US Sanctions Against Iran Re-Imposed as Wind-Down Periods for Iran Deal Expire
Authors' Note: This Advisory is structured in four parts. Part I provides a summary of the previously waived Iran-related sanctions that have been re-imposed by virtue of the US withdrawal from the JCPOA, both today as well as on August 6, 2018. Part II highlights new sanctions that have been imposed today with new designations. Part III discusses important international reactions to the US action, including a blocking statute enacted by the European Union as well as the decision by the International Court of Justice that the US remove any impediment to humanitarian-related trade with Iran. Finally, Part IV further analyzes the practical effects of the sanctions that have gone back into effect as a result of the US withdrawal from the JCPOA.
November 5, 2018 marked the end of the wind-down periods for trade involving Iran that was previously authorized under the Joint Comprehensive Plan of Action (JCPOA), but is now once again prohibited for US persons and subject to extraterritorial sanctions for non-US persons and entities. Non-US companies in the energy, shipping and insurance sectors, as well as financial institutions, are most likely to be affected, among others. The JCPOA, or the "Iran Deal," is a multilateral agreement that the United States (US), United Kingdom (UK), France, Germany, Russia, China, and Iran had signed on January 16, 2016. Effective that date, the US suspended a number of sanctions against Iran in exchange for Iran making certain commitments related to its nuclear program.
The end of the wind-down periods marks the largest single-day ever for US sanctions action targeting Iran. More than 700 individuals, entities, aircraft, and vessels are included in today's sanctions. As part of the re-imposition of JCPOA withdrawn sanctions, the Administration's actions also include over 300 new designations in Iran's banking, energy, shipping, and aviation sectors.1 In addition, OFAC removed the EO 13599 List (a list of entities identified only for the connection to the Government of Iran instead of an independent reason for designation such as support for terrorism), and almost 250 persons and associated blocked property previously enumerated on the EO 13599 List have been added to the Specially Designated Nationals (SDN List).
The practical effects of today's actions are not limited to non-US companies owned or controlled by US persons. Nearly all of the sanctions that have gone back into effect today are secondary (i.e., extraterritorial) sanctions, meaning that they allow the US to penalize non-US persons for engaging in certain specific conduct involving Iran that occurs entirely outside of the jurisdiction of the United States. For instance, the US can now impose sanctions on non-US financial institutions (as well as US financial institutions, as has always been the case) for engaging in transactions with the Central Bank of Iran and other Iranian financial institutions designated under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA). The same is true for non-US or US persons who engage in significant transactions involving Iran's energy sector, Iran's shipping industry (including the Islamic Republic of Iran Shipping Lines (IRISL)), and more.
When President Trump announced that the US would withdrawal from the JCPOA on May 8, 2018,2 the Administration also announced that it would institute two wind-down periods, of 90 and 180 days, after which it would formally re-impose the previously waived sanctions against Iran.3 The end of the first wind-down period, which was August 6, 2018, already brought a handful of previously waived sanctions back into effect, including, for instance, sanctions involving Iran's automotive sector. However, the most significant sanctions, which were subject to the 180-day wind-down period, will go back into effect (or "snap back") today, November 5, 2018.
The Iran-related sanctions that have been re-imposed today will have significant practical implications (as the US withdrawal from the JCPOA has already), particularly for non-US companies.4 Previously, non-US companies owned or controlled by US persons5 were permitted—under an authorization issued pursuant to the JCPOA called "General License H" (GL H)—to engage in certain activities involving Iran without the risk of penalties. While GL H was formally revoked on June 27, 2018, the US allowed for the wind-down of GL H activities through today, November 5, 2018. In other words, as of today, GL H is now entirely invalid. However, exceptions for transactions related to the provision of humanitarian and certain consumer goods remain, and the Administration amended the Iranian Transactions and Sanctions Regulations (ITSR) to allow for a general license authorizing US persons to sell certain personal property in Iran and transfer the proceeds to the US.6
Perhaps most significantly, as noted above, the US Department of Treasury, Office of Foreign Assets Control (OFAC) added more than 700 individuals and entities onto the SDN List, bringing back into effect all sanctions lifted or waived from designation on the SDN List in connection with the JCPOA.7 Seventy of those designations are Iran-linked financial institutions and their foreign and domestic subsidiaries, effectively barring transactions with Iranian banks as there are no Iranian financial institutions that are not on the SDN List.8 The sanctions on the provision of specialized financial messaging services to certain Iranian financial institutions also snap back today.9 Even prior to today, OFAC began adding Iranian financial institutions back onto the SDN List. On October 16, 2018, OFAC announced that several banks that had been removed from the SDN List pursuant to the JCPOA were being added back to the SDN List, including Bank Mellat, Parsian Bank and Sina Bank.10 Those designations, along with today's, will significantly compromise the ability for non-US financial institutions to continue engaging in trade with Iran that is not prohibited under those entities' local laws.
