As widely reported, Saturday, January 16 was “Implementation Day” under the Joint Comprehensive Plan of Action (JCPOA), agreed to on July 14, 2015, by the P5+1 (China, France, Germany, Russia, the United Kingdom and the United States), the European Union (EU), and Iran. The United States and the EU have now taken far reaching steps to implement the JCPOA.
Background
On July 14, 2015, following two years of negotiations, the P5+1 and the EU concluded a landmark agreement with Iran, the JCPOA, under which, in exchange for Iran’s commitments relating to its nuclear programs, the P5+1 agreed to suspend all US, EU and UN nuclear-related sanctions imposed on Iran. The JCPOA established an Implementation Plan with defined trigger dates, the most important of which was “Implementation Day,” the date on which the EU and the United States were to lift relevant sanctions contingent on the International Atomic Energy Agency (IAEA) verifying completion by Iran of its nuclear-related commitments. Implementation Day has now been declared to be January 16, 2016.
US Sanctions
In line with its commitments under the JCPOA, the United States has lifted its nuclear-related sanctions against Iran. These were primarily “secondary” sanctions applicable to non-US parties and covered:
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Iran’s financial, banking, energy, petrochemical, shipping, shipbuilding and automotive sectors;
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Iran’s port operators;
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The provision of insurance, re-insurance and underwriting services in connection with activities that are consistent with the JCPOA;
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Iran’s trade in gold and other precious metals;
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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; and
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The provision of associated services for each of the categories above.
The United States also removed a large number of individuals and entities from applicable prohibited party lists, and took steps to (1) allow for 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; (2) license non-US entities that are owned or controlled by a US person to engage in activities that are consistent with the JCPOA and applicable US laws and regulations; and (3) license the importation into the United States of Iranian-origin carpets and foodstuffs.
With the exception of these three categories of activities described above, none of the sanctions that were lifted include “primary” US sanctions against Iran that apply to US persons. Thus, US persons, including US companies, continue to be broadly prohibited from engaging in transactions or dealings with Iran and the Government of Iran unless such activities are exempt from regulation or authorized by OFAC (e.g., selling food and medicine to Iran).
Of particular interest to many US companies is the second of the three listed items, i.e., the licensing of US-owned or controlled non-US entities “to engage in activities that are consistent with the JCPOA and applicable US laws and regulations.” The US Office of Foreign Assets Control (OFAC) has implemented this item by issuing General License H (GL H), authorizing US-owned or controlled foreign entities to engage in “transactions, directly or indirectly, with the Government of Iran, or any person subject to the jurisdiction of the Government of Iran that would otherwise be prohibited by 31 C.F.R. § 560.215.” GL H effectively authorizes US-owned or controlled foreign entities to engage in any transaction involving Iran that a non-US person may engage in, except transactions involving:
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The direct or indirect exportation or reexportation of goods, technology or services from the United States (without separate authorization from OFAC);
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Any transfer of funds to, from or through the US financial system;
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Any individual or entity on OFAC’s prohibited party lists, or any activity that would be prohibited by non-Iran sanctions administered by OFAC if engaged in by a US person or in the United States;
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Unless authorized by the US Department of Commerce, activity prohibited by, or requiring a license under, part 744 of the US Export Administration Regulations (EAR) or a person whose export privileges have been denied pursuant to part 764 or 766 of the EAR;
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Any military, paramilitary, intelligence or law enforcement entity of the Government of Iran, or any officials, agents or affiliates thereof;
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Any activity that is sanctionable under certain enumerated executive orders relating to Iran’s proliferation of weapons of mass destruction and their means of delivery, including ballistic missiles; international terrorism; Syria; Yemen; or Iran’s commission of human rights abuses against its citizens; and
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Any nuclear activity involving Iran that is subject to the procurement channel established pursuant to paragraph 16 of UNSCR 2231 (2015) and section 6 of Annex IV of the JCPOA and that has not been approved through the procurement channel process.
