After a twelve-year standoff that saw the United States and Europe ratchet up sanctions pressure on Iran, a diplomatic breakthrough has been reached. But robust trade between Iran and the West will not arise immediately, since the end of sanctions is a long way away.

As reported here, negotiators in Vienna announced Early Tuesday, July 14 that the Joint Comprehensive Plan of Action agreement that will curb Iran’s nuclear program in exchange for sanctions relief. Many of the agreement’s operative elements – including lifting sanctions – will not become effective until Implementation Day: the day on which the International Atomic Energy Agency reports its verification of Iran’s implementation of certain nuclear-related measures.^[1]

On Implementation Day, the United Nations, European Union, and United States will all lift certain nuclear-related sanctions against Iran. As soon as sanctions are lifted and the gate is open, some businesses will expect to rush to play on the field they have been fenced out of for so long.

While we hate to ruin anyone’s fun, we are compliance lawyers (and can’t help it?) and we remind you that a good reading of the rulebook is in order before the games begin. We propose that companies planning their Iran entry also plan a strategy for compliance within the new regulatory framework. While many sanctions on Iran will be lifted, remaining restrictions on EU and U.S. companies mean that the game must still be played by strict rules. And you can bet the referees will be watching to see who steps out of bounds.

Most American Companies Still on the Sidelines

On Implementation Day, the United States will lift nearly all Iranian sanctions that it currently imposes on non-U.S. entities. Wait, non-U.S. entities? Does that sound odd to you? If so, you’re not alone.

The headlines declaiming that all U.S. sanctions will be lifted have caused some to believe, well, that all U.S. sanctions against Iran will be lifted. That is not precisely true.

Nearly all the U.S. sanctions that would be lifted on Implementation Day are sanctions the United States currently imposes or threatens against non-U.S. persons. In fact, in the section of the agreement entitled “Effects of the Lifting of U.S. Economic and Financial Sanctions” states that when the sanctions are lifted they would no longer “apply to non-U.S. persons” who engage in the formerly sanctioned activity with Iran.

Sanctions imposed on U.S. persons and persons in the United States under the Iranian Transactions Regulations will generally remain in place. That means U.S. persons will generally still be prohibited from conducting transactions in Iranian property, with Iranian Specially Designated Nationals, and with the Government of Iran. U.S. persons and banks still will be generally prohibited from all dealings with Iranian companies, including investing in Iran (though we must note that the deal may allow importing Iranian carpets and pistachios in the future).

Further, the Agreement does not lift Section 218 of the Iran Threat Reduction and Syrian Human Rights Act (ITRSHRA), under which foreign subsidiaries of U.S. companies are prohibited from engaging in Iranian transactions to the same extent as their U.S. parents. Nor, it appears, will the “name and shame” provision of ITRSHRA Section 219 be lifted, under which issuers filing with the SEC must include sanctionable activities in their quarterly or annual reports.

Put Us In, Coach

Implementation Day will provide some opportunities as for U.S. exporters as, under the Agreement, the United States will be allowed to export civilian aircraft and parts to Iran. Where U.S. manufacturers see a country where the civil air fleet average age is 23 years, they see opportunity.

Non-U.S. Entities Back in the Game

In the past five years, the U.S. government took an increasingly aggressive jurisdictional approach to sanctions, rolling out the CISADA, the 2012 NDAA, the IFCA, and the ITRSHRA (we really do need a better acronym for that one).^[2]  All those statutes provided for sanctions against non-U.S. companies for undertaking certain transactions with Iran. Under the July 14 agreement, nearly all the U.S. sanctions restrictions imposed by those statutes on non-U.S. companies that are not subsidiaries of U.S. parents will be lifted. Thus, non-U.S. companies will not be subject to sanctions for activities including the following:^[3]

1. Finance and banking.

• Engaging in financial and banking transactions with the Government of Iran, the Central Bank of Iran, specified Iranian financial institutions, the National Iranian Oil Company, Naftiran Intertrade Company, National Iranian Tanker Company, and certain other formerly sanctioned Iranian persons;

• Providing to Iran loans, transfers, and accounts, including opening and maintaining correspondent and payable through accounts at non-U.S. financial institutions; as well as providing other financial instruments.

• Purchasing or acquiring U.S. bank notes by the Government of Iran; and

• Purchasing or facilitating the purchase of Iran sovereign debt.

2. Insurance. Engaging in underwriting services, insurance, or re-insurance in connection with activities consistent with the Agreement.

3. Energy and petrochemical.

• Purchasing, selling, or transporting petroleum products;

• Investing in the petroleum or petrochemical sector in Iran; and

• Providing goods and technology in support of the petroleum and petrochemical sector, including to NIOC, NITC, and NICO.

4. Shipping and shipbuilding. Owning, controlling or operating a vessel to transport crude oil or petroleum or providing goods or financial services to in connection Iran’s shipping or shipbuilding sector.

5. Automotive. Conducting or facilitating transactions to provide Iran goods and services used in connection with the automotive sector.

6. Gold and other precious metals. Conducting transactions for the sale, supply, or transfer to or from Iran of gold or other precious metals.

7. Software and metals. Conducting transactions for the sale, supply, or transfer to or from Iran of graphite, raw or semi-finished metals, and software for integrating the industrial process in connection with activities consistent with the agreement.

Additionally, the Agreement would lift the sanctions on non-U.S. companies for doing business with persons designated as sanctioned under CISADA, 2012 NDAA, IFCA and ITRSHRA.

An Open Field for Europe

On Implementation Day, a significant proportion of the EU sanctions implemented against Iran in the past five years will be lifted. Primarily the lifted sanctions will be those related to:

• financial and banking;

• oil and gas; and

• shipping.

promulgated under Council Decision 2010/413 CFSP and Council Regulation (EU) No 267/2012.

With those sanctions lifted, EU companies should have a clear path to resume significant business with Iran. However, if an EU company has U.S. teammates – if they have U.S. person employees or executives, have U.S. ownership, or even a supply chain that draws from the United States – the EU company will need to understand what goods, money, technology, or services from the United States can and cannot be used as the company looks to resume business with Iran.

What Will Draw a Penalty

Of course companies stepping into Iranian business will want to play right up to the whistle. But how do they know what will and won’t be a foul? For instance, if a German company that is partially owned by a U.S. company engages in transactions in Iran that are lawful in the EU, what is the potential liability for the U.S. company? What SEC disclosures are required of that U.S. company? Companies in the United States and Europe will do well to develop a compliance strategy early, so they are not caught flatfooted when the opening whistle blows.

_{[1] Those nuclear measures are described in Sections 15.1 to 15.11 of Annex V to the}

_{[2] For those keeping score at home, the full names of the sanctions laws discussed in this article are: The Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA), the 2012 National Defense Authorization Act (NDAA), the Iran Freedom and Counter Proliferation Act (IFCA), and the Iran Threat Reduction and Syria Human Rights Act (ITRSHRA).}

_{[3] The full list of activities on which sanctions are planned to be lifted can be found in Annex II to the agreement, Section 7.}