Introduction

On July 14, 2015, the United States, Russia, China, France, the United Kingdom, Germany (the “P5+1”), and the European Union announced that they reached a landmark agreement with the Republic of Iran titled, the Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program (the “JCPOA”). The JCPOA is intended to significantly restrict Iran’s ability to develop and produce nuclear weapons for at least 10 years, limiting its nuclear program to peaceful uses.

Timeline

According to media reports, the United States will introduce a resolution before the United Nations Security Council (“Security Council”) as early as next week for adoption “without delay.” Under the terms of the Iran Nuclear Agreement Review Act passed in May, Congress will have 60 days to review the JCPOA. Congress cannot block implementation of the JCPOA, but can strive to prevent President Obama from lifting certain sanctions against Iran. President Obama has already suggested he would veto any such attempt. Upon endorsement by the Security Council, Iran and the International Atomic Energy Agency (“IAEA”) will begin making arrangements to implement all transparency measures provided for in the JCPOA, so that they are fully developed in advance of “Implementation Day.” “Adoption Day” will occur ninety days after the Security Council endorses the JCPOA (or earlier by mutual consent of the parties).

After Adoption Day, all parties to the JCPOA will begin making the necessary arrangements to prepare for meeting their commitments. Iran will implement the transparency protocols relating to its nuclear program that it develops in conjunction with the IAEA. The European Union will enact regulations suspending or terminating certain nuclear-related sanctions against Iran, and President Obama will issue sanctions waivers, both to take effect on Implementation Day. Implementation Day will occur upon verification by the IAEA that Iran has met its nuclear-related commitments under the JCPOA. Until Implementation Day – which is not expected to occur until early 2016 – Iran will receive no sanctions relief from the UN, U.S., or the EU. In the interim, the P5+1 agreed to extend the limited Iran-related sanctions relief provided for in the Joint Plan of Action (“JPOA”) of November 24, 2013 through Implementation Day. Accordingly, for now the current sanctions regime remains in place.

Sanctions Relief

On Implementation Day, EU mechanisms for suspension or termination, and U.S. waivers of certain sanctions against Iran, set forth in Annex II to the JCPOA, will go into effect. At the same time, the UN will terminate its sanctions against Iran subject to a 65 day “snapback” mechanism, whereby sanctions can be reinstated against Iran in the event of its non-compliance with the JCPOA.

Annex II of the JCPOA provides that, on Implementation Day, the U.S. will provide relief with respect to sanctions concerning specific activities of non-U.S. persons not otherwise subject to U.S. jurisdiction. Such relief will come in the following areas:

(1) Financial and banking measures;

(2) Insurance measures;

(3) Energy and petrochemical sectors;

(4) Shipping, shipbuilding and port sectors;

(5) Gold and precious metals;

(6) Supply to Iran of software and metals;

(7) Iranian automotive sector;

(8) Delisting of Iranian parties as Specially Designated Nationals and other sanctions listings; and

(9) Nuclear proliferation measures.

The Iranian Transactions and Sanctions Regulations (“ITSR”) will remain in effect, which prohibits U.S. persons, and entities owned or controlled by U.S. persons, from engaging in most transactions with Iran. Moreover, relief under the JCPOA applies only to U.S. sanctions imposed to address nuclear proliferation, not sanctions related to human rights abuses or terrorism. Iran will remain locked out of the U.S. banking system and the existing ban on arms sales will remain in effect.

“Transition Day” will occur eight years after Adoption Day, or earlier upon a report from the IAEA that it has reached a conclusion that all nuclear material in Iran is being used for peaceful activities. As of Transition Day, the EU will terminate all remaining sanctions against Iran, and the U.S. will terminate or modify the previously waived sanctions listed in Annex II to the JCPOA, including seeking any necessary legislative changes.

Conclusion

In spite of the landmark agreement between Iran and the P5+1, Iran will receive no additional relief from the UN, U.S. or EU sanctions until Implementation Day, which is expected to take place in early 2016. The Office of Foreign Asset Control (“OFAC”) announced that it will provide substantive guidance in advance of Implementation Day. We will issue a further client alert once such information becomes available.

If you have any questions or concerns about U.S. sanctions against Iran, please contact Bruce G. Paulsen (212-574-1533) or Michael W. Broz (212-574-1272) at Seward & Kissel.