Despite what has been widely reported in the media, on the streets, and around the water coolers of many an eager U.S. retailer, manufacturer, importer and exporter, the reports of the complete lifting of the U.S. sanctions on Iran have been greatly exaggerated. The following is intended to provide a clear picture of the current status of the U.S. sanctions on Iran, as well as to clarify what the recent nuclear-related sanctions relief actually means for U.S. companies. The key takeaways here are that: (1) the recent lifting of certain secondary nuclear-related sanctions on Iran primarily impacts non-U.S. companies; and, (2) U.S. companies and their foreign affiliates are still prohibited from selling and exporting products to Iran in the absence of an available General License, a one-year license under the Trade Sanctions Reform Act (TSRA) or a Specific License from Office of Foreign Assets Control ("OFAC").
The story begins back in November 2013, when the "P5+1" countries (the United States, the United Kingdom, France, China, Russia, and Germany) reached an initial understanding with Iran, which is referred to as the Joint Plan of Action ("JPOA"), that provided for the suspension of certain nuclear-related sanctions in return for Iran's commitment to limit its nuclear program. In January 2014, the JPOA resulted in:
- The lifting of the restrictions on non-U.S. persons which previously prohibited transactions with Iran involving petrochemical products, the automobile industry, sales of gold and other precious metals, and exports of Iranian crude oil to China, India, Japan, South Korea, Turkey, and Taiwan; and,
- The ability of U.S. persons to obtain Specific Licenses from OFAC to supply spare parts to Iran in support of the safe operation of civil aircraft.
Take note that the term non-U.S. persons refers to foreign companies that are not incorporated in the United States, and that are not owned or controlled by U.S. persons. Foreign subsidiaries, branches and other business entities that are owned or controlled by U.S. persons are themselves considered to be U.S. persons for purposes of the U.S. sanctions on Iran. Thus, the initial nuclear-related sanctions relief that went into effect in 2014 provided little (if any) benefits to most U.S. companies and their foreign affiliates. U.S. companies and the foreign affiliates that they own or control are still prohibited from exporting to and dealing with Iran without an applicable General License, a one-year TSRA license or an OFAC Specific License, as appropriate.
Subsequently, on July 14, 2015, the "P5+1" countries announced an agreement to restrict Iran's nuclear program in exchange for providing additional phased economic sanctions relief. The agreement, otherwise known as the Joint Comprehensive Plan of Action ("JCPOA"), required Iran to take certain initial steps with regard to its nuclear program that would be verified by the International Atomic Energy Agency ("IAEA"). That agreement was formally adopted on October 18, 2015, and the contemplated lifting of additional sanctions was slated to go into effect on "Implementation Day" – the day on which the IAEA would officially verify Iran's compliance with its JCPOA obligations.
That so-called "Implementation Day" occurred most recently, on January 16, 2016, when the P5+1 countries announced that the IAEA had in fact verified Iran's compliance with its nuclear program-related obligations under the JCPOA. With this announcement, the U.S. lifted additional nuclear-related sanctions on Iran, and began allowing non-U.S. persons to engage in the following activities:
- Transactions with certain previously blocked Iranian entities
- Trading in Iranian rials and providing banknotes to the Government of Iran
- Dealing in Iranian sovereign debt
- Bilateral trade limitations on Iranian revenues held abroad
- SWIFT messaging to the CBI and Iranian financial institutions
- Dealings in Iranian petroleum, petrochemical products, and natural gas
- Investments in the Iranian energy sector
- Provision of refined petroleum and petrochemical products to Iran
- Transactions with certain Iranian energy sector entities
- Transactions with Iran's shipping and shipbuilding sectors and port operators
- Provision of goods and services to Iran's automotive sector
- Underwriting services, insurance, and reinsurance
- Trade in gold and other precious metals
- Dealings in graphite, raw or semi-finished metals, coal, and software for integrating industrial processes
Again, the lifting of the sanctions shown above only impacted non-U.S. persons – not U.S. companies or their foreign affiliates. The only new opportunities afforded to U.S. companies and their foreign affiliates included:
- The ability to apply for and obtain authorization from OFAC to engage in the same activities that non-U.S. persons are able to perform (as reflected in the bullet points above);
- The ability for foreign subsidiaries of U.S. companies to engage in "associated services" (i.e., the provision of technical assistance, training, insurance, re-insurance, brokering, transportation or financial services) that are "necessary and ordinarily incident" to the same activities that non-U.S. persons are able to perform (see above);
- The ability of both U.S. companies and their foreign affiliates to obtain Specific Licenses from OFAC to export, reexport, and transfer commercial passenger aircraft and related parts and services to Iran; and,
- The ability of both U.S. persons and their foreign affiliates to obtain Specific Licenses from OFAC to import Iranian-origin carpets and foodstuffs, such as pistachios and caviar, into the United States.
