After the decision to terminate US participation in the Joint Comprehensive Plan of Action, most EAR99 medical devices remain covered by general licenses for export or re-export to Iran, but medical device companies will need to identify financial institutions able to handle export-related transactions.
United States sanctions against Iran prior to implementation of the Joint Comprehensive Plan of Action (JCPOA) in January 2016 included secondary sanctions that subjected foreign parties to potential liability for transactions involving Iran, but, thanks to fairly broad general licenses and related exclusions, the sanctions exempted a large number of medical devices from their purview. For humanitarian reasons, US and non-US companies were able to export a number of medical devices to Iran, and engage in the associated dealings necessary to conduct that business. The general licenses and accompanying detailed guidance prior to the JCPOA identified many of the medical devices that could be exported to Iran, and the conditions for those exports.
The sanctions relief in the JCPOA did not initially address medical devices, but in a significant move in late 2016 and early 2017, the US Treasury Department’s Office of Foreign Assets Control (OFAC) effectively relaxed the restrictions on exporting medical devices to Iran. OFAC’s action allowed US and non-US companies to export to Iran all medical devices properly classified as EAR99 products under the US Commerce Department’s Commerce Control List (CCL), except those identified on a modified list—the “List of Medical Devices Requiring Specific Authorization.” This action opened the door to exports to Iran of many more medical devices than had been previously authorized, without the need for a specific license from OFAC.
The May 2018 decision to reimpose pre-JCPOA sanctions has thus far had limited impact on the scope of medical devices that can be sent to Iran. The Iranian Transaction and Sanctions Regulations (ITSR) provision that implements the general license, 31 CFR 560.530(a)(3)(ii), has not been changed, and therefore medical device manufacturers may continue to take advantage of the general license. The reversion to pre-JCPOA sanctions, while leaving the export authorizations in place, may impact banks’ willingness to process payments, requiring consideration of whether and how to continue conducting this business.
Following through on both a campaign promise and recent statements, on May 8, 2018, the administration began the process of terminating US participation in the JCPOA. Withdrawing from the JCPOA will result in the United States reimposing those sanctions that were lifted when the JCPOA sanctions relief went into effect in 2016. The US withdrawal includes a wind-down period designed to allow affected entities to extract themselves from unauthorized activities with Iran.
The administration’s reasons for reimposing sanctions are outlined in National Security Presidential Memorandum-11, which determined that the JCPOA has not achieved its intended purpose and that Iran violated the terms of the agreements under the JCPOA with respect to specific actions directed toward the development of nuclear weapons:
On October 13, 2017, consistent with certification procedures stipulated in the Iran Nuclear Agreement Review Act, I determined that I was unable to certify that the suspension of sanctions related to Iran pursuant to the JCPOA was appropriate and proportionate to the specific and verifiable measures taken by Iran with respect to terminating its illicit nuclear program. On January 12, 2018, I outlined two possible paths forward -- the JCPOA's disastrous flaws would be fixed by May 12, 2018, or, failing that, the United States would cease participation in the agreement. I made clear that this was a last chance, and that absent an understanding to fix the JCPOA, the United States would not continue to implement it.
That understanding has not materialized, and I am today making good on my pledge to end the participation of the United States in the JCPOA. I do not believe that continuing to provide JCPOA-related sanctions relief to Iran is in the national interest of the United States, and I will not affirm what I know to be false. Further, I have determined that it is in the national interest of the United States to re-impose sanctions lifted or waived in connection with the JCPOA as expeditiously as possible.
On the same day that the US decision went into effect, OFAC and the Department of State implemented 90-day and 180-day wind-down periods for activities involving Iran that had been authorized under the JCPOA sanctions relief. The State Department issued certain sanctions waivers for the duration of the relevant wind-down periods, while OFAC revoked or amended, as appropriate, general and specific licenses issued in connection with the JCPOA. OFAC also issued new authorizations specifically and solely to allow for the wind down of transactions and activities that had been authorized pursuant to the general and specific licenses issued when the JCPOA relief began.
The US decision to terminate participation in the JCPOA has generated significant concern and discussion regarding renewed obligations for compliance going forward. In the two years between the initial decision by the Obama administration to agree to the JCPOA and the Trump administration’s decision that the JCPOA has not worked, billions of dollars of trade and investment poured into Iran, much of which came from companies in European countries.
