Trade Compliance Flash: U.S. Government to Reimpose Sanctions on Iran Following Withdrawal from Nuclear Deal

International Alert
05.09.2018

On May 8, 2018, President Trump announced the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA) and issued a Presidential Memorandum ordering the U.S. government to begin the process of reimposing all sanctions against Iran that had been suspended since implementation of the JCPOA on January 16, 2016 (Implementation Day). Though no new or previously lifted sanctions became effective concurrently with the president's announcement, guidance issued by the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) makes clear that sanctions will be reactivated, and licenses issued on or after Implementation Day revoked, on or before August 7 or November 5, 2018 (depending upon the length of the applicable "wind down period").

Entities that took advantage of the lifted sanctions and do not take steps to wind down activities prohibited by the reactivated sanctions will run the risk of exposure to sanctions or enforcement actions. It is unclear, however, how vigorously the United States will enforce secondary sanctions against non-U.S. persons who continue to engage in prohibited business with Iran following the wind down periods. Historically, secondary sanctions regimes have led non-U.S. entities to modify their behavior without the U.S. government exercising its rights to impose secondary sanctions on individual parties. The potential for non-U.S. governments to implement blocking statutes which prohibit their citizens from complying with the U.S. sanctions may also complicate matters. Given the open questions of the international response to the withdrawal, as well as the potential for conflicts between U.S. and foreign laws, both U.S. and non-U.S. entities seeking to respond to the reactivation of the U.S. sanctions on Iran will benefit from closely following any applicable U.S. and foreign government guidance during the wind down periods leading up to the reactivation dates.

JCPOA Sanctions Relief Affected by the May 8 Announcement

The sanctions lifted on Implementation Day – and now soon to be reimposed as a result of the May 8 announcement – included both "primary" and "secondary" sanctions administered by OFAC and the U.S. Department of State.

Primary sanctions relief (which allowed U.S. persons to participate in certain previously prohibited activities) took the form of general licenses allowing transactions relating to Iranian-origin foodstuffs and carpets, including certain related financing and brokering transactions; certain transactions related to contingent contracts for the export, re-export, sale, lease, or transfer to Iran of commercial passenger aircraft and parts and components for exclusively civil aviation end-use, as well as associated services (General License I); and certain transactions involving U.S. owned or controlled foreign entities (General License H), as well as a favorable licensing policy related to commercial passenger aircraft transactions.

Secondary sanctions relief included waiver of various sanctions targeting non-U.S. persons engaged in transactions related to the Iranian energy, petrochemical, shipping, shipbuilding, port services, automotive and financial, banking and insurance sectors, as well as sanctions related to trade in gold, precious metals and certain raw or semi-finished metals, and software. The secondary sanctions relief also included transfer of over 400 individuals, entities, and vessels from the List of Specially Designated Nationals and Blocked Persons (SDN List), the List of Foreign Sanctions Evaders and/or the Non-SDN Iran Sanctions Act List and creation of the "List of Persons Identified as Blocked Solely Pursuant to Executive Order 13599 (the "13599 List").

Immediate Consequences of the May 8 Announcement

On the primary sanctions front, OFAC immediately terminated its Statement of Licensing Policy (SLP) for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services. No new license applications will be accepted under this policy and all pending applications will be returned without action (although OFAC will continue to consider applications under the safety of flight statement of licensing policy found in 31 C.F.R. § 560.528). Termination of all other primary sanctions relief will be subject to wind down periods, as discussed below.

On the secondary sanctions front, all waivers of secondary sanctions issued on or after Implementation Day were revoked and replaced with waivers to provide for the applicable wind down periods, as discussed below.

Sanctions Relief Scheduled to End by August 6, 2018

Primary sanctions to be reimposed following a 90-day wind down period ending on August 6, 2018 will result from revocation of the following general and specific licenses:

  • The general license authorizing importation of Iranian-origin carpets and foodstuffs into the United States and related financial transactions (which will be removed from 31 C.F.R. part 560);
  • Specific licenses issued under the now revoked SLP; and
  • General License I.

"As soon as administratively feasible," OFAC intends to replace the affected general licenses with a more narrowly scoped authorization restricted to the winding down of activities previously undertaken under the general licenses. Wind down activities and receipt of payments under contracts or agreements entered into prior to May 8 must be completed by the end of the wind down period.

Secondary sanctions to be reimposed after a 90-day wind down period ending on August 6, 2018 are sanctions on the following activities and associated services:

  • Acquisition of U.S. dollars by the government of Iran;
  • Iran's trade in precious metals;
  • 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;
  • Purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
  • Certain activities involving Iran's automotive sector.

To the extent necessary, reimposition of these secondary sanctions will involve reinstating provisions of executive orders that were revoked on Implementation Day. OFAC guidance makes it clear that receipt of payments or repayment of loans or credits by non-U.S., non-Iranian persons under contracts entered into prior to May 8, 2018 after the expiration of the wind down period will not attract sanctions so long as neither U.S. persons nor the U.S. financial system are involved.