In addition to the additional sanctions relief, the U.S. will also remove certain individuals and entities from the Specially Designated Nationals ("SDN") Lists, Foreign Sanctions Evaders List, and/or the Iran Sanctions Act List.
On Implementation Day, OFAC also rolled out new General License H that allows foreign subsidiaries of U.S. companies to engage in transactions involving Iran (including the Government of Iran) even if its parent is prohibited from doing so without a Specific License from OFAC. New General License H does not apply to foreign branches of U.S. companies – only to foreign subsidiaries of U.S. companies. It also does not allow foreign subsidiaries to transfer funds to or from the U.S. financial system, deal with SDNs, or reexport goods or technology (or provide services) from the United States to Iran. General License H also allows U.S. parent companies to amend their corporate policies and procedures so as to segregate the foreign subsidiaries' activities with Iran and prevent unlawful facilitation by the parent or U.S. persons – including individuals employed by the foreign subsidiary. U.S. parent companies may also provide automated and globally integrated computer, accounting, e-mail, telecommunications, and other business support systems, platforms, databases, applications or servers necessary for storing, collecting, transmitting, generating or otherwise processing documents or information that may involve the foreign subsidiaries' dealings with Iran. The term "automated" refers to the passive operation of systems without human intervention for the flow of data among U.S. persons and their owned or controlled foreign entities.
Again, most of the restrictions prohibiting U.S. persons from dealing with Iran still remain in effect as they were implemented in response to Iran's human rights record, support for international terrorism, and proliferation of weapons of mass destruction – they were not imposed as a result of Iran's nuclear-related activities.
In the future, on the day in which the IAEA provides additional verification regarding Iran's compliance with the JCPOA, which will be referred to as "Transition Day," the U.S. will lift all remaining restrictions on:
- Iran's trade in graphite, raw or semi-finished metals, coal, and software for integrating industrial processes for all activities;
- Iran's acquisition of nuclear-related commodities and services;
- Joint ventures related to the mining, production, or transportation of uranium; and,
- The entry into the United States of Iranian citizens seeking to participate in higher education coursework relating to nuclear science, nuclear engineering, or the energy sectors.
The U.S. will also remove additional persons from the SDN Lists, Foreign Sanctions Evaders List, and/or the Iran Sanctions Act List, and will encourage state officials to refrain from taking any actions that are deemed inconsistent with the JCPOA (e.g., current state laws that require divestment from, or prohibit awarding state contracts to, companies that are doing business with Iran). Note that Transition Day may not occur for up to eight (8) years, and again will have little to no effect on the sanctions imposed in response to Iran's human rights abuses, WMD proliferation, and support for terrorism.
Thus, for U.S. companies and their foreign affiliates, commercial opportunities with Iran will remain limited. Companies will need to continue depending upon General Licenses which currently cover exports of medicine and basic medical supplies, certain food items, replacement parts for certain medical devices, internet services and software, and software and hardware incident to personal communications. Where no General Licenses apply to proposed transactions or activities, U.S. companies and their foreign affiliates must either seek out one-year TSRA licenses for eligible products, or obtain Specific Licenses from OFAC.
Melissa Proctor is a Shareholder with Polsinelli, P.C. With significant experience in the customs laws and regulations, export controls, economic sanctions, and international trade, Melissa is committed to understanding companies' operations and providing assistance geared toward helping them reach their specific business and operational goals. She may be reached at (602) 650-2002 or via e-mail at firstname.lastname@example.org.