Moreover, while the US is re-instituting its program of creating exceptions to secondary sanctions for countries that significantly reduce their reliance on Iranian crude oil (the "Significant Reduction Exception" (SRE)), SRE negotiations are ongoing. Today the US Department of State announced that eight countries have qualified for a temporary six-month exception while negotiations continue.11 These countries are: China, India, Italy, Greece, Japan, South Korea, Taiwan, and Turkey.12 On Friday, November 2, 2018, Secretary of State Pompeo noted that 20 countries were issued SREs multiple times under the Obama Administration between 2012 and 2015.13 Secretary Pompeo stressed that the current Administration decided to grant "fewer exemptions" and "demanded much more serious concessions" with the goal of moving the global imports of Iranian oil to zero.14 Of the countries granted temporary SREs, two countries will reportedly completely end imports of Iranian oil and the other six countries will be allowed to import Iranian oil "at greatly reduced levels."15 Several European Union (EU) countries (including Belgium, Czech Republic, France, Germany, the Netherlands, Poland, Spain, and Britain), which were granted SREs under the Obama Administration, have not been granted an exception today.16 Countries that have not qualified for this exception are likely to encounter significant impediments to effectuating any trade involving Iran, given the risks to non-US financial institutions and other entities for processing transactions through Iranian financial institutions.
I. SANCTIONS PREVIOUSLY WAIVED UNDER THE JCPOA, RE-IMPOSED
All sanctions formerly lifted or waived in connection with the JCPOA have now been reinstated, including those under the National Defense Authorization Act for Fiscal Year 2012, the Iran Sanctions Act of 1996, the Iran Threat Reduction and Syria Human Rights Act of 2012, the Iran Freedom and Counter-proliferation Act of 2012, and the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) of 2010.
More specifically, the Iran-related sanctions that have been reinstated apply predominantly to non-US persons conducting certain types of business that involve Iran's financial, energy, oil, insurance, and automotive sectors, among others. As discussed further below, the sanctions involving Iran's financial sector will be particularly onerous, especially following a several year period (since the JCPOA was first enacted) in which most Iranian banks had been taken off of the SDN List. During that time, Iranian financial institutions have become frequent transacting partners for businesses working in the region. Now, US-owned or -controlled entities and even non-US financial institutions risk secondary sanctions for transacting with Iranian banks who are once again on the SDN List. For example, the Central Bank of Iran, Bank Mellat, Bank Melli, Bank Tejarat, Bank Sepah, Post Bank of Iran, the Export Development Bank of Iran, the Bank of Industry and Mine, among others are now on the SDN List, which will make any continued trade involving Iran very difficult.
Below we provide an overview of the sanctions re-imposed at the end of each of the two JCPOA wind-down periods. In addition, we identify several general licenses that OFAC has revoked since the US withdrawal from the JCPOA, now prohibiting US persons from certain activities involving that once were authorized by general license.
A. Sanctions Re-Imposed on August 6, 2018 (End of the 90-Day Wind-Down Period)
The first round of previously waived Iran-related sanctions have been reinstated already, on August 7, 2018, which marked the end of the first, 90-day wind-down period. These sanctions include:
- Sanctions on the purchase or acquisition of US dollar banknotes by the Government of Iran;
- Sanctions on Iran's trade in gold or precious metals;
- Sanctions on 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;
- Sanctions on 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;
- Sanctions on the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
- Sanctions on Iran's automotive sector.
Among other potential penalties, these sanctions authorize the US government to designate any person—thereby blocking any property or interests in property that come into the jurisdiction of the United States—who provides material support for, or goods or services in support of (or who engages directly in), the activities listed above.
