US and EU Iran Sanctions Relief: What Non-US Persons Need to Know
Even in light of EU and US relaxation of sanctions against Iran after Implementation Day, non-US Persons should evaluate any proposed dealings with Iran to make sure such activities do not violate any new or continuing sanctions.
EU and US documents implementing the relaxation of sanctions against Iran were issued on or shortly after Implementation Day under the Joint Comprehensive Plan of Action (JCPOA), which occurred on January 16, 2016. The documents are quite extensive and will present a number of interpretive challenges in the days to come with respect to proposed transactions between non-US Persons and Iran.
The changes in the Iranian sanctions regime by no means eliminate all US and EU sanctions. Accordingly, it would be wise for all non-US Persons to evaluate any proposed dealings with Iran to make sure that such dealings will not run afoul of continuing and new sanctions. Please also note that the new US travel restrictions discussed later in this LawFlash result from separate US legislation following recent terrorist attacks and are unrelated to the EU/US Implementation Day actions.
Our high-level summary of key points affecting non-US Persons highlighted below should be viewed as a preliminary overview. We will issue additional LawFlashes in the coming days, weeks, and months to keep our clients informed of events in this area as they unfold.
US sanctions eliminated were principally the so-called “secondary sanctions” imposed on non-US Persons as a consequence of Iran's nuclear program.
These “secondary sanctions” pertain in part to the Iranian petroleum and petrochemical sectors, shipping, shipbuilding and ports, civil aviation, automotive industry, as well as certain financial sectors and the insurance sector. Some entities, including certain Iranian banks and energy companies, will still remain “off limits” because of their past support for terrorism, or because they are owned by groups such as the Iranian Republican Guard Corps (IRGC) or the Quds Force. The sanctions relief significantly liberalizes the application of sanctions on non-US Persons, permitting them to engage in business with Iran in the commercial sectors mentioned above—provided, among other things, that the business does not involve Specially Designated Nationals (SDNs), does not involve US Persons, and does not involve the sale or re-export of US goods, technology, or services.
US sanctions (including some sanctions pertaining to non-US Persons) that relate to non-nuclear related issues are not affected by the JCPOA
The United States retains the right to impose sanctions in respect of those issues—e.g., human rights, ballistic missiles, and support for terrorism. As a consequence of recent Iranian missile tests, which the United States contends to have been in violation of United Nations (UN) sanctions, the US has actually imposed new sanctions on certain Iranian individuals and entities.
US sanctions, including secondary sanctions, pertaining to dealings with SDNs remain in effect.
It should be noted, however, that a significant number of Iranian SDNs have been removed from the SDN list.
US Persons continue to be subject to the prohibition against most trade and commercial activity with Iran.
Notably, however, the President has delegated to the Secretary of State the authority to authorize export transactions that the Secretary of State determines to be in the national interest. The only changes to those sanctions are to allow the import of certain foods (notably pistachio nuts and caviar) and carpets from Iran into the United States, and to favorably consider case-by-case licensing of US exports of civilian aircraft and parts to Iran. In this respect, it is important to note that US Persons include not only US citizens (including dual citizens), but also persons with US permanent resident status (even if those persons do not presently reside in the United States) and persons subject to the jurisdiction of the United States (which could include non-US Persons while they are physically present in the United States).
For more details, see our January 2016 LawFlash “Implementation Day Arrives, Triggering Relaxation for US Sanctions Against Iran.”
There has been some relaxation of sanctions applicable to Iran-related dealings of foreign entities owned or otherwise controlled by US Persons.
Such sanctions relief is subject to a number of limitations contained in the new US Office of Foreign Assets Control (OFAC) General License H. Further, it appears that US Person individuals who work for such subsidiaries will still be generally barred from participating in such activities or otherwise "facilitating" such activity. There are only two new limited “carve-outs” to the general ban on facilitation:
US Persons (including US parent companies and their senior executives and board members) will be permitted to approve establishment or alteration of intra-group operating policies and procedures to the extent necessary to allow a US-owned or controlled foreign entity to engage in now-permitted transactions.
US Persons (including parent companies and their staff) are permitted to make available to their owned/controlled foreign affiliates any computer, accounting, email, telecoms, or other business support systems as necessary to store, collect, transmit, generate, or otherwise process documents or information relating to the now-permitted transactions by such foreign affiliates. But these US Persons will not be permitted to engage in, or otherwise facilitate, day-to-day dealings with Iran that are not otherwise authorized by the US sanctions regulations or by a specific license. It will be important that US Persons do not allow themselves to be drawn into oversight activities of their foreign subsidiaries that would constitute improper facilitation. More detail in this area can also be found in our January 2016 LawFlash “Implementation Day Arrives, Triggering Relaxation for US Sanctions Against Iran” and further updates will be provided on the scope of General License H and the significant limitations.
The JCPOA permits nuclear-related sanctions to “snap back” into place if Iran violates its commitments.
