Iran Nuclear Agreement & Sanctions Suspension

by Orrick, Herrington & Sutcliffe LLP
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The November 23 "Joint Plan of Action" regarding Iran's nuclear program (the "Agreement") contemplates that the United States and the European Union ("EU") will suspend some sanctions measures regarding Iran.  This advisory summarizes information that is generally available about the Agreement's implications for sanctions, how the agreement is likely to be implemented with regard to sanctions, and key uncertainties.

As has been widely reported, the permanent United Nations Security Council members (China, France, Russia, the United Kingdom and the United States) and Germany – the "P5 Plus 1" – entered into the Agreement with Iran as an interim arrangement to impose discipline on Iran's nuclear program.  The Agreement provides for what the Obama Administration characterizes as "limited, temporary, targeted and reversible relief" from sanctions.

Two considerations stand out regarding the Agreement's effect on Iran sanctions.  First, the Agreement does not provide detail about suspension of sanctions or even identify measures to be suspended.  Second, Agreement commitments to relax sanctions measures will only be effective if, when and to the extent that they are implemented in U.S. and EU law.

In general, the Agreement probably will not lead to relaxation of the embargo on U.S. persons' dealings with Iran.  The only apparent exception to this understanding relates to issuance of some licenses for aircraft replacement parts as needed for safety reasons.  Otherwise, the Agreement will likely affect only "secondary" U.S. sanctions measures – U.S. statutes and executive orders that provide for sanctions against non-U.S. companies that engage in specified types of activities relating to Iran.

The Obama Administration has broad discretion to modify or withdraw executive orders.  As to statutes that authorize or mandate secondary sanctions, the Administration would, absent statutory amendments, need to exercise waiver authority provided in the statutes to implement Agreement obligations to suspend sanctions measures.  

A State Department press release emphasizes that the U.S. government intends to continue vigorous enforcement of remaining Iran-sanctions measures and to reimpose suspended sanctions if Iran fails to satisfy commitments under the Agreement.                                                       

Foremost sanctions-related provisions of the Agreement and initial comments about them are as follows:

  • For six months, the P5 Plus 1 are to "pause efforts to further reduce Iran's crude oil sales."  For oil sales at current levels, the United States and the EU are to suspend "sanctions on associated insurance and transportation services."

United States legislation enacted in December 2011 as part of the National Defense Authorization Act for Fiscal Year 2012 generally provides for sanctions against non-U.S. banks that knowingly conduct or facilitate significant financial transactions for the purchase of Iranian petroleum or petroleum products.  There is an exception for banks the host countries of which significantly reduce their oil imports from Iran.  China, India, Malaysia, South Korea, Singapore, South Africa, Sri Lanka, Turkey, Taiwan and other countries have secured exemptions on the basis of U.S. government findings of significant Iranian oil import reductions.  It appears likely that the Obama Administration is prepared to exercise waiver authority under the legislation to avoid imposing sanctions under the statute notwithstanding that the countries' Iranian oil imports do not continue to fall.

  • The United States and the EU are to suspend sanctions on

"Iran's petrochemical exports" and "associated services"

"Associated services" encompass, among others, "insurance, transportation, or financial services."  The agreement implies that suspension of the sanctions would extend only to the provision of "associated services" for "non-designated Iranian entities."

A variety of U.S. measures, including the Iran Sanctions Act, authorize secondary sanctions against non-U.S. companies for trade in petrochemical products with Iran and related services in some circumstances.  In addition, EU regulations impose limits on European petrochemical trade with Iran.  It appears that U.S. and EU officials may plan to exercise waiver authority to suspend sanctions measures to facilitate trade with Iran in petrochemical exports and related services.

Iranian entities would probably be deemed "designated" if they are on the U.S. Treasury Department's List of Specially Designated Nationals and Blocked Persons or similar EU sanctions "blacklists."

"Gold and precious metals" and "associated services"

This provision likely relates to portions of the Iran Freedom and Counter-Proliferation Act of 2012 that generally require secondary sanctions against non-U.S. companies that transfer precious metals to or from Iran.  In addition, EU Regulation (EU) N. 267/2012 generally prohibits trade of gold, precious metal and diamonds involving the Iranian government in some circumstances.  It appears that U.S. and EU officials may plan to exercise waiver authority to suspend sanctions measures to facilitate trade with Iran in precious metals and related services.

  • The United States is to suspend "sanctions on Iran's auto industry" and "associated services."

This provision likely relates to the secondary sanctions measures in Executive Order 13,645, which the President issued in June 2013, authorizing sanctions against non-U.S. companies that, in some circumstances, supply goods or services for use in connection with the Iranian automotive sector.  The Obama Administration has broad discretion to suspend or terminate these provisions.

  • The P5 Plus 1 are to "license the supply and installation in Iran of spare parts for safety of flight for Iranian civil aviation and associated services."  The agreement implies that licenses are to be issued for such supply and installation for Iran Air and "non-designated Iranian airlines."

United States and EU sanctions and export controls generally require licenses for exports of aircraft parts and components to Iran and, today, U.S. and EU authorities generally deny licenses for such exports.  United States and EU authorities likely believe that they have discretion to provide licenses as contemplated by the Agreement.  Withholding of export licenses for parts needed for air travel safety in Iran has been controversial.

  • The EU is to increase "authorisation thresholds for transactions for non-sanctioned trade."

This provision apparently refers to the authorization thresholds provided for by Regulation (EU) N. 267/2012.  Article 30(1) currently sets forth a value threshold of EUR 40,000 at or above which any transfer of funds to or from any Iranian person or entity and related to humanitarian transactions (i.e. transactions related to foodstuff, healthcare, medical equipment or other humanitarian purposes) requires a prior authorization from competent EU Member States' authorities. Moreover, the same provision contains a mandatory prior notification obligation to perform such humanitarian transactions where the value of the transaction is equivalent to or more than EUR 10,000, though prior authorization is not required in such cases. Humanitarian transactions below EUR 10,000 can be carried out without any prior authorization or notification obligation.

It is understood that the Agreement will compel the Council to raise both the thresholds appreciably, but the exact amount is still to be set. The procedure for the notification of the transactions and the conditions for the authorization are not presumed to change since the Agreement only refers to the authorization thresholds.        

  • The P5 Plus 1 are to "establish a financial channel to facilitate humanitarian trade for Iran's domestic needs using Iranian oil revenues held abroad."

There are existing embargo exceptions that, on their face, permit supply of humanitarian items, including food and medical supplies, to Iran.  But many have complained that western banks, citing financial sanctions measures, have declined to provide banking services needed to facilitate humanitarian trade.  It appears that U.S. and EU authorities plan to make sanctions adjustments intended to ensure that certain forms of humanitarian trade with Iran actually occur.

  • The United States and the EU are generally to forgo new "nuclear-related sanctions" against Iran, and the P5 Plus 1 are to ensure against new UN Security Council "nuclear-related sanctions" against Iran.  The Agreement appears to acknowledge that the Obama Administration cannot necessarily prevent the U.S. Congress from enacting new Iran sanctions legislation when it observes that the Administration will act "consistent[ly] with the respective roles of the President and the Congress."

    It is notable that many Republican and Democratic Members of Congress continue to call for expanded U.S. sanctions legislation regarding Iran notwithstanding the Agreement.  An interesting twist is proposals to legislate new measures with an effective date at the end of the six-month period contemplated by the Agreement.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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