In addition to reinstating the sanctions listed above, as of August 6, 2018, OFAC narrowed the circumstances under which businesses may obtain licenses to conduct business in Iran that were previously widened under the JCPOA. In fact, even prior to August 6, OFAC ceased considering license applications under the JCPOA Statement of Licensing Policy. At the time, OFAC also issued guidance that it planned to revoke other general licenses issued pursuant to the JCPOA's Statement of Licensing policy.17 As detailed below, at this point, no companies should rely on any license—general or specific—issued under the JCPOA Statement of Licensing Policy for any business activity.
The revocation of two general licenses involving Iran became effective as of August 6, 2018. First, OFAC revoked the general license authorizing the importation of Iranian-origin carpets and foodstuffs, including pistachios and caviar, to a third country from Iran.18 This license also authorized the use of brokering services and certain letters of credit for the importation of Iranian-origin food and carpets. Now revoked, any business activities that would have been authorized under these general licenses will be in violation of the ITSR and subject to potential enforcement action.
Second, General License I (GL I) to the ITSR was formally revoked as of August 7, 2018, after a wind-down period that began on June 27, 2018.19 GL I authorized US persons to enter into and negotiate contingent contracts, where those contracts were eligible for authorization under the JCPOA Statement of Licensing Policy.20 Now revoked, US and non-US companies alike are prohibited from negotiating or entering into contingent contracts involving Iran subject to approval by OFAC.
B. Sanctions Re-Imposed on November 5, 2018 (End of the 180-Day Wind-Down Period)
The following sanctions have been reinstated as of today, following the end of the second and final JCPOA wind-down period:
- Sanctions on Iran's port operators and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran or their affiliates;
- Sanctions on petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO) and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products or petrochemical products from Iran;
- Sanctions on transactions by non-US 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 (NDAA);
- Sanctions on the provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010 (CISADA);
- Sanctions on the provision of underwriting services, insurance or reinsurance (including the due diligence exception); and
- Sanctions on Iran's energy sector.
In addition to these specific categories of sanctions that have now been reinstated, today the Trump Administration has also re-imposed all other relevant provisions of Executive Orders that were revoked as a result of JCPOA; specifically, provisions of Executive Orders 13574, 13590, 13622, 13628, and 13645 that were revoked by Executive Order 13716. The sanctions set forth in these Executive Orders relate to Iran's aerospace, energy and petrochemical sectors and allow the US government to impose secondary sanctions on certain non-US financial institutions. One practical effect of the re-imposition of these sanctions is that Iran's efforts to replace its commercial aircraft fleet will be significantly impaired, after being nearly grounded already due to the many years of US sanctions. Because these sanctions now impact not only US entities, but also non-US entities which incorporate US content into their aircrafts, their effect will be much farther reaching.
Similarly, today marks the last day that non-US entities owned or controlled by US entities may rely on General License H (GL H), after a wind-down period that began when GL H was revoked on June 27, 2018.21 As noted above, GL H authorized foreign entities owned or controlled by US persons or entities to conduct certain business in Iran. In informal guidance, OFAC stressed that any activities conducted by US-owned or -controlled foreign entities following the applicable wind down periods would be in violation of the ITSR and may be subject to enforcement actions. However, OFAC also stated that it would "take into account the efforts to wind down activities involving Iran" prior to the applicable wind-down date in its consideration of potential enforcement or sanctions actions.
The Administration has re-imposed sanctions on individuals, entities and vessels that had been removed from the SDN and other OFAC sanctions lists pursuant to the JCPOA on January 16, 2016. Specifically, these entities have been moved from OFAC's "Executive Order 13599 List," which was issued "[t]o assist the public in complying with the [ITSR],"22 back onto the SDN List. The EO 13599 List is composed of "persons identified by OFAC as meeting the definition of the term Government of Iran or the term Iranian financial institution as set forth in, respectively, sections 560.304 and 560.324 of the ITSR."23 In connection with the JCPOA, the US had agreed to move a number of entities, including many Iranian financial institutions, from the SDN List to EO 13599 List. However, on November 5, 2018, all of the EO 13599 entities will go back onto the SDN List.24 Key parties that have resumed SDN status include the Central Bank of Iran, Bank Mellat, Bank Melli, and private Iranian banks Bank Parsian and Sina Bank, among others.
