Iran Sanctions - JCPOA in the Balance

by Dechert LLP
Contact

Dechert LLP

On 12 May 2018, US President Trump will decide whether or not to renew the US sanctions relief in relation to Iran. Declining to do so would put the US in breach of, and amount to US withdrawal from, the JCPOA, the Iran sanctions/nuclear agreement reached in 20151. Whether or not he does so could have implications for any business (whether in EU or elsewhere) which operates in or with Iran or Iranian entities.

The Background

In January 2016, UN, EU and US sanctions on Iran were significantly eased, in exchange for commitments given by Iran to decommission its nuclear weapons programme, pursuant to the JCPOA.  At the time this easing was heralded as step towards warmer relations between Iran and the West and away from Iran’s economic isolation.  But in January 2018, President Trump, a long-standing critic of the JCPOA, warned that he would not renew the US sanctions relief (a necessary step in US compliance with the JCPOA) in May unless the UK, France and Germany (“the E3”) agree to  “fix the terrible flaws of the Iran Nuclear Deal”. 

What are the “Terrible Flaws” That President Trump Sees?

President Trumps opposes a number of aspects of the JCPOA.  One is that the obligations it imposes on Iran relate only to its nuclear programme, but not on its “other malign activities2 (IRGC funding, cyber aggression, maritime aggression, human rights violations, destabilising activity in the Middle East); a second is that the JCPOA does not consider long-range missile development as part of a nuclear weapons programme; a third is that the JCPOA has an expiry date (on Termination Day, in 2025).

Position of UK, France and Germany

Recognising both the difficulties in re-opening the JCOPA (to which Iran, Russia and China are also parties), but also the importance of keeping the US on board, the E3 have sought to address at least some of the US concerns by proposing new EU sanctions on Iran over its ballistic missile programme (which can be done separately from and without breaching the EU’s commitments to ease its nuclear sanctions). Current indications are that this proposal has not been supported by at least some of the EU’s other Member States, although that position could change between now and 12 May.  Discussions are reported to be continuing between the E3 and the US as to a possible agreement on working to other solutions, but without tangible progress at this point.

Will the US Withdraw on 12 May?

Since January, various pronouncements from the US administration have indicated that its expectations of what must happen by May – both within and outside of the United States – in order to keep the US in the JCPOA set a lower standard than was understood from President Trump’s January remarks. President Trump had called for the US Congress to issue legislation to cancel the “sunset” provisions of the JCPOA under which some limitations on Iran’s nuclear program eventually would expire, but there has been no further movement on this issue in recent months. President Trump also had called for the E3 to agree to a supplemental framework agreement imposing new restrictions on Iran’s ballistic missile program and frequency of nuclear inspections, and a State Department cable in February clarified that “we are asking for [E3] commitment that we should work together to seek a supplemental or follow-on agreement that addresses Iran’s development or testing of long-range missiles, ensures strong IAEA inspections and fixes the flaws in the sunset clause”.  In March, the State Department confirmed that what is needed by 12 May is an agreement between the US and the E3.  It was indicated that, if the US cannot reach an agreement with the E3 (or if it can, but which does not fully address the US concerns), that will be reported to the President “and then he will make a decision as to whether he wants to remain in the deal or stop waiving sanctions”.  At this stage, therefore US withdrawal from the JCPOA is not certain, but remains a very real possibility.

What Will Happen if the US Withdraws on 12 May?

The JCPOA includes a “snap-back” mechanism which any of the parties (other than Iran) can invoke, triggering the snap-back of pre-JCPOA sanctions (including mandatory UN sanctions) if Iran fails to meet its commitments.  However the US has indicated recently3 that Iran is compliant; accordingly any withdrawal by USA will not itself trigger snap-back of non-US sanctions.  But it would be likely to trigger a range of responses:

  • The USby not renewing the waiver, could choose to re-introduce wider secondary sanctions in relation to Iran that have been suspended since the implementation of the JCPOA authorizing penalties against non-US persons that engage in certain activities involving Iran (e.g., certain activities involving Iran’s energy, shipping, or shipbuilding sectors). The US also could choose to cancel a general licence that authorizes non-US subsidiaries of US persons to engage in most activities involving Iran;
  • Iran may decide itself to abandon the deal and resume its nuclear weapons programme.   It indicated in February that it would not do this, but there are reportedly internal tensions on this point, and it has indicated recently its dissatisfaction with the level of economic benefit it derives from the deal – mainly due to bank caution about US sanctions, a concern which will only increase if US sanctions on Iran are broadened.  Indeed, even without the current US threat, reports have been that Iran may withdraw due to its perception that it is not getting from the JCPOA the benefits that it had expected.
  • The EU may look to amend its existing blocking statute (an EU regulation adopted in the 1990s prohibiting compliance with certain US sanctions and providing that US rulings upholding them would not be recognised in the EU).   This measure pre-dated US secondary sanctions, and would therefore need to take a different approach.  The introduction of any such measure would significantly increase compliance complications for EU businesses.
  • Russia, having in recent days proposed new counter-measures to the US’s new listings of Russian oligarchs etc, may take further action in response to the US withdrawing from its 2015 agreement; 
  • China also may respond negatively, although prediction of its likely response is further complicated by its existing trade tensions with the US.

Under the JCPOA, the EU sanctions on Iran have been very significantly eased and EU persons are largely permitted to engage in business with Iran (although the restrictions that remain include a long list of designated entities and some export restrictions). While the majority of US secondary sanctions against Iran have been suspended as well, US primary sanctions on Iran remain in effect and US persons remain restricted from engaging in most commercial activities involving Iran. Any expansion of EU sanctions to convince the US to remain in the JCPOA, or any US reimposition of secondary sanctions, would at least partially level the playing field between US and EU businesses as at least some new restrictions will apply to EU persons (while US persons will remain largely restricted from the Iranian market). Businesses which operate in Iran, trade with Iranian entities, export goods ultimately destined for the Iran market, or invest in Iranian companies will be affected by some or all of these possible steps no matter what jurisdiction they operate in; those with more than minimal exposure should consider developing contingency plans.

Footnotes

1) The Joint Comprehensive Plan of Action (“JCPOA”) agreed in July 2015 between Iran, USA, Russia, China, UK, France and Germany

2) Brian Nook, Director of Policy Planning, US State Department, Press Release 21 March 2018

3) Ibid

 

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.

© Dechert LLP | Attorney Advertising

Written by:

Dechert LLP
Contact
more
less

Dechert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.