As discussed in our May 8 Client Alert, effective May 8, 2018, the President announced his decision to cease the United States’ participation in the Joint Comprehensive Plan of Action (JCPOA) and to begin re-imposing the U.S. nuclear-related sanctions that were lifted to effectuate the JCPOA sanctions relief, following a wind-down period. The first wind-down period is fast approaching, ending on August 6, 2018.
Pursuant to the President’s directive of May 8, 2018, the U.S. Departments of State and of the Treasury established wind-down periods for certain activities involving Iran: a 90-day wind-down period ending on August 6, 2018 (which relates to, for example, certain financial services and industrial activities) and a 180-day wind-down period ending on November 4, 2018 (which relates to, for example, certain shipping, banking, and insurance activities). The U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”) has reported that following November 4, 2018, it expects that all U.S. nuclear-related sanctions that had been lifted under the JCPOA will be re-imposed and in full effect.
OFAC has advised that persons engaging in activity undertaken pursuant to the sanctions relief in the JCPOA should take necessary steps to wind down those activities prior to the deadlines of August 6, 2018 or November 4, 2018, as applicable, to avoid exposure to sanctions or potential enforcement action. As the 90-day wind-down period approaches, clients should take note that certain sanctions will be re-imposed, including upon:
- The purchase or acquisition of U.S. dollar banknotes by the Government of Iran;
- Iran’s trade in gold or precious metals;
- The 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;
- The purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
- Iran’s automotive sector.
Additionally, following the 90-day wind-down period ending August 6, 2018, the U.S. government will revoke the following JCPOA-related authorizations:
- The importation into the U.S. of Iranian-origin carpets and foodstuffs and certain related financial transactions pursuant to general licenses under the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR);
- Activities undertaken pursuant to specific licenses issued in connection with the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (JCPOA SLP); and
- Activities undertaken pursuant to General License I relating to contingent contracts for activities eligible for authorization under the JCPOA SLP.
Further, sanctions will be re-imposed on the following after the 180-day wind-down period ends on November 4, 2018:
- 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;
- 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;
- 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);
- 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);
- Provision of underwriting services, insurance, or reinsurance; and
- Iran’s energy sector.
OFAC has provided guidance on activities permitted during the wind-down period. For example, OFAC guidance states that payment after the conclusion of the applicable wind-down period can be made for goods and services owed to non-U.S. and non-Iranian persons, so long as the payment is pursuant to a written contract or agreement entered into prior to May 8, 2018, and such activities were performed prior to the end of the applicable wind-down period and were consistent with U.S. sanctions at that time.
Similarly, non-U.S. and non-Iranian persons can also receive payment of a related debt or obligation after the applicable wind-down period, so long as the loans or credits were extended to an Iranian counterparty prior to the end of the applicable wind-down periods, and the loans or credits were extended pursuant to a written contract or agreement entered into prior to May 8, 2018. OFAC has cautioned that such payments must be consistent with U.S. sanctions and that such payments cannot involve U.S. persons or the U.S. financial system, unless the transactions are exempt from regulation or authorized by OFAC.
General and Specific Licenses
In addition, as discussed in our May 8 Client Alert, the President revoked general and specific licenses authorizing certain activities that would otherwise be prohibited. Activities under General License H, which authorized U.S.-owned or controlled foreign entities to engage in certain activities involving Iran, must cease no later than November 4, 2018. Activities under General License I, which authorized U.S. persons to enter into, and to engage in transactions that are ordinarily incident to the negotiation of and entry into contingent contracts for activities eligible for authorization under the JCPOA SLP, must be completed by August 6, 2018. Finally, to the extent OFAC granted specific licenses pursuant to the JCPOA that have not yet expired, they will end on August 6, 2018.
As the 90-day and 180-day wind-down periods arrive, and sanctions are re-imposed, clients who do business with or contract with entities doing business with Iran should be particularly careful. We will continue to follow events in this space and will report on any further developments.
If you have any questions or concerns about U.S. sanctions against Iran, please contact Bruce G. Paulsen (212-574-1533), Andrew S. Jacobson (212-574-1477), Noah S. Czarny (212-574-1642), or Paul B. Koepp (212-574-1613) at Seward & Kissel.