On January 16 (“Implementation Day”), the United States joined the European Union (“EU”) and the United Nations (“UN”) in lifting a significant number of their nuclear-related sanctions on Iran following the announcement this weekend by the International Atomic Energy Agency (“IAEA”)1 that Iran had “carried out all measures” required under the Joint Comprehensive Plan of Action Regarding the Islamic Republic of Iran’s Nuclear Program (the “JCPOA”).2
U.S. Sanctions Have Not Been Lifted For U.S. Persons
It is important to note that, with the exception of certain limited categories described below, U.S. sanctions have not been lifted with respect to U.S. persons, meaning (i) entities organized under U.S. law and their foreign branches, (ii) U.S. nationals and U.S. lawful permanent residents (wherever located), and (iii) any person, regardless of nationality, located in the U.S. These sanctions, commonly known as “primary sanctions”, have not been lifted because they were imposed for anti-terrorism and human rights reasons, not as a result of Iran’s nuclear program. Accordingly, U.S. persons remain broadly prohibited from dealings or transactions with Iran and the Government of Iran.
U.S. persons must continue to block the property of all individuals and entities that meet the definition of the Government of Iran or an Iranian financial institution, including but not limited to those expressly listed in Executive Order 13599.
The U.S. domestic trade embargo against Iran remains in place, which means that absent express authorization from OFAC, U.S. persons are prohibited from engaging in transactions involving Iran or Iranian-origin products. However, implementation of the JCPOA does bring small areas of relief to U.S. persons. Specifically, the U.S. has issued licenses permitting U.S. persons to engage in certain limited transactions with Iran for: (1) the export, reexport, sale, lease or transfer of commercial passenger aircraft and related parts and services to Iran for exclusively civil, commercial passenger aviation end-use;3 and (2) the importation into the U.S. of Iranian-origin carpets and foodstuffs, including pistachios and caviar.
Sanctions Eased for Foreign Subsidiaries of U.S. Persons
One of the most significant developments flowing from implementation of the JCPOA is OFAC General License H, which permits non-U.S. entities that are owned or controlled by a U.S. person to engage in activities that are consistent with the JCPOA and applicable U.S. laws and regulations.
While General License H is a welcome development for U.S. companies with foreign affiliates, they must carefully consider the scope of the license and several important limitations in it. U.S. persons continue to be prohibited from facilitating Iran-related transactions using foreign entities they own or control.4 General License H does not permit (i) exports or reexports of goods, technology, or services from the U.S. or by U.S. persons to Iran that are prohibited under Section 560.204 of the Iranian Transactions and Sanctions Regulations (“ITSR”); (ii) transfer of funds to, from or through the U.S. financial system, generally including U.S. dollar trade involving non-U.S. banks; (iii) dealings with parties on the Office of Foreign Asset Control’s (“OFAC”) List of Specially Designated Nationals (“SDN List”), Foreign Sanctions Evaders List (“FSE List”), and Non-SDN Iran Sanctions Act List (together, the “OFAC Lists”); (iv) activities involving items subject to the Export Administration Regulations (“EAR”) that are prohibited or require a license under the EAR; and (v) transactions involving any military, law enforcement or similar entity, person or affiliate of the Government of Iran. OFAC has also provided guidance on the scope of General License H as it relates to the shipping of U.S. origin goods to Iran or the Government of Iran.
Nuclear-Related Secondary Sanctions
The U.S. government has lifted5 nuclear-related “secondary sanctions” described in the JCPOA and in our previous client alerts. Secondary sanctions are those generally directed toward non-U.S. persons for conduct involving Iran, but taking place outside of U.S. jurisdiction, and that does not involve U.S. persons.
The sanctions lifted by the U.S. government relate to the financial, banking, energy, petrochemical, shipping, shipbuilding, and automotive sections, Iran’s port operators, the provision of insurance, re-insurance and underwriting services in connection with activities that are consistent with the JCPOA, Iran’s trade in gold and other precious metals, trade with Iran in graphite, raw or semi-finished metals such as aluminum and steel, coal, and certain software in connection with activities that are consistent with the JCPOA.
The U.S. government also removed certain individuals and entities from the OFAC Lists.6
The specific secondary sanctions lifted by the U.S. government with respect to Iran are summarized as follows:
Financial and Banking Measures
Non-U.S. persons are no longer prohibited from entering into transactions with certain persons or entities previously identified as the “Government of Iran” including the Central Bank of Iran, the National Iranian Oil Company (“NIOC”), the Naftiran Intertrade Company (“NICO”), and the National Iranian Tanker Company (“NITC”), along with other specified individuals and entities removed from the OFAC Lists on Implementation Day. It is no longer sanctionable for non-U.S. persons to engage in transactions involving the Iranian rial, maintaining funds or accounts outside of Iran denominated in Iranian rials, or to provide U.S. bank notes to the Government of Iran. Moreover, Non-U.S. persons may engage in transactions in Iranian sovereign debt, including government bonds, and may provide specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions.