With this in mind, it would be prudent (to the extent possible) for non-US companies entering into transactions with Iran to include safeguards in their contracts with Iranian parties to ensure that they can exit such agreements (or at least to mitigate the risks) in the event that re-imposed sanctions render such transactions a sanctionable activity.
The Frequently Asked Questions (FAQ) about the sanctions liberalization issued by OFAC notes that contracts signed prior to “snap back” will not be grandfathered—although the FAQ suggests that, in re-imposing sanctions, the US government has a past practice of working with companies to minimize the impact of sanctions on legitimate activities undertaken prior to imposition of sanctions. While the administration of US President Barack Obama would have strong incentives not to invoke the “snap back” provisions except in the case of egregious violations by Iran of the Agreement, the United States has, as noted above, recently imposed new sanctions on Iran in response to missile tests conducted by the country. Moreover, all of the Republican Party candidates for the presidency have expressed strong anti-Iran views.
Exports of goods, technology, and services from the United States will continue to be subject to applicable export controls.
As noted above, such export controls include restrictions on re-exports and transshipment of controlled goods, technology, and services after export from the United States.
US financial institutions are not permitted to engage in transactions involving clearing or processing of dollar transactions with Iran, and are not permitted to allow such transactions by foreign banks to be cleared through US financial institutions unless the transactions are subject to a specific or general license.
Given the large recent fines against US and non-US financial institutions for violations of Iran sanctions, you should expect any financial institution to scrutinize carefully any claim that a transaction is subject to a specific or general license, which could result in significant delays in payment. Bank policies can be more stringent than the OFAC regulations themselves. Note that General License H applicable to foreign entities owned or controlled by US Persons expressly does not authorize the use of the US financial system.
Sanctions imposed by US state and local governments may continue to remain in effect.
These sanctions can preclude the award of state and local government procurement contracts to companies doing business with Iran, as well as preclude state-regulated pension and other funds from investing in companies doing business with Iran. The Agreement includes an undertaking by the US government to encourage state and local governments to repeal such sanctions, but the US federal government does not have the power in many cases to force the state and local governments to repeal such sanctions.
“Watchdog” organizations that monitor business with Iran and launch campaigns against certain industries are not going away.
If non-US Persons have any US investors or lenders, they can also expect the need for extensive due diligence and representations and warranties with respect to compliance with remaining US and foreign sanctions regarding any business with Iran. Moreover, if non-US Persons are publicly listed in the US, they may be subject to mandatory SEC disclosure requirements concerning any activities involving Iran.
Certain EU sanctions will remain in place for an estimated eight years after Implementation Day.
On January 16, 2016, the EU lifted all nuclear-related economic and financial EU sanctions against Iran. These include the following:
Financial, banking, and insurance measures
Import, purchase, swap, and transport of crude oil and petroleum products, gas, and petrochemical products from Iran
Sanctions related to shipping and shipbuilding sectors, and certain sanctions related to the transport sector
Sale, supply, purchase, export, transfer, or transport of gold and various precious metals
Sale, supply, transfer, or export of certain software
EU sanctions imposed in view of the human rights situation in Iran, support for terrorism and other grounds are not part of the nuclear deal with Iran, and will remain in place—such as an asset freeze and visa ban on 84 persons and one entity responsible for grave human rights violations, as well as a ban on exports to Iran of equipment that might be used for internal repression and of equipment for monitoring telecommunications. Certain Iranian banks also remain listed. EU businesses operating in the military sector will also remain subject to continuing export restrictions. The arms embargo on Iran will continue for five years. Prior authorizations will be granted on a case-by-case basis by each EU Member State’s authority for the export of goods and technology in Annexes I, II, VIIA, and VIIB to Council Regulation 267/2012, as modified by Council Regulation No. 2015/1861.
In any case, companies are well-advised to check the updates and instructions issued by the national export control agencies for bans or prior export authorizations and compare them with the existing US sanctions regime.
Travel to Iran may have a negative impact on an individual’s participation in the US Visa Waiver Program—Electronic System for Travel Authorization (ESTA).
Many non-US citizens rely on the US Visa Waiver Program (VWP), which allows visa-free entry into the United States for visitors from certain eligible countries, provided that such individuals participate in the ESTA registration process. In the year-end spending bill adopted by US Congress and signed into law by President Obama, the eligibility criteria for VWP were modified to prohibit individuals who have travelled to Iraq, Syria, Iran, or Sudan (or other countries designated by the US government) at any time on or after March 1, 2011, as well as individuals with double-nationalities, from participating in the VWP. For more information about this area, see our January 2016 LawFlash “Visa Waiver Program Changes Now Being Implemented.”
We expect more guidance on this issue in the upcoming months.
 “US Person” means 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 in the United States. A US citizen or permanent resident alien living or working outside of the United States is captured by this definition. A non-US-incorporated subsidiary/affiliate of a US parent company is not captured by the US Person definition, but see the important cautions discussed below in this connection.