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Iran Sanctions Are Back On: Can Business Continue?

The Prohibitions

On May 8, 2018, the United States withdrew from the Joint Comprehensive Plan of Action and reimposed all pre-JCPOA sanctions against Iran. We provide a detailed discussion of the reimposition in our article linked here (and linked here is our prediction, a year earlier, that it would happen). After a prescribed wind-down period, all U.S. sanctions on Iran are now in force. Effectively, U.S. sanctions on Iran now return to their pre-2016 levels, including secondary sanctions on non-U.S. companies transacting with the Government of Iran and many of Iran’s industries and financial institutions.

The Business That May Continue

While the reimposition of economic sanctions on Iran significantly restricts what business can be done with the country, certain transactions will not raise the risk of sanctions liability for non-U.S. persons. Generally, if a transaction meets the following criteria, it is not likely to expose a non-U.S. company to sanctions liability:

  1. The transaction does not involve U.S. persons, including U.S. banks.
  2. The transaction does not involve any specially designated nationals or entities 50% or more owned by SDNs.
  3. The transaction does not involve an industry or activity in Iran subject to secondary sanctions.

We add three notes on the list above.

  • First, the list of industries and activities subject to secondary sanctions is more expansive for non-U.S. financial institutions (Foreign Financial Institutions or FFIs). FFIs are subject to the prohibition or limitation of their correspondent or payable-through accounts for certain transactions with a wide array of industries and activities as well as with the Central Bank of Iran and all major Iranian banks.
  • Second, we note that the list of industries and activities subject to secondary sanctions arises from a patchwork of statutes and regulations. For that reason, we recommend companies seek expert advice before proceeding with a transaction involving Iran or Iranian parties.
  • Third, it is likely that, in the wake of sanctions reimposition, U.S. enforcement officials will seek to demonstrate they are serious about Iran sanctions by making an example of a few high-profile sanctions violators. In the absence of a high-profile violator, the U.S. government may seek to make an Iran sanctions enforcement headline with the punishment of any violator. We recommend that companies interested in business in Iran take all possible steps to ensure they are acting in compliance U.S. regulations because the consequences for stepping outside the line, particularly in the first months of the reimposition, could be dire.

The Waivers

It appears that the United States will grant waivers to eight countries to allow them to continue buying Iranian oil and continue dealings with the Central Bank of Iran to finance those purchases. The names of all eight countries have not been officially reported, but we understand that the Republic of Korea, China, and India will receive waivers, and it has been reported that Japan, Turkey, Iraq and Italy may also be among the countries granted waivers.

We will update this report as soon as we receive the official announcement of those waivers.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.


About this Author

Reid Whitten, partner, Sheppard Mullin Law Firm

Reid Whitten works with clients around the world to plan, prepare, and succeed in global business transactions.

In the areas of U.S. and international sanctions, export and defense export controls, and anti-corruption regulations, he supports clients in detecting and deterring potential compliance issues as well as conducting and defending investigations and enforcements. Mr. Whitten also advises on anti-dumping, anti-money laundering, and anti-boycott regulations.

Mr. Whitten is a thought leader on cross-border business regulations. He teaches a seminar on The Law of...