On January 12th, 2014, the five permanent members of the UN Security Council and Germany (“P5+1”) along with Iran arrived at a technical understanding for implementation of the agreed-upon Joint Plan of Action (“JPOA”) providing for Iran to roll back key aspects of its nuclear program in exchange for limited sanctions relief. Our prior client update on this can be found here. To implement their respective commitments under the JPOA, the U.S. has now published executive waivers and regulatory guidance while the EU has amended the applicable legislation.
On January 20, 2014, the U.S. government released a statement regarding the implementation of its JPOA commitments. The U.S. described the sanctions relief as “limited, temporary and reversible.” Specifically, the U.S. government has agreed to suspend, for a six-month period beginning January 20, 2014, certain sanctions involving Iran’s (1) purchase and sale of gold and other precious metals, (2) export of petrochemical products, (3) automotive industry, and (4) certain “associated services” related to the foregoing. The U.S. government has also agreed that it will license certain activities by U.S. persons for the maintenance of civil aircraft in Iran, including the export to Iran of replacement parts for those aircraft. Importantly, with the exception of certain civil aviation activities that may be authorized pursuant to specific licenses and certain previously-authorized humanitarian activities, described below, none of the authorized activities under the JPOA implementation may involve a U.S. person or an entity owned or controlled by a U.S. person. In addition, unless otherwise specified, the relief measures do not permit transactions with persons identified on the U.S. Treasury Department’s Specially Designated Nationals and Blocked Persons List (the “SDN List”). All authorized transactions must be initiated and completed entirely within the six-month JPOA period, set to end on July 20, 2014.
At the same time, the U.S. government stated that it “will continue to vigorously enforce our sanctions against Iran that are not subject to the limited relief provided pursuant to the JPOA, including by taking action against those who seek to evade or circumvent our sanctions.” The U.S. also has retained authority to revoke the sanctions relief at any time if Iran fails to fulfill its commitments under the JPOA.
The JPOA principally provides for
Temporary suspension of financial and other sanctions against non-U.S. persons and financial institutions that conduct or facilitate exports of petrochemical products from Iran, including transactions involving specified Iranian petrochemical companies.
Temporary suspension of financial and other sanctions against non-U.S. persons and financial institutions related to the supply of goods or services to Iran’s automotive sector.
Temporary suspension of sanctions against non-U.S. persons and financial institutions that conduct or facilitate the purchase or sale of gold and other precious metals to or from Iran.
A favorable licensing policy under which U.S. persons and non-U.S. persons can request specific authorization from the Office of Foreign Assets Control (“OFAC”) for the safety-related supply and installation in Iran of spare parts for Iranian civil aviation, safety-related civil aviation inspections and repairs, and associated services. Please see OFAC’s Statement of Licensing Policy on Activities Related to the Safety of Iran's Civil Aviation Industry here.
Temporary suspension of sanctions against non-U.S. financial institutions that conduct or facilitate transactions by non-U.S. persons for exports of petroleum and petroleum products from Iran to China, India, Japan, the Republic of Korea, Taiwan, or Turkey, and associated insurance and transportation services. This includes transactions involving the National Iranian Oil Company of the National Iranian Tanker Company, but not transactions involving most other SDNs.
Establishment of a financial channel for the use of Iranian oil revenues held abroad in support of humanitarian trade, e.g., to facilitate the export of food, agricultural commodities, medicine and medical devices to Iran, to enable transactions required to pay Iran’s UN obligations, and to enable Iran’s payments for medical expenses incurred by Iranian citizens abroad and tuition payments to universities for Iranian students studying abroad.
January 20, 2014 was also the date that the EU adopted legislation to suspend for six months the EU measures set out in the JPOA.1 Importantly, unlike the US, the EU does not have a comprehensive trade embargo with Iran, but only prohibits trade with certain persons and entities and trade in certain goods and services. Also, the EU has measures in place to ensure compliance, notably notification and authorization requirements for financial transfers to and from Iran. The following restrictive measures have been suspended:
The prohibition on the provision of insurance and reinsurance and transport for Iranian crude oil.
The prohibition on the import, purchase or transport of Iranian petrochemical products and on the provision of related services.
The prohibition on the provision of vessels for the transportation or storage of oil and petrochemical products.
The prohibition on trade in gold and precious metals with the Government of Iran, its public bodies and the Central Bank of Iran, or persons and entities acting on their behalf.
To ease legitimate trade with Iran, the EU has also increased tenfold the thresholds triggering prior notification and authorization requirements for legitimate financial transfers to and from Iranian persons.
The EU High Representative for Foreign Affairs and Security Policy stated that “proper implementation of the agreed measures will be key” during the six-month period and that the EU is aiming to begin talks with Iran in February to seek a “comprehensive solution.”2 In the meantime, the remainder of the EU sanctions not covered by the JPOA remains in force.
Other than expanding the licensability of certain civil aviation safety-related activities and perhaps providing clearer financial channels for payments in support of humanitarian and other licensed activities, implementation of the JPOA does not have an immediate significant impact on most U.S. and U.S.-owned companies. In fact, in the near term, we may expect to see heightened enforcement of sanctions that have not been suspended in order to hold Iran accountable for its JPOA commitments.
For some EU companies, the new sanctions relief may indeed have a positive impact (e.g., on insurance providers). However, for many EU companies, the practical impact of the measures remains to be seen. In particular, the increase of the thresholds triggering prior notification and authorization requirements for financial transfers to and from Iranian persons does not resolve the fundamental problem that, in recent years, financial institutions have been extremely cautious when requested to deal with Iran due to concerns that the payment chain may involve a designated person or entity whose funds are frozen. The increase of the notification and authorization thresholds may actually turn out to be counterproductive because receipt of an authorization provides at least some protection against subsequent actions by the authorities.
1Council Regulation of 20 January 2014; Council Decision 2014/21/CFSP of 20 January 2014; an updated consolidated version of the Council Regulation concerning restrictive measures against Iran will be available at this site.