Finally, in addition to amending the ITSR to allow for the sale of certain personal property in Iran and transfer of proceeds to the United States under general license,25 the Administration will also maintain a sanctions exception for the provision of certain humanitarian and consumer goods to Iran by US and non-US persons, including certain sales of agricultural commodities, food, medicine, and medical devices.26 Moreover, the Administration also announced today that it is granting sanctions waivers to three Iranian civil nuclear projects, including one for activities at the Bushehr Nuclear Power Plant.27
II. NEW US SANCTIONS INVOLVING IRAN
At the conclusion of the first wind-down period, on August 6, 2018, President Trump issued an Executive Order (EO 13846), which summarized the sanctions that would be reinstated in connection with the US withdrawal from the JCPOA.28 However, EO 13846 also "broaden[ed] the scope of the sanctions that were in effect prior to January 16, 2016 and provide[d] for greater consistency in the administration of Iran-related sanctions provisions."29
According to OFAC's informal guidance, among other things, "[t]he added measures" in EO 13846 provide new authority for the following:
- Additional blocking sanctions on persons that provide material support to or goods and services in support of certain persons, including those involved in the shipping, shipbuilding or energy sectors of Iran;
- Additional correspondent and payable-through account sanctions on foreign financial institutions that are determined to have conducted or facilitated a significant financial transaction with certain blocked persons;
- An expansion of the menu-based sanctions that can be imposed on persons who knowingly engage in certain significant transactions relating to petroleum, petroleum products, or petrochemicals from Iran or a derivative thereof to include visa restrictions on corporate officers, principals or controlling shareholders of a sanctioned person, among others;
- Additional sanctions on persons that engage in the diversion of goods intended for the people of Iran and the transfer of goods or technologies to Iran that are likely to be used to commit human rights abuses and censorship;
- Additional sanctions on foreign financial institutions conducting or facilitating certain transactions in Iranian rial; and
- An expansion of the prohibition on transactions by US-owned or -controlled foreign entities that include transactions with any SDNs designated for their involvement in the energy, shipping, or shipbuilding sectors of Iran.
While these "added measures" are not drastically different from the sanctions that were in place prior to the JCPOA, EO 13846 is a key authority for understanding US sanctions laws involving Iran. For example, today, the Administration designated Ayandeh Bank, pursuant to EO 13846 and the Iran Threat Reduction Act of 2012, for its involvement with or support of IRIB, Iran's state-media conglomerate, previously designated under EO 13628, for restricting the free-flow of information to or from the Iranian people.
In addition, as noted above, the Administration imposed 300 new designations in Iran's banking, energy, shipping and aviation sectors under previous authorities, including EO 13224, EO 13382 and EO 13553. These designations largely relate to individuals and entities previously designated under EO 13599 that are now designated on the SDN List, including Bank Melli, the Export Development Bank of Iran, Ghavamin Bank, Bank Sepah, Bank Tejarat, Bank of Industry and Mine, IRISL, NITC, the Atomic Energy Organization of Iran (AEOI), and Iran Air, among others.30 For example, today, the Administration designated Arian Bank, a Bank Melli subsidiary, and another 12 entities owned or controlled by Bank Melli or one of its subsidiaries; an additional 122 shipping vessels identified as property in which IRISL has an interest, an additional 52 vessels confirmed as property in which NITC has an interest, 23 AEOI subsidiaries and associated individuals, and 67 aircraft operated by Iran Air.31
III. INTERNATIONAL RESPONSE
A. EU Blocking Statute
The EU has had in place since 1996 a blocking statute in response to US extraterritorial sanctions legislation covering Cuba, Iran and Libya. The EU adopted an update to the blocking statute on August 7, 2018 to counter the US withdrawal from the JCPOA.
According to the EU, the basic principle of the blocking statute is that EU operators shall not comply with the listed extraterritorial legislation, or any decision, ruling or award based thereon, given that the EU does not recognize its applicability towards EU operators (Article 5, paragraph 1). The EU notes that the statute "forbids EU residents and companies ("operators") from complying with the listed extraterritorial legislation unless they are exceptionally authorised to do so by the Commission; allows EU operators to recover damages arising from such legislation from the persons or entities causing them; and nullifies the effect in the EU of any foreign court rulings based on it."32
The Commission states that "EU operators should inform the European Commission—within 30 days since they obtain the information—of any events arising from listed extraterritorial legislation that would affect their economic or financial interests." The EU also provides a mechanism to apply for an authorization to comply with the listed extraterritorial legislation. Based on press reports, it appears that some companies in Europe with US parent corporations have applied for such authorizations but no authorizations have been publicly released.
