Previously Lifted or Waived Sanctions Measures Coming Back Into Effect: On May 8, 2018, the U.S. President terminated U.S. participation in the Iran nuclear agreement. As a result, U.S. Iran-related sanctions measures lifted or waived pursuant to the agreement are generally to come back into effect – or "snapback." Depending on the sanctions measure, those sanctions are to snapback into effect following a 90-day or 180-day wind-down period ending on August 6, 2018 or November 4, 2018.
Snapback will extend to:
The few primary sanctions that the U.S. government suspended in accordance with the nuclear agreement. Once again, these measures will be part of the broad U.S. embargo on dealings relating to Iran.
Many secondary sanctions measures, which authorize or mandate imposition of sanctions against non-U.S. companies in response to their engagement in specified types of dealings relating to Iran.
General License Authorizations for U.S.-Owned or Controlled Entities: The U.S. government is expected soon to revoke General License H. This provision generally suspended the U.S. embargo's application to U.S.-owned or controlled entities acting abroad and, in limited respects, authorized U.S. parent companies to permit and enable their non-U.S. affiliates' engagement in Iran-related activity. The U.S. government intends to give U.S. companies and U.S.-owned or controlled affiliates acting abroad a 180-day wind-down period ending on November 4, 2018 to terminate activities that have been authorized by the general license.
Revocation of Other Specific Exceptions to Primary Sanctions: Following a 90-day wind-down period ending on August 6, 2018, U.S. sanctions measures are once again to generally prohibit supply of civil aircraft and parts and components to Iran and related activities, absent a flight safety-related specific license, and imports from Iran of Iranian-origin carpets and foodstuffs. The U.S. government intends to revoke related specific and general licenses.
Secondary Sanctions: Following a 90-day or a 180-day wind-down period ending on August 6, 2018 or November 4, 2018, depending on the sanctions measure, the U.S. government no longer intends to waive or, as necessary, to reauthorize nuclear-related secondary sanctions measures that provide for sanctions against third-country companies that engage in specified types of activities relating to Iran. Such activities involve Iran's financial, energy and shipping sectors, among others.
Return of Certain Individuals and Entities to SDN List: On or before November 5, 2018, the U.S. government is expected to return a number of individuals and entities to certain U.S. lists of sanctioned persons, including the U.S. Office of Foreign Assets Control's ("OFAC") List of Specially Designated Nationals and Blocked Persons ("SDN List"). United States persons have been generally forbidden to deal with these persons that OFAC previously identified as the Iranian government or an Iranian financial institution even under the nuclear agreement. But with the return of these individuals and entities to the SDN List, non-U.S. persons' dealings with these individuals and entities could leave the non-U.S. persons exposed to secondary sanctions.
"Snapback" of U.S. Economic Sanctions
the already broad U.S. primary sanctions embargo on most business relating to Iran will become even broader; and
the scope of secondary sanctions measures, diminished under the nuclear agreement, will greatly expand, such that a much longer list of non-U.S. companies' activities relating to Iran will again be sanctionable.
As discussed in our prior alert, on January 16, 2016, the United States liberalized its nuclear-related sanctions on Iran pursuant to the Joint Comprehensive Plan of Action ("JCPOA") regarding Iran's nuclear program. On May 8, 2018, President Trump issued a National Security Presidential Memorandum ending U.S. participation in the JCPOA and directing the U.S. Secretary of State and Secretary of the Treasury to re-impose sanctions – both primary and secondary measures – on Iran lifted or waived pursuant to the JCPOA.
As a result, depending on the sanctions measure, Iran nuclear-related sanctions measures generally are expected to come back into full effect following a 90-day or 180-day wind-down period ending, respectively, on August 6, 2018 or November 4, 2018. That is, following November 4, 2018, by and large, the U.S. sanctions measures that pre-dated any sanctions relief in connection with the JCPOA are expected to be in place again, exposing non-compliant businesses and individuals to risk of liability and risk of being sanctioned.
U.S. Primary Sanctions Snapback: The United States imposes an embargo on Iran-related activity of U.S. persons (individuals and entities) and entities that are owned or controlled by U.S. persons, generally forbidding business with and in Iran by such persons. With limited exceptions, the JCPOA did not rescind the U.S. embargo of Iran. So the embargo generally continues to forbid U.S. persons to engage in most transactions and other dealings relating to Iran, including exports to and imports from Iran.
Following the U.S. withdrawal from the JCPOA, the U.S. government intends, by and large, to revoke all authorizations granted pursuant to the JCPOA to U.S. persons and entities that are owned or controlled by U.S. persons.
The most significant relaxation of the U.S. embargo of Iran was related to its application to non-U.S. entities that are owned or controlled by U.S. persons. The U.S. government published General License H, which authorized most activities relating to Iran by non-U.S. entities that are owned or controlled by U.S. persons and a limited range of transactions by U.S. parent companies to permit or enable such non-U.S. affiliates to engage in Iran-related activity. Following the U.S. withdrawal from the JCPOA, the U.S. government intends to revoke General License H. It is expected to authorize the wind down of activities lawfully undertaken under General License H for a 180-day period ending on November 4, 2018.
