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Prospects for Iran Sanctions Under the April 2 Nuclear Framework

There are no changes in the application of US sanctions against Iran as a result of the framework parameters regarding Tehran’s nuclear program announced on April 2.  Additional sanctions relief will come only if there is a final agreement concluded among Iran, the United States, the United Kingdom, France, Russia, China, Germany, and the European Union.  The parties are aiming to reach such a final agreement by June 30.

Even if a final agreement is reached, there are several important issues with respect to the application of US sanctions that are not spelled out in the parameters circulated on April 2 by the US government and that will need to be addressed in any final agreement.

First — the timing of any sanctions relief.  The parameters circulated by the US government state that sanctions will be suspended “after the IAEA has verified that Iran has taken all of its key nuclear-related steps.”  Secretary of State John Kerry has stated publicly that it could take Iran as long as a year after the signing of a final agreement before it will be able to begin to comply with the key nuclear-related steps that would allow for sanctions relief.  While the Joint Statement issued April 2 by the EU High Representative and the Iranian Foreign Minister also tied sanctions relief to “IAEA-verified implementation by Iran of its key nuclear commitments,” the statement noted that such relief would come “simultaneously” with such IAEA verification, not “after.”  Moreover, subsequent to the announcement of the framework, some Iranian officials, including the supreme leader Ayatollah Khamenei, have suggested that sanctions relief must be comprehensive and immediate upon the execution of a final agreement.  However, Obama Administration officials have emphasized that any additional sanctions relief for Iran will be “phased.”  Accordingly, it seems unlikely, at least from the US side, that there will be any significant sanctions relief upon signing of a final agreement beyond that already agreed and implemented as part of the 2013 interim agreement, which, absent an extension, will expire June 30.

Second, whether sanctions will be terminated or, instead, suspended with the ability to snap back into place if Iran fails to meet its commitments.  While the US parameters document states that U.S. and EU nuclear-related sanctions will be suspended with the ability for them to snap back, the Joint Statement by the EU High Representative and the Iranian Foreign Minister stated that the EU nuclear-related sanctions would be “terminated” and the US would “cease the application” of its nuclear related sanctions.

Third, whether Congress will impose new limitations on the President’s ability to ease U.S. sanctions targeting Iran.  Today, the Senate Foreign Relations Committee is marking up legislation―the Iran Nuclear Agreement Review Act― that, as currently drafted, would prohibit the President for 60 days following the conclusion of a final nuclear agreement with Iran from waiving, suspending, reducing, providing relief from, or otherwise limiting the application of statutory sanctions targeting Iran (other than those already eased as part of the 2013 interim agreement).  The legislation under consideration also would prohibit the President from taking any action to ease statutory sanctions even after this initial 60-day period if a joint resolution disapproving any final nuclear agreement with Iran is enacted during the initial 60-day period.  To take effect, such a joint resolution likely would require a Congressional super-majority to override a presidential veto.

Fourth, what specific US sanctions will be suspended if there is a final agreement.  The US parameters document makes clear that only the US nuclear-related sanctions would be suspended; the US sanctions against Iran relating to Iran’s terrorism, human rights abuses, and ballistic missiles will remain in place.

The US parameters document does not spell out which sanctions the United States government believes relate to terrorism and which relate to Iran’s nuclear program.  Importantly, however, it does not appear that any nuclear-related agreement with Iran would remove the restrictions that prohibit US persons and their owned or controlled non-US affiliates from engaging in virtually all unlicensed dealings with or involving Iran.  The restrictions on US persons doing business with Iran, which date back to the mid-1990s, were adopted as a result of Iran’s support for terrorism activities, not specifically in connection with Iran’s nuclear program.  And although the expansion of these restrictions to reach activities of non-US companies owned or controlled by US persons occurred only in 2012, it is far from clear that this expansion would be treated as a “nuclear-related” sanction.

The Joint Statement of the EU High Representative and the Iranian Foreign Minister supports the view that the direct US sanctions that prohibit US persons and their owned or controlled non-US affiliates from doing business with Iran will not be suspended by any final nuclear-related agreement.  Specifically, the Joint Statement said that the United States would cease the application of its “nuclear related secondary economic and financial sanctions.”

