Implementation Day: Iran Sanctions Eased Today

by Dechert LLP
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On Saturday, 16 January 2016, the International Atomic Energy Association (IAEA) submitted a report to the United Nations Security Council (UNSC) certifying that Iran has satisfied its obligations under the Joint Comprehensive Plan of Action (JCPOA), the agreement reached in July 2015 among Iran, the United States, China, Russia, the United Kingdom, Germany and France.1 As a result, 16 January 2016 is “Implementation Day” under the JCPOA, triggering the easing of certain sanctions against Iran by the United States, European Union and United Nations Security Council.

The sanctions relief creates a significant asymmetry between U.S. and non-U.S. persons in dealings with Iran: U.S. sanctions continue to prohibit U.S. nationals and companies from most Iranian activities (though non-U.S. subsidiaries of U.S. companies now are authorized to engage in most activities with Iran), while EU (and other non-U.S.) persons are now affected only by vastly reduced prohibitions and are largely (but not entirely) free from the threat of “secondary” U.S. sanctions. Below we summarize the timing and scope of the sanctions relief which now comes into effect. We will publish more detailed guidance in the coming days.

Timing and Scope of Sanctions Relief Forthcoming

European Union

The European Union has today published a Decision bringing EU sanctions relief into immediate effect; the nature and extent of EU sanctions against Iran are therefore now very substantially reduced.2 While certain export restrictions and an asset freeze (with many fewer targets) will remain in place, most of the EU’s prohibitions and restrictions on transactions with Iran have now been removed.

United States

In contrast with the European Union, most U.S. sanctions against Iran remain in place.3 U.S. ‘secondary sanctions’ which target non-U.S. persons who engage in certain activities largely have been lifted. However, primary sanctions (which are applicable to U.S. persons) remain in force and continue to broadly prohibit transactions with Iran, including almost all transactions conducted in U.S. Dollars. The U.S. Treasury Department has issued general licenses authorizing certain transactions with Iran – including with respect to activities of non-U.S. subsidiaries of U.S. parent companies – thereby reducing the scope of primary sanctions to a degree. In addition, a number of Iran-related individuals and entities will be removed from the Specially Designated Nationals and Blocked Persons List (SDN List). Any previously-blocked funds of such persons/entities under U.S. jurisdiction may become unfrozen, if they are not required to be blocked pursuant to other sanctions regulations.4 Non-U.S. persons will not be subject to potential penalties under remaining secondary U.S. sanctions for transacting with such persons/entities.

United Nations

United Nations sanctions are now amended, as UN Resolution 2231 (passed in July 2015) provides that all past UN Resolutions relating to Iran’s nuclear program will be terminated as of Implementation Day.5 With UNSC approval, specific restrictions will be simultaneously established in areas such as military, nuclear and missile technology. A limited asset freeze and travel ban list will remain in place. Other countries therefore are free to reduce their sanctions on Iran to align with the new (much reduced) UN requirement; it is largely expected that most will do so quickly, although some, including notably Canada, have expressly reserved their position.

Proceeding with Caution

Both U.S. and non-U.S. companies should continue to exercise caution with respect to any dealings involving Iran. All companies should ensure that any Iran-related activities are conducted in a manner fully consistent with all sanctions measures now in place. U.S. companies in particular should be aware that other than the easing of prohibitions applicable to their non-U.S. subsidiaries and other limited authorizations, Implementation Day generally has not brought any meaningful easing in U.S. sanctions applicable to their activities, notwithstanding significant changes occurring in the EU and UN.

Significantly, all companies should remain vigilant in monitoring developments relating to Iran sanctions. Sanctions eased on Implementation Day may “snap back” in the event of significant non-performance of Iran’s obligations under the JCPOA.

Further updates will follow as developments occur.

Footnotes

1) The IAEA Director General’s Statement on Iran may be accessed here.

2) Decision (CFSP) 2016/37 of 16 January 2016, which brings into effect Decision (CFSP) 2015/1863 and Regulation (EU) 2015/1861. The effect of this is that the current Common Foreign and Security Policy (CFSP) Decision 2010/413/CFSP and the current Regulation (EU) 267/2012 remain in force, although now substantially amended by Decision (CFSP) 2015/1863 and Regulation (EU) 2015/1861, which apply from today.

3) The US Department of Treasury’s Office of Foreign Assets Control’s (OFAC) announcement and related guidance may be accessed online. OFAC has also released updated Frequently Asked Questions in connection with the JCPOA.

4) Regardless of their removal from the SDN List, persons that OFAC previously identified as meeting the definition of the Government of Iran or an Iranian financial institution continue to meet those definitions and continue to be persons whose property and interests in property are blocked pursuant to Executive Order 13599 and section 560.211 of the Iranian Transactions and Sanctions Regulations.

5) UNSC Resolution 2231 (2015), adopted in 2015, provides that the changes were to take place automatically “upon receipt by the Security Council” of the IAEA report. Resolution 2231 also includes a snapback provision, providing for the reinstatement of sanctions in the event of significant non-performance of Iran’s obligations under the JCPOA.

 

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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