A blocking statute is meant to counter the effects of an extraterritorial sanction, in this case, the US re-imposition of sanctions on Iran. Many European companies have already announced that they will withdraw from business in Iran notwithstanding the blocking statute. Others may continue to work with Iran and risk US sanctions. For any entities with European operations, we recommend a close and continued monitoring of the implementation of the blocking statute to determine how the EU intends to apply the provisions, as well as how the enforcement mechanisms will be implemented in national legislation.
B. Order of the International Court of Justice Requiring the US to Remove Any Impediments to Humanitarian and Civil Aviation Trade Involving Iran
Over the past several months, the international community has awaited today's announcement, particularly in order to know whether the US would refrain from adding certain Iranian entities back onto the SDN List at the conclusion of the 180-day wind-down period—thus leaving unblocked certain entities that had been removed from the SDN List in connection with the JCPOA. Many countries have urged the United States to leave open some legal mechanism for foreign banks to engage in trade with Iran.
Furthermore, on October 3, 2018, the International Court of Justice (ICJ) issued a provisional-measures decision ordering the US to "remove, by means of its choosing, any impediments arising from the measures announced on 8 May 2018 to the free exportation to [Iran]" of humanitarian-related goods, including "(i) medicines and medical devices; (ii) foodstuffs and agricultural commodities; and (iii) spare parts, equipment and associated services . . . necessary for the safety of civil aviation." While the ICJ decision is limited to humanitarian- and civil aviation-related items, it is indicative of the payment-related issues that will arise if the US does not provide any mechanism for effectuating trade with Iran through banking institutions.
Similarly, on September 24, 2018, the EU declared that if the US truly closed all payment channels for trade with Iran as of the end of the JCPOA wind-down periods, the EU would establish a special payments channel to maintain economic ties with Iran.
Today's action, which effectively blocks all activities with Iranian financial institutions, provides some validation to the international community's concerns. However, as announced today, the US will maintain an authorization for the provision of certain humanitarian and consumer goods to Iran, including certain sales of agricultural commodities, food, medicine, and medical devices.33
IV. PRACTICAL EFFECTS FOR US AND NON-US COMPANIES
A. Implications for US Companies
Notwithstanding the limited—and mostly secondary—sanctions that the US agreed to suspend in connection with the JCPOA, at all times the United States' overall domestic trade embargo on Iran has remained in place. Accordingly, US persons have remained (and will continue to remain) broadly prohibited from engaging in transactions with Iranian companies or the Iranian government, pursuant to the ITSR. See 31 C.F.R. Part 560.
That said, the re-imposition of sanctions resulting from the US withdrawal from the JCPOA will have at least three important implications for US companies, and US persons generally.
First, today's additions to the SDN List will impact US companies. Today's actions are sweeping, sanctioning over 700 individuals, entities, aircraft, and vessels, including individuals and entities previously removed from the SDN List on January 16, 2016. Even prior to today, OFAC began adding Iranian financial institutions back onto the SDN List, including, on October 16, 2018, Bank Mellat, Parsian Bank and Sina Bank.34 Thus, to the extent any US entities and individuals were authorized to engage in trade with Iran prior to these designations, they should carefully screen any of their counterparties, including any owners or operators, against OFAC's SDN List to ensure that the designations do not impact their authorizations. For example, US companies engaged in the export of "services, software, and hardware incident to personal communications" in Iran pursuant to General License D-1 may need to re-screen the names of all possible counterparties in order to ensure that they are not dealing with any now-designated individuals or entities.35 The same is true for most other general licenses involving Iran that remain in effect today, which, in large part, do not allow US persons to engage in dealings with SDNs, even where the underlying activity is subject to a general license. Even if such US companies are not impacted by the new SDN designations, going forward, the designations are likely to make it far more difficult for US companies to effectuate any licensed trade with Iran, because of the general reluctance of financial institutions to engage in any trade involving Iran.