Insurance Measures
It is no longer sanctionable for non-U.S. persons to provide underwriting services, insurance, or re-insurance in connection with activities consistent with the JCPOA.
Energy and Petrochemical Sectors
Non-U.S. persons are no longer prohibited from investing in Iran’s oil, gas, and petrochemical sectors, nor are they prohibited from purchasing, acquiring, selling, transporting, or marketing petroleum, petrochemical products, or natural gas from Iran. The export, sale, or provision of refined petroleum products and petrochemical products by non-U.S. persons is no longer sanctionable. Finally, non-U.S. persons are no longer prohibited from engaging in transactions with Iran’s energy sector including NIOC, NICO and NITC.
Shipping, Shipbuilding and Port Sectors
Non-U.S. persons are no longer prohibited from engaging in transactions with Iran’s shipping and shipbuilding sectors and port operators, including IRISL, South Shipping Line, and NITC, and the port operator(s) of Bandar Abbas.
Gold and Precious Metals
Non-U.S. persons are no longer prohibited from engaging in transactions with respect to Iran’s trade in gold and other precious metals.
Supply to Iran of Software and Metals
Non-U.S. persons are no longer prohibited from trading with Iran in graphite, raw or semi-finished metals such as aluminum and steel, coal and software for integrating industrial processes, in connection with activities consistent with the JCPOA.
Iranian Automotive Sector
Non-U.S. persons are no longer prohibited from engaging in transactions including the sale, supply, or transfer of goods or services used in connection with Iran’s automotive sector.
Conclusion
The JCPOA is a landmark agreement which has resulted in unprecedented relief for Iran from UN, U.S., and EU sanctions, reopening many business opportunities with Iran for non-U.S. persons. Nevertheless, the U.S. sanctions regime remains nearly unchanged with respect to U.S. persons and the prohibitions against them doing business with Iran.
The modifications to the U.S. sanctions regime summarized in this memorandum are very complex, and anybody contemplating doing business with Iran that was previously sanctionable should seek further advice and information before altering existing business practices. If you have any questions or concerns about recent changes to the U.S. sanctions regime, or any other U.S. sanctions against Iran, please contact Bruce G. Paulsen (212-574-1533), Benay L. Josselson (212-574-1455) or Michael W. Broz (212-574-1272) at Seward & Kissel.
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1 IAEA Director General’s Statement on Iran, International Atomic Energy Agency.
2 In July 2015, the United States, Russia, China, France, the United Kingdom, Germany (the “P5+1”), and the EU announced the JCPOA, a landmark agreement with the Republic of Iran, under which each party was required to complete a number of tasks according to a specific timeline, after which the U.S., EU and UN would lift certain sanctions against Iran. For further information about the JCPOA, please see our previous client alerts of July 16, 2015 and November 5, 2015.
3 OFAC has indicated that “wide-body, narrow-body, regional, and commuter aircraft used for commercial passenger aviation” are eligible for licensing, but “cargo aircraft, state aircraft, unmanned aerial vehicles, military aircraft, and aircraft used for general aviation or aerial work” are not. OFAC has also explained that U.S. persons who receive OFAC authorization under this license do not need a separate license from the Department of Commerce, and that it will consider applications from U.S. financial institutions to finance a specific sale transaction of commercial passenger aircraft to Iran.
4 Pursuant to Section 560.125 of the Iranian Transactions and Sanctions Regulations, an entity established or maintained outside the United States is “owned or controlled” by a U.S. person if the U.S. person: (1) holds a 50 percent or greater equity interest by vote or value in the entity; (2) holds a majority of seats on the board of directors of the entity; or (3) otherwise controls the actions, policies, or personnel decisions of the entity.
5 OFAC uses the word “lifted” in the guidance it has issued, but the U.S. sanctions prohibiting certain conduct that is now permitted under the JCPOA have not actually been repealed or permanently terminated at this time as the word suggests. Rather, the U.S. government has implemented changes to the sanctions regime as referenced in this memorandum by: (1) issuing waivers of certain statutory sanctions provisions; (2) committing to refrain from exercising certain discretionary sanctions authorities; (3) removing certain individuals and entities from OFAC’s sanctions lists; and (4) revoking certain Executive orders and specified sections of Executive orders. These sanctions will not be permanently “lifted” until “Transition Day,” set to on October 20, 2023, 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.
6 See a list of those Iranian persons and entities removed from the OFAC Lists.
