by Douglas Maag, Legal Counsel, Clyde & Co
As noted in our blog last week, President Trump threatened last January to withdraw from the Joint Comprehensive Plan of Action (JCPOA) if he did not think its flaws could be fixed. While the JCPOA does not contemplate withdrawal of a party, we suggested that, to President Trump, “withdrawal” might mean reinstatement of all US sanctions that were in force prior to the negotiations that led to the JCPOA.
This proved to be the case, as on May 8 President Trump issued a memorandum directing:
The Secretary of State and the Secretary of the Treasury [to] immediately begin taking steps to re-impose all United States sanctions lifted or waived in connection with the JCPOA.
The re-imposition of sanctions is to be implemented in two stages. There will be a 90-day wind-down period for a first group of sanctions, and a 180-day wind-down period for a second group. It is not yet clear whether any conditions apply to wind-down activities, but additional guidance in this regard is expected.
Sanctions to be re-imposed after the 90-day wind-down period
Sanctions to be re-imposed after the 90-day wind-down period, which ends on August 6, 2018, relate to:
- the purchase or acquisition of US dollar banknotes by the Government of Iran;
Iran’s trade in gold or precious metals;
- the direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes;
- significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial;
- the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
Iran’s automotive sector.
In addition, at the end of the 90-day wind-down period the US will revoke authorizations to import Iranian-origin carpets and foodstuffs into the US, authorizations under specific licenses to export or re-export to Iran certain aircraft and related parts and services to Iran and authorizations related to contingent contracts concerning such exports or re-exports.
Sanctions to be re-imposed after the 180-day wind-down period
Sanctions to be re-imposed after the 180-day wind-down period, which ends on November 4, 2018, relate to:
- Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines, South Shipping Line Iran, or their affiliates;
- petroleum-related transactions with, among others, the National Iranian Oil Company, Naftiran Intertrade Company, and National Iranian Tanker Company, including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
- transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (financial institutions in countries that make significant reductions in their purchases of Iranian crude during and after the wind-down period will be eligible for exemptions from these sanctions);
- the provision of certain specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions;
- the provision of underwriting services, insurance, or reinsurance; and
Iran’s energy sector.
- As the end of the 180-day wind-down period, the US will also revoke authorizations under General License H for US-owned foreign subsidiaries to engage in Iran-related business. Although General License H will not be revoked until November 4, when “administratively feasible” OFAC will replace it with a “more narrowly scoped authorization” to engage in transactions that are ordinarily incident and necessary to wind down Iran-related activities.
Sometime between now and November 5, 2018, OFAC will re-designate as SDNs entities within the broad definition of “Government of Iran” and “Iranian financial institution”. Upon inception of the JCPOA, some 400 such entities were removed from the SDN list and placed on a newly created “13599 List”.
The process of re-imposing sanctions on Iran will be a bumpy one. These sanctions were originally imposed in layers over a period of years through a series of congressional acts and presidential executive orders. Each such sanctions provision has distinct contours and complexities.
Having so many disparate sanctions come back into play in a compressed time period presents a hefty new challenge to international businesses that wish to steer clear of harm’s way. Further US guidance on how these provisions and the related wind-down periods will apply should at least help. Various secondary sanctions will impact non-US persons, depending on the specific conduct targeted by the re-imposed US-Iran sanctions.