Iran Nuclear Deal: Adoption Day Brings Key Developments But No Immediate Sanctions Relief

International Alert

The Iran nuclear deal took effect on Sunday, October 18, 2015. Dubbed "Adoption Day" in the Joint Comprehensive Plan of Action inked on July 14, 2015 (the "JCPOA"), Sunday marked the kick-off of arrangements and preparations to be undertaken by the parties in anticipation of "Implementation Day" -- i.e., the date on which the International Atomic Energy Agency (IAEA) verifies implementation by Iran of its nuclear-related commitments and sanctions relief begins.

In the United States, Adoption Day saw the issuance of a Presidential Memorandum directing the Secretaries of State, Treasury, Commerce and Energy to take all necessary steps to give effect to the U.S. commitments under the JCPOA. In addition, the Secretary of State issued contingent waivers of various statutory sanctions that will not become effective until Implementation Day.

Sanctions subject to the waivers are certain "secondary" sanctions against non-U.S. persons under various provisions of the Iran Sanctions Act of 1996 (as amended); the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010; the National Defense Authorization Act for FY 2012; the Iran Threat Reduction Act of 2012; and the Iran Freedom and Counter-Proliferation Act of 2012, which affect activities in the Iranian energy, petrochemical, shipping, shipbuilding, port services, automotive and financial, banking and insurance sectors. Secondary sanctions relief also will include termination of certain Executive Orders on Implementation Day (including E.O. 13590, which authorized sanctions with respect to provision of support for Iran's energy and petrochemical sectors).

Details of relief for U.S. persons from the "primary" U.S. embargo against trade with Iran will be issued by the Office of Foreign Asset Controls (OFAC) closer to Implementation Day, but are expected to include general licenses authorizing imports of Iranian-origin carpets and foodstuffs, and implementation of a favorable licensing policy for exports of commercial passenger aircraft and related parts and services to Iran for exclusively civil aviation end-use. Related controls on re-export of such items also will be eased. All such licenses, will, however, exclude activities or re-exports involving Specially Designated Nationals (SDNs). Thus, even after Implementation Day, the U.S. embargo affecting activities of U.S. persons will remain largely in place, and OFAC has signaled its intention to continue vigorous enforcement of the implementing regulations.

What remains unclear is the extent to which Implementation Day will bring new opportunities for foreign entities owned or controlled by U.S. persons. OFAC has stated its intention to implement sanctions relief for such entities by issuing a general license, but the scope of the intended relief has not been released. Current regulations already contain a general license authorizing foreign entities owned or controlled by U.S. persons to avail themselves of existing general licenses authorizing certain activities by U.S. persons, so it seems likely that the new general licenses for importation of carpets and foodstuffs will extend to such entities. Likewise, it is reasonable to assume that the favorable licensing policy for civil passenger aviation activities will benefit such entities.

Less clear is the extent to which "secondary" sanctions relief applicable to other non-U.S. persons will apply to foreign entities owned or controlled by U.S. persons. Although the JCPOA contained a U.S. commitment to license non-U.S. entities that are owned or controlled by a U.S. person to engage in activities that are consistent with the JCPOA, the JCPOA also provided that U.S.-owned or -controlled foreign entities will continue to be generally prohibited from conducting transactions of the type permitted pursuant to the JCPOA, unless authorized to do so by OFAC. The contingent waivers issued on Adoption Day explicitly contain similar provisions, but OFAC has not yet issued any formal indication of its intention to issue such authorizations. Even if such authorizations are issued, however, it must be noted that the secondary sanctions waivers are subject to a number of limitations, and most do not cover activities involving persons on the U.S. SDN List. While the JCPOA recites that the United States will "delist" many SDNs for the purposes of implementing the promised secondary sanctions relief, delisted entities falling within the definition of "Government of Iran" in OFAC's Iranian Transactions and Sanctions Regulations will remain subject to the primary U.S. embargo and off-limits for transactions with U.S. persons. Whether non-U.S. entities owned or controlled by them will be subject to the same limitations is not yet known. What is clear, however, is that OFAC intends to maintain the prohibition against U.S. person facilitation of activities by non-US persons that would be impermissible if undertaken by U.S. persons. This will create new risks for U.S. persons if their non-U.S. owned or controlled entities are granted authorizations that exceed the scope of authorizations applicable to U.S. persons.

The European Union actions on Adoption Day provided much greater clarity for E.U. persons contemplating re-engagement with Iran. The E.U. Adoption day measures also emphasized the wide discrepancy between the scope of sanctions relief for U.S. persons and their owned and controlled foreign entities, on the one hand, and the new opportunities that will be available to E.U. persons, on the other hand. The Council Decision and Regulations issued on Adoption Day, with effect from Implementation Day, provide for the removal of most E.U. Iran nuclear-proliferation sanctions, as well as a precise picture of the prohibitions and licensing requirements that will remain, particularly in connection with nuclear and military activities. The E.U. sanctions targeting human rights violations in Iran, which were not subject to the E.U.'s JCPOA commitments, also remain in place, although these are limited to assets freezes and travel bans applicable to listed persons only, and prohibitions on the sales of certain carcinogenic or harmful substances and equipment that might be used for internal repression in Iran. Thus, Implementation Day will bring reinstatement of a wide discrepancy between U.S. and E.U. policies towards trade with Iran.

Should the requisite IAEA approvals occur, both EU and U.S. sanctions relief will begin on Implementation Day. However, unlike their EU counterparts, U.S. persons are unable to enter into executory contracts regarding post-Implementation Day activities, and indications are that OFAC will not be sympathetic to applications for licenses authorizing such contracts. This puts U.S. persons at a significant disadvantage as compared to their E.U. counterparts, even with respect to activities that are expected to be authorized following Implementation Day.

There is no date certain for Implementation Day, so it may be some time (perhaps six to nine months, according to the latest U.S. government estimates) before Implementation Day happens. However, even on Implementation Day the sanctions will be suspended, not terminated, and other provisions of the JCPOA allow certain sanctions to "snap back" or be reinstated if Iran does not live up to its obligations under the JCPOA. Permanent sanctions relief will not come until "Transition Day" -- i.e., eight years after Adoption Day or upon a favorable IAEA report regarding Iran's pursuit of only peaceful nuclear activities. This means that those who take advantage of sanctions relief on Implementation Day will bear the risk of reinstatement of sanctions for a considerable period of time. Furthermore, the U.S. government has indicated that contracts entered into during the period of sanctions relief will not be grandfathered if snapback occurs. Of course, in addition to the possibility of snapback, those re-entering the Iranian market must also carefully manage a host of other risks, including anti-corruption risks, lack of transparency and terrorism.

Finally, an additional word of caution for companies with multilateral operations -- only China, the European Union, France, Germany, Russia, the United Kingdom and the United States participated in the discussions leading up to the JCPOA, and only the European Union and the United States made sanctions commitments, although pursuant to a July 20, 2015 resolution of the UN Security Council (UNSC), Implementation Day will bring termination of certain UNSC resolutions, subject to "snapback" and certain remaining restrictions on the transfer of proliferation sensitive goods. However, in recent years many other countries have implemented unilateral sanctions against Iran, and while some (Switzerland, for example) are expected to follow the JCPOA lead, others, like Canada, are not. Multilateral companies contemplating doing business in Iran must therefore ensure that the entities, personnel and goods, services and technology and financial transactions involved in their operations are in compliance with a variety of potentially applicable sanctions regimes.

For more information, please contact:

Barbara D. Linney,, 202-626-5806

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