The U.S. government is expected also to revoke other authorizations granted under the JCPOA primary sanctions relief, including in relation to supply of civil aircraft and parts and components to Iran and related activities and imports from Iran of Iranian-origin carpets and foodstuffs. The U.S. government plans to authorize a shorter wind down of such activities, limited to a 90-day period ending on August 6, 2018, and some U.S. persons may be able to obtain flight safety-related specific licenses in connection with supply of civil aircraft and parts and components to Iran.
To avoid risk of liability, U.S. and U.S.-owned or controlled businesses engaged in activities related to Iran should, as needed, take steps necessary to terminate them during the relevant wind-down period.
U.S. Secondary Sanctions Snapback: Secondary sanctions measures are designed to deter non-U.S. persons from engaging in various Iran-related activities. Secondary sanctions measures (statutes and executive orders) authorize, and sometimes direct, the President to impose sanctions on non-U.S. persons engaged in certain types of activity regarding Iran, including activity involving Iran's financial, energy and shipping sectors. Pursuant to the JCPOA, the U.S. government terminated or suspended nuclear-related secondary sanctions measures, making a large number of previously sanctionable activities no longer sanctionable. The U.S. government plans to restore these sanctions measures and authorize wind-down periods ending, depending on the sanctions measure, on either August 6, 2018 or November 4, 2018.
Secondary sanctions measures targeting activities in the following sectors of the Iranian economy are at issue: (i) finance and banking, including activities such as provision of loans, investments, securities, foreign exchange services (including Iranian rial-related transactions), specialized financial messaging services and purchase, subscription to and facilitation of the issuance of Iranian sovereign debt, (ii) energy and petrochemicals, including activities such as investments, exports, acquisitions, sales, transportation and marketing, (iii) insurance, including provision of underwriting services, insurance and re-insurance, (iv) shipping, shipbuilding and ports, (v) gold and other precious metals, (vi) software and metals and (vii) the automotive sector.
Non-U.S. businesses engaged in activity relating to Iran should assess their risk of being sanctioned under the greatly expanded scope of U.S. secondary sanctions measures. Depending on magnitudes of sanctions risk (and appetites for sanctions risk), it may be advisable to suspend Iran-related business during the wind-down periods. When the first wind-down period ends on August 6, secondary sanctions measures are expected again to cover activity concerning, for example, gold and other precious metals, software and metals, Iranian rial, the automotive sector and Iranian sovereign debt-related transactions. When the second wind-down period ends on November 4, secondary sanctions measures are expected again to cover activity concerning, for example, the energy and petrochemicals; shipping, shipbuilding and ports; finance and banking; and insurance sectors.
Redesignation of Individuals and Entities: No later than November 5, 2018, the U.S. government is also expected to return to the SDN List and certain other OFAC-administered sanctions lists sanctioned persons that were moved off of these lists under the JCPOA. United States persons have been generally forbidden to deal with these persons that OFAC previously identified as the Iranian government or an Iranian financial institution even under the nuclear agreement. But with the return of these individuals and entities to the SDN List, non-U.S. persons' dealings with these individuals and entities could leave the non-U.S. persons exposed to secondary sanctions upon their redesignation on the SDN List.
Organizations at issue include, for example, the Central Bank of Iran and other Iranian financial institutions, the National Iranian Oil Company, the Naftiran Intertrade Company and the National Iranian Tanker Company. It is unclear whether the return actions would cover all or some of over 400 individuals and entities moved off of the SDN List and certain other OFAC-administered sanctions lists under the JCPOA. The U.S. government has indicated that it will re-impose the sanctions "as appropriate."
What Snapback Means for U.S. and Non-U.S. Businesses
As the U.S. government takes actions necessary to authorize the wind down of activities undertaken in reliance on the sanctions relief under the JCPOA and to re-impose sanctions following the relevant wind-down period, U.S. businesses need to take steps necessary to avoid exposure to risk of liability under primary sanctions measures and non-U.S. businesses need to assess the risk of being sanctioned under secondary sanctions measures. Advisable steps could include:
Remaining sensitive to and closely monitoring U.S. regulatory authorities' legal actions, guidance and pronouncements in connection with the re-imposition of sanctions on Iran. The U.S. government has indicated that in the event there are inconsistencies in guidance it provides throughout the wind-down period, the later-issued guidance will govern.
In the applicable time period, utilizing U.S. government's authorizations – and, to the extent necessary, obtaining specific authorizations – to wind down activities undertaken in reliance on the sanctions relief under the JCPOA.
Creating or revising and implementing sanctions compliance policies accounting for the snapback and further sanctions developments that may unfold with respect to Iran.