United States Lifts Certain Sanctions Against Iran, With Limited Impact on U.S. Companies

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The United States suspended certain “secondary sanctions” against Iran that apply to non-U.S. companies for transactions that take place outside of the United States and do not involve U.S. persons on “Implementation Day,” January 16, 2016, under the Joint Comprehensive Plan of Action (JCPOA).  The Office of Foreign Assets Control (OFAC) also issued a general license (General License H or GL H) that permits foreign entities that are “owned and controlled” by U.S. companies to do business with Iran in many sectors, as described below. 

The United States’ “primary sanctions” against Iran, those that apply to U.S. companies or persons in the United States, continue to apply.  The only primary sanctions suspended under the JCPOA are those on the export of goods and services to Iran for commercial passenger aircraft and on the import of Iranian foodstuffs and carpets into the United States.  This means U.S. companies and other “U.S. persons” generally still are prohibited from doing business with Iran. 

Despite this suspension of sanctions, the United States retains the ability to quickly re-impose them if Iran does not maintain compliance with its nuclear-related commitments.[1] The United States is not obligated to terminate Iran sanctions under the JCPOA until the International Atomic Energy Agency (IAEA) has concluded that all nuclear material in Iran is used for peaceful activities or October 18, 2023, whichever is earlier. 

Foreign Entities Owned/Controlled by U.S. Persons

The sanctions relief almost entirely is limited to those imposed on non-U.S. companies and persons.  Foreign entities that are “owned or controlled” by U.S. companies are now permitted to conduct business with Iran and Iranians, although a number of transactions remain prohibited for such non-U.S. companies.  A foreign entity is considered “owned or controlled” by a U.S. person when the U.S. person

  • holds a 50 percent or greater equity interest by vote or value in the entity;
  • holds a majority of seats on the board of directors of the entity; or
  • otherwise controls the actions, policies or personnel decisions of the entity. 

Before Implementation Day, U.S. companies faced penalties if foreign entities they owned or controlled transacted with Iran.  General License H now allows such non-U.S. companies to transact with Iran, subject to certain exceptions.  Among these exceptions, certain long-standing prohibitions that applied to the conduct of all non-U.S. persons remain for those that are owned or controlled by a U.S. person, such as the prohibitions on transshipping U.S. origin goods or goods incorporating more than a de minimis amount of controlled U.S. content to Iran.  In addition, GL H does not authorize U.S.-owned or controlled foreign entities to do the following:

  • Export items, directly or indirectly, from the United States to Iran
  • Transfer funds to, from or through the United States pursuant to an authorized transaction
  • Transact with persons that OFAC has blocked under non-Iran sanctions
  • Transact with persons OFAC finds to be evading U.S. sanctions
  • Export goods, services or technology for which an export license would be required under the Export Administration Regulations (EAR)
  • Transact with a military, intelligence or law enforcement entity of the Government of Iran
  • Engage in sanctionable activities (i.e., relating to terrorism, Syria, Yemen and Iran’s weapons of mass destruction programs and human rights abuses)
  • Participate in activity involving Iran’s nuclear procurement channel established under the JCPOA

Moreover, U.S. persons generally continue to be prohibited from facilitating transactions with Iran or Iranian nationals, even if the transactions in question are legal for a non-U.S. entity.  Thus, a U.S. company that owns or controls a non-U.S. company must ensure that U.S. persons are not involved in transactions with Iran.  OFAC has allowed (in GL H) U.S. persons to be involved in altering and implementing corporate policies of its non-U.S. entity in order to permit the non-U.S. entity to transact with Iran.  GL H also permits U.S. companies to make available to non-U.S. entities integrated computer, accounting, email, telecommunications and other business support systems that are used in transacting with Iran.  OFAC likely will construe these exceptions to the facilitation prohibitions narrowly.  Many pitfalls likely remain, therefore, for many U.S. companies that authorize U.S.-owned or controlled foreign entities to do business with Iran.

Suspension of Industry-Specific Sanctions

The United States also has suspended sanctions applicable to non-U.S. companies (whether or not owned or controlled by a U.S. person) related to the following industries:

  • Finance and banking
  • Provision of underwriting services, insurance or re-insurance in connection with activities that are consistent with the JCPOA
  • Iran’s energy and petrochemical sectors
  • Iran’s shipping and shipbuilding sectors and port operators
  • Iran’s trade in gold and other precious metals
  • Trade with Iran in graphite, raw or semi-finished metals, such as aluminum and steel, coal and software for integrating industrial processes, in connection with activities that are consistent with the JCPOA
  • Sale, supply or transfer of goods and services used in connection with Iran’s automotive sector     
  • Associated services for each of the categories above

Removals from Prohibited Parties Lists

The U.S. has also removed over 400 individuals and entities from OFAC’s various sanctioned entities lists, including its list of Specially Designated Nationals and Blocked Persons (SDN List), Foreign Sanctions Evaders List (FSE List) and/or the Non-SDN Iran Sanctions Act List (NS-ISA List).  As a result, non-U.S. persons will no longer be subject to sanctions for conducting transactions with these formerly blocked individuals and entities.  U.S. persons continue to be prohibited from dealing with these individuals.

To underscore OFAC’s commitment to sanctions outside the scope of the JCPOA, OFAC announced over the weekend that it added several Iranian nationals to the SDN list because of their involvement in proliferation activities in Iran.  Even after Implementation Day, OFAC maintains sanctions against Iranians who are part of the Iranian Revolutionary Guard Corps or are deemed to be involved in Iran’s pursuit of weapons of mass destruction or international terrorism.  These sanctions apply to U.S. and non-U.S. persons. 

Limited Sanctions Relief for U.S. Companies

Despite all of these changes to the U.S. sanctions against Iran, only very limited sanctions relief actually applies to U.S. persons.  Even after Implementation Day, with limited exceptions, U.S. persons—including U.S. companies—continue to be broadly prohibited from engaging in any transactions or dealings with Iran or its government.  OFAC defines “U.S. persons” for this purpose as any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches) or any person (even foreign persons) in the United States.  The sanctions relief for U.S. persons under the JCPOA is limited to the following:

  • Case-by-case licensing by OFAC of individuals and entities seeking to export, re-export, sell, lease or transfer to Iran commercial passenger aircraft, and related parts and services, for exclusively commercial passenger aviation 
  • General License H, as discussed above, allowing certain activities by U.S. companies to enable their foreign owned or controlled subsidiaries to enter into transactions with Iran that are allowed under GL H
  • A general license authorizing the importation into the United States of Iranian-origin carpets and foodstuffs, including pistachios and caviar

Conclusion: Risks to U.S. Companies

Significant risks remains for most U.S. companies that authorize their owned or controlled foreign subsidiaries to do business with Iran.  First, U.S. persons cannot be involved in the day-to-day Iran-related operations of a U.S. owned or controlled foreign entity.  Second, many Iran-related prohibitions remain applicable to U.S. and non-U.S. persons that could inadvertently cause violations of U.S. law without careful attention to the facts of a given transaction.  Third, if Iran’s compliance with the JCPOA comes into questions, either by executive branch or Congress, the United States may quickly re-impose sanctions against Iran. 

 

ENDNOTE

[1] The Department of Treasury Office of Foreign Assets Control (OFAC) has stated it is “unable to predict how far in advance” it will notify the public if it intends to re-impose sanctions.  Only upon Transition Day, scheduled for October 18, 2023 or when the IAEA has concluded that all nuclear material in Iran is used for peaceful activities (whichever is earlier), is the United States obligated to terminate certain statutory sanctions.

[View source.]

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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