On January 20, 2014, after the International Atomic Energy Agency determined that Iran had begun to meet its obligations to curtail nuclear development activities, the United States and the European Union implemented sanctions relief for Iran as contemplated by the November 23, 2013 "Joint Plan of Action" regarding Iran's nuclear program (the "Agreement"). 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 try to impose discipline on Iran's nuclear program.
As implemented on January 20, the Agreement relaxes U.S. and EU sanctions measures in significant ways. But U.S. and EU authorities have confirmed that the Agreement is limited in critical respects.
First, sanctions relief applies only to activity that occurs wholly within a six-month window – January 20 to July 20, 2014 – and even that relief could be withdrawn if Iranian compliance with its Agreement obligations is not continually confirmed. There is no relief for actions before January 20, and careful monitoring will be needed on the extent to which sanctions relief remains in place moving forward.
Second, by and large the Agreement does not relax the U.S. embargo on Iran-related activity of U.S. persons and entities that are owned or controlled by U.S. persons. The only exception relates to potential issuance of licenses for aircraft replacement parts as needed for safety reasons. Otherwise, the Agreement affects 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.
Third, even relaxation of secondary sanctions measures generally does not extend to non-U.S. companies' dealings with specifically sanctioned individuals and entities on the U.S. Treasury Department's List of Specially Designated Nationals ("SDN List").
Finally, U.S. and EU authorities stress that they will continue vigorously to enforce sanctions measures that are not suspended and that they will reimpose suspended sanctions if Iran fails to satisfy commitments under the Agreement.
The Obama Administration has exercised waiver and other authority in sanctions measures to implement the sanctions relief discussed below. The EU has implemented sanctions relief by adopting Council Regulation N. 42/2014, amending previous Council Regulation N. 267/2012 concerning restrictive measures against Iran.
The foremost sanctions relief implemented by the United States and the EU is summarized below.
Crude Oil Sales
Pursuant to the Agreement, 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."
The United States has established several measures to encourage other nations to reduce their oil imports from Iran. The National Defense Authorization Act for 2012, enacted in December 2011, 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, unless the host countries significantly reduce their oil imports from Iran.
To implement its obligations under the Agreement, the U.S. government has generally suspended imposition of sanctions on exports of petroleum or petroleum products from Iran to China, India, Japan, the Republic of Korea, Taiwan and Turkey, including related services such as insurance and transportation services. Sanctions are not to be imposed even if these activities involve the National Iranian Oil Company ("NICO") or the National Iranian Tanker Company ("NITC") (entities on the SDN List) or Iranian depository institutions sanctioned solely pursuant to Executive Order 13599 ("EO 13599"), which sanctioned all Iranian financial institutions.
During the Agreement period, the United States will not insist that these nations continue to reduce levels of oil imports from Iran but, rather, will forego sanctions if they maintain current levels of such imports.
The EU temporarily suspended its prohibition on the provision of insurance and transport services for Iranian crude oil.
Petrochemical Products and Associated Services
Pursuant to the Agreement, the United States and the EU are to suspend sanctions on Iran's petrochemical exports and associated services.
A variety of U.S. measures authorize secondary sanctions against non-U.S. companies for trade in petrochemical products with Iran and related services in some circumstances.
The United States has generally suspended enforcement of these measures to permit exports of petrochemical products from Iran, as well as "associated services" required to facilitate those transactions. These transactions will remain unsanctionable even if they involve any of fourteen specified petrochemical companies (regardless of SDN status) or depository institutions blocked solely pursuant to EO 13599.
The U.S. government interprets "associated services" to encompass any necessary service, including any "insurance, transportation, or financial services" ordinarily incident to the underlying activity.
The EU has temporarily waived enforcement of its prohibition on the import, purchase or transport of Iranian petrochemical products and on the provision of related services.
Precious Metals and Associated Services
Pursuant to the Agreement, the United States and the EU are to suspend sanctions on gold and other precious metals as well as associated services.
United States measures normally require sanctions against non-U.S. companies that, in some circumstances, transfer precious metals, including gold, to or from Iran and those that facilitate these transactions.
The United States has generally suspended enforcement of these measures, including to the extent that they would ordinarily reach "associated services" relating to precious metal transactions. Political subdivisions, agencies or instrumentalities of the Government of Iran and Iranian depository institutions listed on the SDN List solely pursuant to EO 13599 may participate in these permitted transactions.
The EU has temporarily suspended its prohibition on trade in gold and other precious metals with the provision of associated services to the Government of Iran, its public bodies and the Central Bank of Iran, or persons and entities acting on their behalf.
Auto Industry and Associated Services
Pursuant to the Agreement, the United States is to suspend "sanctions on Iran's auto industry" and "associated services."
United States measures ordinarily provide for sanctions against non-U.S. companies that, in some circumstances, supply goods or services for use in connection with the Iranian automotive sector
The United States has generally suspended enforcement of these measures, including to the extent that they would ordinarily reach "associated services" relating to trade in the automotive sector. Iranian depository institutions on the SDN List solely pursuant to EO 13599 may participate in these transactions.
Spare Parts for Safety of Iranian Civilian Aircraft and Associated Services
Pursuant to the Agreement, 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."
United States sanctions and export controls generally require licenses for exports of aircraft parts and components to Iran, and U.S. authorities have ordinarily denied licenses for such exports.
United States sanctions administrators at the Treasury Department's Office of Foreign Assets Control ("OFAC") have advised that they will license certain such activities by U.S. persons, U.S. owned or controlled non-U.S. entities and non-U.S. persons involved in the export of U.S. origin goods. In addition, the U.S. government has suspended secondary sanctions measures to the extent that they would apply to such activity by non-U.S. persons.
Authorization Thresholds for Transactions for Non-Sanctioned Trade
Pursuant to the Agreement, the EU is to increase "authorisation thresholds for transactions for non-sanctioned trade."
The EU has raised from EUR 40,000 to EUR 400,000 the value threshold at or above which any transfer of funds to or from any Iranian person or entity and related to non-sanctioned trade (e.g., certain personal remittances or transfers related to diplomatic missions or other listed non-nuclear related transactions) requires a prior authorization from competent EU Member State authorities.
Certain transactions for foodstuff, healthcare, medical equipment or other goods used for agricultural or humanitarian purposes occurring between financial or credit institutions do not require authorization if their value is below EUR 1,000,000 (raised from EUR 100,000). Further, non-humanitarian transactions between financial or credit institutions and related to non-sanctioned trade other than personal remittances do not require prior authorization if their value is below EUR 100,000 (raised from EUR 10,000).
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. To enable parties to purchase and pay for humanitarian items for supply to Iran and engage in related activity, the U.S. Treasury Department is to contact certain financial institutions the involvement of which Iran has requested and provide them with guidance as to how to work with Iran for these purposes.
Suspension of sanctions could result in useful relief for some non-U.S. companies. As indicated, however, sanctions suspension is subject to critical limitations. Furthermore, suspensions could be terminated at any time. For example, initiatives in the U.S. Congress to enact additional Iran sanctions measures could result in Iran's withdrawal from the Agreement which would, in turn, lead to reimposition of suspended sanctions. Companies are well advised to monitor developments closely.