The impact of Implementation Day will vary depending on whether you are a US Person, a US-owned or controlled Foreign Entity, or a Foreign Person with no US nexus—what’s your status?
On January 16, the United States relaxed sanctions against Iran, marking “Implementation Day” in connection with the Joint Comprehensive Plan of Action (JCPOA) entered into by the United States, European Union, United Kingdom, France, China, Russia, Germany, and Iran, for which Iran has presumably met key nuclear-related measures required by the agreement.
This relaxation of sanctions against Iran results in (1) very few changes for US individuals and US companies (US Persons); (2) somewhat greater changes for foreign companies that are owned or controlled by US Persons (US-owned or controlled Foreign Entities); and (3) rather significant changes for foreign companies that have no US Person ownership (Foreign Persons) that are involved in Iranian transactions with no US nexus (such as any US-origin content).
The sanctions relaxation that occurred on January 16 emanates almost exclusively from the US Government’s (USG’s) revision of nuclear-related secondary Iran sanctions and the USG’s relatively minor modifications to its primary Iran sanctions.
Before summarizing the implications of the Iran sanction relaxation that occurred on Implementation Day, it is important to clarify the following:
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So what does US Iran sanctions relaxation post-Implementation Day (1.16.2016) really mean for each of the constituents delineated below?
For US Persons, very few changes were made to the status quo. The sanction changes implemented on January 16 applicable to US Persons constitute relatively minor modifications to the USG’s primary Iran sanctions. These sanctions already encompass several “general licenses” that authorize US Persons’ exports of medicine, medical devices, and agricultural products to Iran. These longstanding general licenses remain available. However, in accordance with the terms of the JCPOA, the United States committed to license three additional categories of activities that would otherwise be prohibited under the USG’s primary Iran sanctions.
These additional categories of activities are licensed by means of the following:
Aside from these minor modifications, the USG’s primary Iran sanctions remain largely unchanged after Implementation Day and, as a consequence, US Persons continue to be broadly prohibited from engaging in transactions or dealings in or with Iran or its government. In addition, the government of Iran and Iranian financial institutions remain persons whose property and interests in property are blocked; US Persons continue to be broadly prohibited from engaging in transactions or dealings with the government of Iran and Iranian financial institutions, with the exception of transactions that are exempt from regulation or authorized by OFAC.
Somewhat greater changes than those that affect US Persons resulted for US-owned or controlled Foreign Entities in the wake of Implementation Day.
These changes occurred exclusively through the issuance of General License H, which was issued and became effective on Implementation Day. General License H authorizes US-owned or controlled Foreign Entities to engage in transactions, directly or indirectly, with the government of Iran (or any person subject to the jurisdiction of the government of Iran) that otherwise would be prohibited by the US primary Iran sanctions under 31 C.F.R. § 560.215. This authorization is significantly constrained by several key exceptions that exclude from the ambit of General License H certain specified transactions, including but not limited to the following:
To insure that an intended transaction is authorized under General License H, it is essential for US-owned or controlled Foreign Entities to closely review the provisions of General License H and its significant exceptions. If an intended transaction does not fall entirely within the scope of General License H, it is not a permissible transaction and would constitute a violation of 31 C.F.R. § 560.215 in the US primary Iran sanctions.
Rather significant changes have been implemented following Implementation Day for Foreign Persons that are devoid of US Person ownership and that are engaged in Iranian transactions with no US nexus.
On Implementation Day, the United States lifted its nuclear-related secondary sanctions against Iran. These sanctions were directed toward Foreign Persons that engaged in certain conduct that occurred entirely outside of US jurisdiction but involved industry sectors in Iran for which the United States sought to curtail development and growth. These industry sectors included energy, petrochemical, automotive, financial, banking, mining, shipbuilding, and shipping. By lifting the secondary sanctions against Iran, the USG effectively removed US-imposed restraints on dealings by Foreign Persons with formerly targeted Iranian business sectors. That said, it is important for such Foreign Persons to consider the possible implications of the US primary Iran sanctions as well as the remaining US secondary Iran sanctions before undertaking activities involving Iranian industry sectors that were formerly targeted.
Primary Iran sanctions and secondary Iran sanctions may be implicated as follows:
Much of the above discussion is based on the Guidance and FAQs that OFAC has published on its website. However, it should be noted that OFAC has prefaced its FAQ section with a disclaimer that states the following:
“This document is explanatory only and does not have the force of law. Please see particularly the legally binding provisions. . .governing the sanctions. This document does not supplement or modify the statutory authorities, Executive orders, or regulations.”
Please keep this disclaimer in mind and note that the analysis in this LawFlash may be subject to future revision as necessary and appropriate. We will be releasing future LawFlashes as events unfold to provide greater analysis and bring the discrete topics discussed in this LawFlash into increasingly sharper focus. Please stay tuned.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Carl A. Valenstein