Second, the revocation of General License H will affect US companies that have operations abroad. As noted above, General License H allowed non-US companies that are owned or controlled by US persons to engage in trade with Iran despite their corporate ownership structure tying them to the United States. Following a wind-down period that began on June 27, 2018 (the formal revocation date of GL H), non-US companies will no longer be able to rely on General License H to engage in trade with Iran that would be prohibited for US persons under US sanctions laws; and in the same vein, US companies with operations abroad should ensure that their foreign subsidiaries are in full compliance with US sanctions laws.
Third, while the ITSR remained in place, OFAC issued several general licenses and authorizations pursuant to the JCPOA, including authorizing US persons to import Iranian-origin carpets and foodstuffs into the US, enter into preliminary negotiations with Iranian entities for transactions contingent on OFAC approval, and engage in certain activities related to commercial passenger aircrafts. See Part I.A for further discussion. These authorizations were all revoked as of August 6, 2018.
Finally, going forward from today, receipt of any payments by US persons or US-owned or -controlled foreign entities for activities involving an Iranian counterparty undertaken pursuant to a wind-down authorization will require specific authorization from OFAC.36
B. Implications for Non-US Companies
The sanctions relief that the US granted under the JCPOA had a much greater impact on non-US entities, which means that the reinstatement of these sanctions will likewise impact non-US entities more harshly. With the conclusion of the wind-down periods, US sanctions have been re-instated in full. Non-US companies in the energy, shipping and insurance markets, as well as financial institutions, are most likely to be affected, among others. However, OFAC has provided in guidance that in the event a non-US, non-Iranian person is owed payment or repayment after the conclusion of an applicable wind-down period pursuant to a written agreement prior to May 8, 2018, the US government will allow the non-US, non-Iranian person to receive payment for fully provided or delivered goods or services37 according to the terms of the written contract or written agreement.38 Non-US and non-Iranian persons seeking to receive payment for activities undertaken during the wind-down period involving a person added to the SDN List today are also advised to seek guidance from OFAC or the State Department.39
Indeed, all non-US companies are likely to encounter new resistance, particularly from financial institutions, should they attempt to engage in any business involving Iran. If they have not done so already, in anticipation of the conclusion of the wind-down periods, any non-US individuals and companies involved in business with Iran must carefully review which sanctions, if any, apply to their activity. This will likely involve a complicated legal determination of which business activities involving Iran may trigger any of the wide variety of US sanctions.
In addition, non-US entities must also screen any of their counterparties, including any owners or operators, against today's additions to the SDN list, which re-impose the sanctions that applied to parties removed from the SDN list in connection with the JCPOA. More than 700 individuals, entities, aircraft, and vessels, including individuals and entities previously removed from the SDN List on January 16, 2016 have been added to that list today. Similar to US companies, even if non-US companies are not directly impacted by today's SDN designations, going forward, the designations are likely to make it far more difficult even for foreign companies to effectuate trade with Iran, because of the general reluctance of financial institutions to engage in any trade involving Iran.
C. Note on State Restrictions Involving Investments
More than thirty US states, including New York and California, also have laws that impose state-based sanctions on Iran. Several of these laws have been in effect for the last decade. These regulations call for divestment in Iran and also seek to limit contracting by entities with operations in or significant business with Iran in sectors such as the energy sector. These laws are separate from the laws and regulations issued at the federal level and remain in effect despite concerns of potential constitutional preemption. With the re-imposition of sanctions following the JCPOA's wind-down and the issuance of new sanctions at the federal level, these laws may serve a large role in the future and bear monitoring.
The end of the JCPOA wind-down periods and the Administration's re-imposition of sanctions, including new sanctions, will have a tremendous effect on all companies dealing with Iranian business. Today's sanctions, which designate more than 700 individuals, entities, aircraft, and vessels, will have far reaching effects. These sanctions are not limited to non-US companies owned or controlled by US persons. Most all of them are intended to have extraterritorial application allowing the US to penalize non-US persons for engaging in certain conduct involving Iran that occurs entirely outside the jurisdiction of the United States. While there are certain exceptions in place for the provision of humanitarian goods, the sale of certain personal property, and the continuation of certain non-proliferation projects, today's sanctions effectively cut off most dealings with Iranian financial institutions, as well as several entities in the energy, shipping sectors, among others. Entities which previously engaged in commerce with Iran should ensure that all aspects of their business are effectively wound down, and those seeking to conduct business with Iran should assess US sanctions' application to their business in light of today's designations before moving forward.
© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.
See US Dep't of Treasury, Office of Foreign Assets Control (OFAC) Press Release (Nov. 5, 2018), "US Government Fully Re-Imposes Sanctions on the Iranian Regime As Part of Unprecedented US Economic Pressure Campaign."
See Presidential Memo. (May 8, 2019), "Ceasing US Participation in the JCPOA and Taking Additional Action to Counter Iran's Malign Influence and Deny Iran All Paths to a Nuclear Weapon."
See, e.g., OFAC, FAQs Regarding the Re-Imposition of Sanctions Pursuant to the May 8, 2018 National Security Presidential Memorandum Relating to the JCPOA (last updated May 8, 2018) (hereinafter JCPOA FAQs).
See also Jan. 19, 2016 Arnold & Porter Advisory.
A "US Person" includes "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." See, e.g., 31 C.F.R. §560.314.
US Dep't of the Treasury, OFAC, ITSR, Final Rule, 83 Fed. Reg. 55,629 (Nov. 5, 2018); OFAC Resource Center, OFAC FAQs: Iran Sanctions (hereinafter OFAC FAQs), FAQ 640 (last updated Nov. 5, 2018).
See OFAC Press Release (Nov. 5, 2018). All of the banks listed on the Central Bank of the Islamic Republic of Iran are now subject to sanctions (including Commercial Government-Owned Banks, Specialized Government-Owned Banks, Non-Government-Owned Banks, Gharzolhasaneh Banks, Bi-National Banks). Sanctions have been imposed on only one (Credit Institution for Development) of five nonbank credit institutions listed on the Central Bank's website. See "Banks and Credit Institutions" (last visited Nov. 5, 2018).
See OFAC Press Release (Oct. 16, 2018), Treasury Sanctions Vast Financial Network Supporting Iranian Paramilitary Force That Recruits and Trains Child Soldiers.
See State Press Briefing (Nov. 5, 2018), Press Availability with Secretary of Treasury Steven Mnuchin.
See State Special Briefing (Nov. 2, 2018), Briefing on Iran Sanctions by Secretary of State Pompeo and Treasury Secretary Mnuchin Via Teleconference.
See OFAC, Revocation of JCPOA-Related General Licenses; Amendment of the Iranian Transactions and Sanctions Regulations; Publication of Updated FAQs (June 27, 2018); JCPOA FAQ 4.3-4.4.
See EO 13599.
State Press Briefing (Nov. 5, 2018); see also State Fact Sheet (Nov. 5, 2018), Constraining Iran's Nuclear Program.
Executive Order 13846 of August 6, 2018, Reimposing Certain Sanctions With Respect to Iran.
See OFAC Resource Center, Frequently Asked Questions Regarding Executive Order 13846 of August 6, 2018, "Reimposing Certain Sanctions With Respect to Iran," FAQ 601.
See OFAC Press Release (Nov. 5, 2018). In addition, the Administration designated Day Bank, which was not previously on the EO 13599 list, pursuant to EO 13244, for its connections to and support of the Martyrs Foundation, designated pursuant to EO 13224 in July 2007, for its involvement in terrorist activities in the Levant. The Administration also designated 14 subsidiaries of Day Bank. See id.
See European Commission Fact Sheet dated August 6, 2018.
See OFAC Press Release (Oct. 16, 2018),Treasury Sanctions Vast Financial Network Supporting Iranian Paramilitary Force That Recruits and Trains Child Soldiers.
See General License D-1 to the ITSR, General License with Respect to Certain Services, Software, and Hardware Incident to Personal Communications (Feb. 7, 2014), at Section (b)(2).
In defining "fully provided or delivered," OFAC provides in guidance that it will look to the "industry standard." A good or service will be considered "fully provided or delivered when the party providing or delivering the goods or services has performed all of the actions and satisfied all the obligations necessary to be eligible for payment or other agreed-to compensation." OFAC FAQ 633. At a minimum, "the goods must have transferred to the relevant party." Id.