Sanctions Relief Scheduled to End by November 4, 2018

Primary sanctions to be reimposed following a 180-day wind down period ending on November 4, 2018 will result from revocation of General License H. "As soon as administratively feasible," OFAC intends to replace General License H with a more narrowly scoped authorization restricted to winding down activities previously undertaken under the General License. Wind down activities and receipt of payments under contracts or agreements entered into prior to May 8 must be completed by the end of the wind down period. As a result of these actions, U.S. owned or controlled foreign entities again will be subject to the comprehensive U.S. embargo on trade with Iran.

Secondary sanctions to be reimposed after a 180-day wind down period ending on November 4, 2018 are the following sanctions and associated services:

  • Sanctions on Iran's port operators and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, or their affiliates;
  • Sanctions on 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;
  • Sanctions on transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA);
  • Sanctions on the provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010 (CISADA);
  • Sanctions on the provision of underwriting services, insurance, or reinsurance; and
  • Sanctions on Iran's energy sector.

To the extent necessary, reimposition of these secondary sanctions will involve reinstating provisions of executive orders that were revoked on Implementation Day. OFAC guidance makes it clear that receipt of payments or repayment of loans or credits by non-U.S., non-Iranian persons under contracts entered into prior to May 8, 2018 after the expiration of the wind down period will not attract sanctions so long as neither U.S. persons nor the U.S. financial system are involved.

In addition, as appropriate, secondary sanctions for activities involving persons and vessels previously removed from the SDN List and other U.S. government lists on Implementation Day will be reinstated. This will include transfer of persons meeting the definitions of "Government of Iran" or "Iranian financial institution" from the 13599 List to the SDN List, no later than November 5, 2018.

Finally, the OFAC guidance states that, following the 180-day wind down period, the State Department will evaluate requests from countries for exceptions from the NDAA sanctions. The guidance makes clear that "the State Department intends to consider relevant evidence in assessing each country's efforts to reduce the volume of crude oil imported from Iran during the 180-day wind down period, including the quantity and percentage of the reduction in purchase of Iranian crude oil, the termination of contracts for future delivery of Iranian crude oil, and other actions that demonstrate a commitment to decrease substantially such purchases." The guidance also indicates that the State Department expects to engage in consultations with countries currently purchasing Iranian crude oil during the wind down period.

Compliance and Risk Management Implications

The OFAC guidance encourages both U.S. and non-U.S. persons engaging in transactions that will be affected by the reimposition of sanctions to begin taking the steps necessary to wind down such transactions within the applicable wind down periods. Although the guidance stops short of prohibiting new activity under the existing general licenses or waivers, the guidance does state that when considering a potential enforcement action in connection with activities engaged in following the applicable wind down period, OFAC intends to "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."

OFAC also signaled its intent to continue to aggressively target persons who engage in any sanctionable activity, regardless of whether the activity was the subject of Implementation Day relief – including activities related to Iran's support for terrorism, its ballistic missile program, human rights abuses, and destabilizing activity in the Middle East. To this end, the OFAC guidance included a recommendation that any person conducting wind down activities conduct due diligence "sufficient to ensure that it is not knowingly engaging in transactions with persons on the SDN List or in activities that would be sanctionable under authorities targeting Iran's malign activities."

Political Uncertainty will have a Significant Impact on Non-U.S. Persons

Though the May 8 developments have established the expectation that non-U.S. persons may face secondary sanctions, the reaction of European nations and other foreign governments suggests that there is potential for future conflict with these competing legal regimes and their respective policy makers. In a joint statement issued by the United Kingdom, France, and Germany, the leaders of those nations emphasized their continuing commitment to the JCPOA and urged the United States "to ensure that the structures of the JCPOA can remain intact, and to avoid taking action which obstructs its full implementation by all other parties to the deal." The leaders similarly urged Iran to "show restraint" in response to the U.S. withdrawal and emphasized that "Iran should continue to receive the sanctions relief it is entitled to whilst it remains in compliance with the terms of the deal." In this context, it will be critical to observe the reaction from the other signatories to the JCPOA (the P5+1) and the international community more broadly. European, Middle Eastern, and Asian nations whose domestic companies have taken advantage of the terms of the JCPOA to re-enter the Iranian market may decide to enforce blocking statutes and regulations which could prevent their own companies from complying with the terms of the reactivated U.S. sanctions. If non-U.S. persons operating in these countries are faced with the choice between adhering to their own domestic laws and those of the United States, they may face difficult decisions regarding which laws present the greater risks and which laws they will ultimately choose to follow.


For more information, please contact any lawyer in our Export Controls & Economic Sanctions practice.


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