“Secondary sanctions” is the term that is generally used to refer to those retaliatory measures that the United States imposes against non-US persons that engage in certain activities involving Iran.  These sanctions, which have been significantly expanded since 2010 in various statutes and executive orders, have primarily targeted Iran’s energy, shipping, and financial sectors.  If the United States ceases to implement these secondary sanctions, then non-US persons that are not owned or controlled by US persons would not risk losing their access to US markets if they engage in activities currently targeted for such secondary sanctions.  This might include, for example, the ability to:

  • purchase petroleum and petroleum and petrochemical products from Iran

  • supply goods and services to Iran’s energy, shipping, shipbuilding, and automotive sectors

  • supply Iran with precious metals and other materials such as aluminum and steel, and

  • provide insurance and underwriting services for various Iran-related activities.

If there is a final agreement, non-US financial institutions also would be expected to be able to support activities involving Iran that are no longer targeted for secondary sanctions and to re-engage with many Iranian financial institutions―though not those designated on the US List of Specially Designated Nationals and Blocked Persons as a result of their involvement in Iran’s terrorism activities.

Not all secondary sanctions may be considered nuclear-related, however.  For example, the secondary sanctions that target investments above certain monetary thresholds in the development of Iran’s petroleum resources have been in place since the enactment of the Iran Sanctions Act of 1996 (ISA).  The Findings to the ISA make clear that it was adopted in response to terrorism and weapons proliferation concerns.  As enacted in 1996, the ISA targeted investments in Iran’s development of its “petroleum resources,” a term it defined as including only petroleum and natural gas.  Pursuant to the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, however, the term “petroleum resources” was expanded to cover not only petroleum and natural gas, but also oil or liquefied natural gas, oil or LNG tankers, products used to construct or maintain pipelines used to transport oil or LNG, and refined petroleum products, including gasoline.  In addition, many of the secondary sanctions that have been adopted since 2010 have been enacted as amendments to the ISA.  So it is unclear which, if any, of these secondary sanctions will be suspended.

Even if the ISA secondary sanctions are suspended, there is a risk that previously sanctionable investments could again be targeted for sanctions if Iran violates its commitments and the secondary sanctions “snap back”.  The United States does not usually grandfather existing projects when it imposes sanctions, and often provides for only limited wind-down periods.

In conclusion, even if there is a final agreement addressing Iran’s nuclear program by June 30, we will have to await further clarification from the US government as to which US sanctions will be suspended and the timing of any such suspension.  However, it appears to be unlikely that any such agreement will ease the prohibitions on US persons and their owned or controlled non-US affiliates doing business with or involving Iran.

© 2020 Covington & Burling LLPNational Law Review, Volume V, Number 104

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About this Author

Corinne Goldstein, Export Controls attorney, Economic Sanctions lawyer, Covington and Burling law firm
Partner

Corinne Goldstein counsels clients on US export controls, economic sanctions, and anti-boycott programs. She advises leading companies in the financial services, oil and gas, pharmaceutical, biotechnology, defense, and general manufacturing sectors. Her work includes advising on interpretive issues, developing compliance and training programs, securing licenses, and representing clients in enforcement proceedings.

Ms. Goldstein's environmental practice focuses principally on the environmental aspects of corporate transactions. She routinely...

202-662-5534
Peter Flanagan, International trade attorney, Covington
Partner

Peter Flanagan counsels clients on a broad range of compliance requirements affecting international trade and investment. These include most notably export controls, economic sanctions constraints, defense trade limitations, and the implications of related non-U.S. requirements. He also has experience in financial services regulation.

Mr. Flanagan has advised leading companies in the oil and gas sector, pharmaceutical and medical technology companies, defense contractors, manufacturing entities, financial institutions and private equity firms, software and high-technology concerns, and university-affiliated laboratories. Consistently ranked as a top-tier practitioner, Mr. Flanagan has deep experience in assisting multinational clients with complex compliance, enforcement, and licensing matters before the key U.S. trade controls agencies, including the U.S. Departments of Treasury, Commerce, and State.

202-662-5163
Joshua Williams, International trade attorney, Covington
Associate

Josh Williams advises clients across a range of complex international regulatory and public policy matters. Mr. Williams has particular expertise in economic sanctions programs administered by the Treasury Department and State Department and export control regulations administered by the State Department, Commerce Department, and Census Bureau, as well as deep experience representing clients in Foreign Corrupt Practices Act investigations.

Mr. Williams has advised clients in a wide variety of industries, including the defense, aerospace, manufacturing, financial...

202.662.5618