deterring investment in one of Iran's most active industries. Consistent with the JCPOA, a number of European automotive companies have sought to enter the Iranian market or have been reported to be in the process of doing so. However, these companies may now be subject to US sanctions for transacting in Iran's automotive sector.

In addition, the US will revoke the following authorizations after a 90-day wind down period, which ends on August 6, 2018:

  • The importation of Iranian-origin carpets and foodstuffs and related financial transactions, which had been authorized pursuant to 31 C.F.R. §§ 560.534 and 560.535
  • Activities authorized under any specific license issued under the favorable licensing policy concerning the export or re-export of commercial passenger aircraft to Iran
  • Activities under General License I, which authorized entry into contracts related to the export or re-export of commercial passenger aircraft to Iran, contingent upon the granting of licenses under the favorable licensing policy regarding commercial aviation

180-day waiver authority

The following activity will again be subject to sanctions after a 180-day wind-down period ending on November 4, 2018:

  • Transactions with port operators, and shipping and shipbuilding sectors, including the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, and their affiliates
  • Petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO) and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products or petrochemical products from Iran
  • Transactions by foreign financial institutions with the Central Bank of Iran (CBI) and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act (NDAA)
  • Provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions
  • Provision of underwriting services, insurance or reinsurance
  • Certain transactions involving Iran's energy sector

All of these sanctions, when re-imposed, will have significant impacts—both on Iran and on any non-Iranian parties engaged in activity targeted by the sanctions. Particularly noteworthy are the sanctions targeting Iran's financial backbone—in this case, the threat of sanctions on foreign financial institutions dealing with the CBI and other Iranian banks, and measures designed to ensure that Iran is severed from a connection with non-Iranian banks and the global financial system via SWIFT.

Activity pursuant to General License H must wind down prior to November 5, 2018. Following that date, non-US Persons that are owned or controlled by US Persons will be prohibited from engaging in transactions involving Iran pursuant to 31 CFR § 560.215.

At some point prior to November 4, 2018, the US will re-designate persons it had removed from the SDN List pursuant to the JCPOA. Most of these persons had been removed from the SDN List and identified on the List of Persons Blocked Solely Pursuant to Executive Order 13599 (the EO 13599 List) because they are part of the government of Iran or an Iranian financial institution. US Persons have always been required to block the property of these persons and are generally prohibited from dealing with them, but under the JCPOA relief, non-US Persons would not be subject to secondary sanctions for engaging in transactions with persons on the EO 13599 List. Pursuant to the JCPOA withdrawal, however, by November 5, 2018, OFAC will re-impose, as appropriate, the sanctions that applied to these persons.

Depending on the basis on which these re-designations are made, there may be secondary sanctions exposure for parties that engage in certain activities with these persons after their re-listing.

Specific guidance concerning payments connected with wind-down activities

If a non-US, non-Iranian person is owed payment after the conclusion of the applicable wind-down period, for goods or services fully provided or delivered to an Iranian counterparty prior to the applicable wind-down period, pursuant to a written agreement entered into prior to May 8, 2018, and such activities were consistent with US sanctions in effect at the time of delivery or provision, the non-US, non-Iranian person will be permitted to receive payment for those goods or services under the pre-May 8 agreement. This would also be the case in circumstances where a non-US, non-Iranian person is owed repayment by an Iranian counterparty.

These allowances are designed for non-US, non-Iranian parties to be fully compensated for debts and obligations owed to them for goods or services provided or loans or credit extended to an Iranian party prior to the end of the applicable wind-down period.

Any such payments would need to be consistent with US sanctions, including not involving US Persons or the US financial system, unless the transactions are exempt from regulation or authorized by OFAC.

Relationship of withdrawal to United Nations snapback process

United Nations Security Council Resolution (UNSCR) 2231 of July 20, 2015 terminated provisions of the resolutions comprising the UN sanctions regime against Iran.4 It provides for a "snapback" mechanism, which can be triggered by a JCPOA participant alleging significant nonperformance by Iran. Under that process, the United Nations Security Council must vote on whether to continue the terminations of the above-listed resolutions. The United States has veto power over UNSC resolutions. 

