US Removes Some Sanctions Against Iran: Implementation Day of the JCPOA
January 18, 2016
By Tina Monshipour Foster and Caitlin Steinke, Law Firm of Tina Foster
The Joint Comprehensive Plan of Action (JCPOA), also known as the Iran Nuclear Deal, is a binding, multi-national treaty with major implications for Iran’s participation in the global economy. The JCPOA is the result of high level negotiations between Iran, the United States, China, Germany, France, Russia, and the United Kingdom. The purpose of the agreement is to provide sanctions relief in exchange for Iran taking verifiable steps to ensure that its nuclear program is exclusively peaceful.
The JCPOA went into effect on January 16, 2016, also known as “Implementation Day,” after the US Secretary of State confirmed the International Atomic Energy Association’s verification that Iran has complied with its key nuclear-related commitments under the JCPOA. This article provides an overview of the changes in US law that went into effect on Implementation Day.
US GOVERNMENT ALLOWS LIMITED TRANSACTIONS BETWEEN US PERSONS AND IRAN
The implementation of the JCPOA will have a very limited effect on the ways US individuals, organizations, and businesses can engage with Iran. The US adopted the JCPOA in response to concerns specifically about Iran’s nuclear program. The agreement does not address US sanctions placed on Iran in response to concerns about human rights abuses or funding of terrorism. Therefore, despite the lifting of nuclear-related secondary sanctions, the overwhelming majority of the primary sanctions – directed toward US persons – are still in place.
US persons continue to be generally prohibited from engaging in any transactions with Iran unless such transactions are exempt by regulation or authorized by an Office of Foreign Assets Control (OFAC) license. “US persons” includes (1) all US citizens and legal permanent residents, no matter where they are located, (2) all individuals and entities within the United States, (3) all US-incorporated entities and foreign branches, and (4) non-US entities that are owned or controlled by a US person.
On Implementation Day, the US government took steps to allow US persons to engage in the following transactions:
1. The importation into the United States of Iranian-origin carpets and foodstuffs
OFAC has issued a general license for US persons to engage in the importation of Iranian-origin carpets and foodstuffs, including pistachios and caviar. The license will become effective upon publication of the amendment in the Federal Register. While US persons will be permitted to import Iranian carpets and foodstuffs into the United States without violating OFAC regulations, such goods will still be subject to all other laws and regulations governing goods imported into the United States (such as those administered by the Departments of Agriculture or Commerce, the Food and Drug Administration, and Customs and Border Protection). Additionally, the importation of Iranian carpets and foodstuffs cannot involve debiting or crediting an Iranian bank account. Therefore, while the general license permits US persons to purchase such goods from Iran, it does not make it easy to do so. US individuals and organizations should consult with an attorney familiar with US-Iran sanctions law before engaging in any proposed transaction, as criminal and civil penalties may still be imposed for violations of OFAC sanctions that are not properly authorized by this license.
2. Certain activities between Iran and non-US entities that are owned or controlled by a US person
For purposes of the Iran sanctions, non-US entities that are owned or controlled by a US person (ie. foreign subsidiaries of US companies) are considered US persons, and thus do not benefit from the lifting of nuclear-related secondary sanctions. However, OFAC has issued a general license authorizing US-owned or –controlled foreign entities to engage in certain transactions involving Iran that would otherwise be prohibited by the primary sanctions still in place. These activities must be consistent with the JCPOA and applicable US laws and regulations. In order to be considered a US-owned or –controlled foreign entity for purposes of this new general license, the US person that owns or controls the foreign entity must meet one of the following criteria: (1) hold a 50% or greater equity interest by vote or value in the entity, (2) hold a majority of seats on the board of directors of the entity, or (3) otherwise control the actions, policies, or personnel decisions of the entity.
There are several transactions that are not permitted by this new general license, including any transfer of funds to, from, or through a US bank. This new general license is especially complex, and US-owned or –controlled foreign entities should consult with an experienced OFAC attorney before engaging in otherwise-prohibited transactions with Iran.
3. The export, reexport, sale, lease, or transfer of commercial passenger aircraft and related parts and services to Iran for exclusively civil, commercial passenger aviation end-use
US persons still need to apply for an OFAC license to engage in these activities, but the US government has established a favorable licensing policy with respect to these transactions. Specific licenses will be granted on a case-by-case basis, and will authorize a specific US person to engage in an otherwise prohibited transaction. If the specific license is granted, the US person must follow its terms and conditions precisely, or be at risk of violating OFAC regulations.
US GOVERNMENT LIFTS SECONDARY SANCTIONS AGAINST IRAN FOR NON-US PERSONS
On Implementation Day, the US government lifted its nuclear-related secondary sanctions against Iran. Secondary sanctions are directed toward non-US persons for certain transactions with Iran that occur outside the United States and do not involve any US persons. The lifting of the nuclear-related secondary sanctions affects the following:
- Iran’s financial, banking, energy, petrochemical, shipping, shipbuilding, and automotive sectors
- Iran’s port operators
- The provision of insurance, re-insurance, and underwriting services in connection with activities that are consistent with the JCPOA
- Iran’s trade in gold and other precious metals
- Trade with Iran in graphite, raw or semi-finished metals such as aluminum and steel, coal, and certain software in connection with activities that are consistent with the JCPOA
- The provision of services associated with the above categories
Importantly, the US government still prohibits non-US persons from conducting transactions with any of the individuals or entities on the Specially Designated Nationals (SDNs) list maintained by OFAC. At the time of Implementation Day, the SDN list included more than 200 Iranian individuals and entities.
For more information, please see the OFAC publication “Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions Under the Joint Comprehensive Plan of Action (JCPOA) on Implementation Day.”
This article provides only general information, and is not intended as legal advice. Please consult with an attorney for guidance on specific legal matters.