In addition, GL H authorizes US persons to engage in certain activities otherwise prohibited by OFAC’s regulations, namely activities related to the establishment or alteration of corporate policies and procedures to the extent necessary to allow US-owned or controlled foreign entities to engage in transactions involving Iran that are authorized under GL H, and making available to foreign entities they own or control certain automated and globally integrated business support systems. With the exception of activities authorized in GL H, the prohibition on facilitation by United States persons under section 560.208 of OFAC’s regulations remains in effect.
EU Sanctions
In accordance with the JCPOA, the EU lifted most of its economic and financial sanctions imposed in connection with Iran’s nuclear program. Although several restrictions on doing business with Iran remain in place, the EU’s new measures considerably enhance the scope for EU and Iranian companies to do business by opening up opportunities in a number of key areas, including oil, gas and petrochemicals; finance; and trade in gold and precious metals.
Like the United States, the EU removed a number of individuals and entities, including the Central Bank of Iran and the National Iranian Oil Company, from its restricted parties list, lifting asset freezes and visa bans. More broadly than the United States, the lifting by the EU of its nuclear-related sanctions against Iran removed EU sanctions, with limited exceptions, on the following activities, including associated services:
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Financial transfers to and from Iran. The transfer of funds between EU persons and non-listed Iranian persons is now permitted, and no authorization or notification of transfers is required.
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Banking activities, including the establishment of new correspondent banking relationships and the opening of branches, subsidiaries or representative offices of non-listed Iranian banks in the EU.
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EU financial and credit institutions are allowed to open representative offices, branches, subsidiaries or joint ventures, as well as banks accounts, in Iran.
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The supply of specialized financial messaging services (including SWIFT).
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Insurance and re-insurance activities.
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Financial support for trade with Iran, including export credit, guarantees or insurance.
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The sale or purchase of public bonds from Iran.
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The sale, supply, transfer and export of key equipment/technology (including equipment in the oil, gas and petrochemical sectors), and the import or purchase of crude oil, petrochemicals and gas (originating in Iran or having been exported from Iran);
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The sale, purchase, supply, transfer, import, and export of gold, precious metals, and diamonds;
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The sale, supply, transfer, and export of naval equipment and technology for ship building, maintenance or refit;
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The provision of vessels for the transport or storage of oil and petrochemical products; the provision of bunkering or ship supply services, or any other servicing of vessels (not carrying prohibited items); and the provision of fuel, engineering and maintenance services to Iranian cargo aircraft (not carrying prohibited items);
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The grant of financial loans or credit to Iranian persons active in the oil and gas sectors.
“Associated services” include transactions necessary and ordinarily incident to the foregoing, including technical assistance, training, insurance, re-insurance, brokering, transportation and financial services.
Reports indicate that EU interests will promptly move to take advantage of Iranian business opportunities opened by the lifting of sanctions. For example, the European Commissioner for Climate and Energy, Miguel Arias Cañete, publicly stated that the European Commission will undertake a first “technical assessment mission” in February 2016 to explore energy ties with Iran. It is widely reported that the technical assessment mission will likely be followed by a visit by high-level Commission staff, possibly with a business delegation.
While the majority of EU sanctions concerning Iran’s nuclear program have been lifted, certain restrictions remain in place. Notably, certain proliferation-related activities now require an advance authorization from the relevant EU Member State, including certain proliferation-sensitive transfers and activities; the supply, transfer or export of certain software; and the sale, supply, transfer or export of certain graphite and raw or semi-finished metals and the provision of associated services. Certain other EU sanctions against Iran also remain in place, including an arms embargo and the prohibition on the supply, transfer, export or procurement of certain missile technology. Certain Iranian persons and entities remain subject to EU sanctions, including several Iranian banks. Also, human rights- and terrorism-based sanctions remain in place, including the listing of 84 persons and one entity, and a ban on exports to Iran of equipment that may be used for internal repression and monitoring telecommunications.
Thus, although EU sanctions have been significantly relaxed, companies will still need to conduct proper diligence when conducting business with Iran and Iranian persons.
Conclusion
The easing of US and EU sanctions under the JCPOA opens significant new opportunities for business with Iran. However, because the sanctions that were lifted may “snap back” into place in the event that Iran fails to uphold its nuclear commitments under the terms of the JCPOA, businesses are well advised to proceed with caution and to continue to monitor related trade compliance developments closely.
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