Trade Compliance Flash: United States Issues "Last Chance" Waiver of Iran Sanctions and Steps Up Sanctions Against Iranian Weapons Proliferators and Human Rights Abusers
On Friday, January 12, 2018, President Trump waived secondary sanctions against Iran for a further 120 days, providing a "last chance" for U.S. allies to agree to "fix the terrible flaws" of the Joint Comprehensive Plan of Action (JCPOA). In a statement issued by the White House regarding the waiver, the president also challenged Congress to pass acceptable Iran sanctions legislation. Simultaneously, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) announced the designation of 14 entities and individuals under existing executive orders that target human rights abuses, censorship, and proliferation of weapons of mass destruction (WMD). Friday's actions and statements have implications for the future of the JCPOA, the future of Iran sanctions more broadly, and the evolving compliance challenges that U.S. and non-U.S. companies face with respect to U.S. primary and secondary sanctions against Iran.
The Future of the JCPOA and Multilateral Iran Sanctions
The president's statement challenges U.S. allies not only to join the United States in strengthening the JCPOA but also to impose measures targeting the Islamic Revolutionary Guard Corps and Hezbollah, as well as Iran's ballistic missile program, cyber threats, and human rights abuses. The other parties to the JCPOA—China, France, Germany, Russia, and the United Kingdom—have rejected the president's prior calls to renegotiate the deal and it remains to be seen whether the "last chance" ultimatum will bring the parties together or drive them further apart. Although it is within the president's power to decline to issue further waivers, such a decision would carry risks. If the United States proceeds unilaterally, there is a risk that countries, particularly members of the European Union who have embraced the JCPOA, will take action under "blocking statutes" that would effectively prohibit persons subject to their jurisdiction from complying with U.S. secondary sanctions. However, even if the other parties to the JCPOA are able to reach agreement with the administration on a stronger deal, congressional interest in Iran remains high and the possibility that the administration and Congress may not reach agreement on new Iran sanctions legislation gives rise to additional uncertainty regarding both the future of the JCPOA and the future of Iran sanctions, as discussed below.
In the meantime, businesses that re-entered the Iranian market in the wake of the JCPOA or are considering doing so in the future face another four months of uncertainty and related compliance challenges. For more information on JCPOA-related compliance challenges, see our previously published articles here and here.
The Future of U.S.-Iran Sanctions
Although the 60-day period established by the U.S. Iran Nuclear Review Act of 2015 (INARA) during which Congress could have considered legislation reinstating secondary sanctions with respect to Iran on an expedited basis has expired, discussions between Congress and the administration have been ongoing since the president's refusal to certify Iran's compliance with the JCPOA pursuant to INARA with a goal of achieving a bipartisan legislative approach that would amend the JCPOA consistent with the president's Iran strategy.
In a statement issued by the White House regarding the waiver, the president challenged Congress to pass acceptable Iran sanctions legislation. He outlined four "critical components" that would have to be met by any new legislation:
- Require Iran to allow "immediate inspections" at all sites upon request by international inspectors;
- Ensure that Iran does not "even come close" to possessing a nuclear weapon;
- Severe sanctions for Iran's long-range missile programs; and
- No expiration date—the sanctions must remain in place "forever."
Failure of Iran to comply with these critical conditions would result in "automatic resumption" of U.S. nuclear sanctions (i.e., the secondary sanctions waived under the JCPOA). However, as Congress and the president currently are at odds over a number of issues, prospects for achieving a bipartisan solution that meets the president's criteria remain uncertain.
The New Designations – Implications for Compliance
The new designations stopped short of reimposing sanctions on entities or individuals removed from OFAC's List of Specially Designated Nationals and Blocked Persons (SDN List) upon implementation of the JCPOA two years ago. Rather, the designations include individuals and entities in Iran who have been responsible for human rights abuses and censorship in Iran and individuals and entities in Iran, China, and Malaysia that are affiliated with or have provided support for entities previously designated for involvement in Iran's proliferation of WMDs. Designation of the non-Iranian individuals and entities highlights the risks that non-U.S. persons face if they provide support for persons on the SDN List, including by supplying diverted U.S. origin goods and technology. The list of items supplied to Iran by these entities includes radars, military electronics, avionics and control systems, gyrocompasses, training simulators, test equipment, lead zirconium tritanate (PZT) items, and missile guidance technology. As Friday's actions demonstrate, OFAC is closely scrutinizing Iran's WMD supply chain. Consequently, those companies—both U.S. and non-U.S. —who manufacture and supply such items or their parts and components should re-examine their existing compliance programs, with particular emphasis placed on "know your customer" due diligence to ensure that they are not selling such items to persons who present an unacceptable diversion risk with respect to Iran.
For more information please contact:
Barbara D. Linney*
*Former Miller & Chevalier attorney
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