The unilateral withdrawal by the US from the JCPOA is not a "snapback." There is little clarity concerning what impact, if any, the US withdrawal may have on the snapback process.  At present, the JCPOA remains in force among the other signatories to the agreement, and UN sanctions against Iran remain suspended.

Conclusion

By effectively reversing course from US sanctions policy direction of the past three years, the Trump administration's withdrawal from the JCPOA and re-imposition of sanctions fundamentally changes the landscape under which a number of US and non-US firms have been operating with regard to Iran. Because most of the JCPOA relief pertained to secondary sanctions, the most significant impact is likely to be felt by non-US Persons, including foreign entities owned or controlled by US Persons, which conducted business with Iran under the JCPOA. US Persons conducting business pursuant to General License H, licenses issued in connection with commercial aviation or the general license for importation of certain foods and carpets will also be affected.

In short, OFAC has clearly stated its intention to enforce pre-JCPOA sanctions, and that persons engaged in activity involving Iran other than winding down JCPOA-authorized activity do so at their own peril.

Thus, any person, including non-US Persons, who may have business activity—or customers or counterparts who have business activity—involving Iran should promptly conduct a risk assessment and, where wind-down of such activity is warranted, begin that process.

Footnotes

1 Pursuant to 31 C.F.R. § 560.314, a "US Person" is defined as "any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States."

2. 2 "Frequently Asked Questions Regarding the Re-Imposition of Sanctions Pursuant to the May 8, 2018 National Security Presidential Memorandum Relating to the Joint Comprehensive Plan of Action (JCPOA)," OFAC (May 8, 2018), https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_winddown_faqs.pdf.

3 See FAQ 2.2 ("Prior to August 6, 2018 or November 4, 2018, as applicable, persons engaging in activity consistent with the US sanctions relief specified in the JCPOA should take steps necessary to wind down operations by that date to avoid exposure to sanctions or enforcement action when the applicable wind-down period ends. When considering a potential enforcement or sanctions action with respect to activities engaged in after August 6, 2018, or November 4, 2018, as applicable, OFAC will evaluate efforts and steps taken to wind down activities and will assess whether any new business was entered into involving Iran during the applicable wind-down period.")

4

  • UNSCR 1696 (2006) ordered that Iran suspend all enrichment-related and reprocessing activities including research and development, and called upon all member states to prevent the transfer of any items that could contribute to Iran's enrichment-related and reprocessing activities and ballistic missile programs.
  • UNSCR 1737 (2006) prohibited the supply of nuclear-related technology and materials to Iran and froze the assets of key individuals and entities related to Iran's enrichment program.
  • UNSCR 1747 (2007) imposed nuclear-related, military and financial sanctions on Iran.
  • UNSCR 1803 (2008) imposed travel-related sanctions on individuals who are engaged in, directly associated with or providing support for Iran's nuclear activities, and expanded military and financial sanctions against Iran.
  • UNSCR 1929 (2010) expanded military-related sanctions against Iran, including prohibiting member states from providing Iran with eight categories of military equipment, called upon member states to exercise vigilance over those transactions involving Iran entities that could contribute to Iran's nuclear activities and established a UN "Panel of Experts" to monitor the implementation of sanctions by member states.
  • UNSCR 2224 (2015) extended the mandate of the UN "Panel of Experts.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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
Events from this Firm
29 Aug 2018, Conference, Cape Town, South Africa

Dentons is proud to sponsor and present at Africa's most comprehensive event on audit, risk and governance.

29 Aug 2018, Other, San Jose, Costa Rica

Costa Rica will host the Cyberspace Camp® for the first time, a bootcamp that combines law and technology at the hands of ITechLaw.

Similar Articles
Relevancy Powered by MondaqAI
Sheppard Mullin Richter & Hampton
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Sheppard Mullin Richter & Hampton
Related Articles
 
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 (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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