Prior to the JCPOA, the United States had imposed “secondary” sanctions that prohibited foreign subsidiaries of US companies, as well as foreign companies under certain conditions, from dealings with Iran. The US sanctions in effect before the JCPOA changes also curtailed (and in many cases prohibited) financial dealings with Iranian banks and government entities.
Executive Orders 13628 and 13716, which implemented the JCPOA, and a series of general licenses and guidance authorized certain specific dealings with Iran, and generally lifted the secondary sanctions prohibiting foreign subsidiaries of US companies from transactions relating to Iran, along with certain activities of non-US companies otherwise subject to the sanctions. Withdrawal from the JCPOA thus reverts US sanctions policy to the position prior to the implementation of the JCPOA sanctions relief in January 2016.
To date, however, the US position with respect to medical devices has not reverted to pre-JCPOA status, and it is not clear whether it will be impacted by the withdrawal from the JCPOA and revert to, or be replaced by, any amendment to the general license. The uncertainty stems in large part from the fact that the December 2016 amendment to 31 CFR § 560.530(a)(3)(ii) was not identified as an action taken pursuant to the JCPOA, but instead was made “to reflect OFAC’s licensing practices and address inquiries from the regulated public.” 81 Fed. Reg. 94254.
For medical device manufacturers, the JCPOA did not dramatically affect the rules relating to exports to Iran, due in large part to exemptions and general licenses specifically applicable to some medicine and medical devices that were in effect well before the JCPOA was conceived. US sanctions policy had previously exempted (or authorized) significant medicine and medical device exports (and associated dealings) with Iran, subject to enunciated conditions. The JCPOA, while making it easier to transact that business in some ways, did not include any further easing of this aspect of trade with Iran.
The primary US sanctions on Iran, the ITSR, 31 CFR part 560, early on included a general license authorizing the export or re-export of a significant amount of medicine and medical devices to Iran. As part of this general license, OFAC identified a list of medical devices approved for export to Iran, and provided guidance informing banks and others that facilitation of such transactions and the processing of payments related to them was also authorized. Later Iran sanctions legislation and regulations similarly continued these exemptions. For example, the Countering America’s Adversaries Through Sanctions Act (CAATSA), passed as part of the National Defense Authorization Act for Fiscal Year 2012, Pub. L. No. 115-44, and the Iranian Financial Sanctions Regulations, 31 CFR part 561, also contain exemptions to allow foreign parties to conduct or facilitate the sale of medicine or medical devices to Iran.
In February 2017, implementing the rule change published in December 2016, OFAC changed the applicable list from one delineating products approved under the general license to the List of Medical Devices Requiring Specific Authorization, noting that this change was consistent with existing licensing policy. In essence, the list relating to medical devices was flipped, from one that identified what could be exported to Iran to one that now identifies what cannot be exported to Iran. All medical devices properly classified as EAR99 items (and properly falling within the definition of medical devices found in 31 CFR § 560.530) have been authorized for export to Iran, and continue to be so under the current general licensing scheme.
The only medical devices that are excluded from the general license are those on the List of Medical Devices Requiring Specific Authorization or those that are not classified as EAR99. The requirement for an affirmative classification of EAR99 is relevant because it means that items not subject to the Export Administration Regulation (EAR) at all (i.e., those controlled by the International Traffic in Arms Regulations or US Department of Energy) are not covered by the general license.
The general license also permits all necessary and associated transactions (entry into contracts, shipping, insurance, receipt of payment) to give effect to the export or re-export of the medical device made pursuant to it. The requirements for payments also have not changed. Payment for authorized exports or re-exports, however, must be made in accordance with one of the specified methods in the ITSR, including the following:
Therefore, while the applicability of the ITSR’s general license remains fairly clear, any proposed payment arrangement should be carefully reviewed to ensure it complies with the various nuanced requirements in the ITSR, as now modified after withdrawal from the JCPOA.
While the reimposition of sanctions following US withdrawal from the JCPOA does not rescind the ITSR authorization for exports or re-exports of medical devices to Iran, and the accompanying authorization to handle payments and related issues in accordance with the regulations, arranging for payment terms, insurance, and other actions may not be as easy in this uncertain climate. Some banks have declined to process financial transactions involving Iran, even where that activity is not technically prohibited under the various sanctions regulations. The complexity and enforcement concerns that preceded the JCPOA are effectively back in play, and medical device companies may find many financial institutions reluctant to handle such transactions.
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Kenneth J. Nunnenkamp