U.S. Lifts Some Iran Sanctions, But Robust Restrictions Remain
U.S. trade relations with Iran took a significant turn on Saturday, January 16, 2016, with the dawning of Implementation Day under the Joint Comprehensive Plan of Action ("JCPOA"), in furtherance of which the U.S. took, or is taking, the following actions: (i) lifted nuclear-related "secondary sanctions" that had targeted foreign entities for conduct involving Iran; (ii) issued a general license authorizing foreign entities that are owned or controlled by U.S. persons to engage in a broad range of transactions with Iranian entities in several business sectors; (iii) removed more than 400 persons from the Office of Foreign Asset Controls ("OFAC") Specially Designated National ("SDN"), Foreign Sanctions Evaders, and/or Non-SDN Iran Sanctions Act lists; and (iv) adding a general license, effective upon publication in the Federal Register, authorizing imports into the United States of Iranian-origin carpets and foodstuffs including pistachios and caviar. While these changes are significant, they will primarily benefit foreign companies; U.S. persons continue to be prohibited from engaging in transactions or dealings with Iran, its government, and its financial institutions unless exempted from the regulations or otherwise authorized by OFAC.
Secondary Sanctions Lifted. On Implementation Day, the United States lifted nuclear-related secondary sanctions against non-U.S. persons (individuals or entities other than United States citizens, permanent resident aliens, entities organized under the laws of the United States or any jurisdiction within the United States, or any person in the United States). As a result, non-U.S. persons may now conduct a broad range of transactions with Iranian entities in the following sectors: energy (including oil, gas, and petrochemicals); financial services; insurance and underwriting; shipping and shipbuilding; precious metals trade; software for integrating industrial processes; and the automotive sector. Services that are necessary and ordinarily incident to the authorized activities are also permitted. However, these changes do not create open season on trade with Iran – significant restrictions remain. For non-U.S. persons, secondary sanctions continue to attach to (1) Iranian persons that are on the SDN List; (2) the Islamic Revolutionary Guard Corps (IRGC) and its designated agents or affiliates; and (3) any other person on the SDN List designated under Executive Order 13224 or Executive Order 13382 in connection with Iran's proliferation of weapons of mass destruction (WMD) or their means of delivery or Iran's support for international terrorism. 31 C.F.R. 560.205 also continues to prohibit non-U.S. persons from re-exporting goods, technology, and services exported from the U.S. or containing 10 percent or more U.S.-origin content with knowledge that the transaction is intended for Iran or the Government of Iran if the items/U.S. content would require a license for export to Iran under the Export Administration Regulations. In addition, non-U.S. persons continue to be prohibited from knowingly engaging in conduct that seeks to evade U.S. restrictions on transactions or dealings with Iran or that causes the export of goods or services from the United States to Iran. Further, even after Implementation Day, with limited exceptions, U.S. persons continue to be broadly prohibited from engaging in dealings with Iran.
The significance of the lifting of the secondary sanctions is particularly evident when viewed in the context of OFAC's enforcement actions against non-U.S. persons for transactions with Iran. In just the past few years, OFAC has levied billions of dollars in fines for Iran sanctions violations against foreign entities including Germany's Commerzbank, France's BNP Paribas, the Netherlands' ING Bank, and the United Kingdom's Royal Bank of Scotland, HSBC Holdings, and Standard Chartered Bank. After Implementation Day, OFAC will continue to investigate and enforce violations of sanctions that were not lifted pursuant to the JCPOA. However, after Implementation Day, OFAC will not impose sanctions on non-U.S. persons for pre-Implementation Day transactions that fall within the scope of the secondary sanctions that were lifted pursuant to the JCPOA.
General License H for U.S.-Owned/Controlled Foreign Entities. In addition to lifting secondary sanctions on non-U.S. persons, OFAC issued General License H ("GL H") authorizing foreign entities that are "owned or controlled" by U.S. entities to engage in the same activities with Iran that were made permissible for foreign entities by the lifting of the secondary sanctions. An entity established or maintained outside the United States is "owned or controlled" by a U.S. person if the U.S. person: (1) holds a 50 percent or greater equity interest by vote or value in the entity; (2) holds a majority of seats on the board of directors of the entity or (3) otherwise controls the actions, policies, or personnel decisions of the entity.
Additionally, GL H authorizes U.S. persons to "make available" any automated and globally integrated computer, accounting, email, telecommunications, or other business support system, platform, database, application, or server necessary to store, collect, transmit, generate, or otherwise process documents or information related to transactions by foreign entities they own or control that are authorized by GL H (referred to as "Authorized Business Support Systems"). The authorization in GL H permits U.S. parent companies to make available to foreign entities they own or control Authorized Business Support Systems that are owned and/or operated for the U.S. parent company on a contract basis by one or more third-party service providers. Likewise, U.S. person third-party service providers are authorized to make available to a U.S.-owned or -controlled foreign entity Authorized Business Support Systems that they provide to the U.S. parent company on a contract basis.
Because U.S. persons, including those working for or serving on the boards of foreign entities or their U.S. parent companies, remain subject to sanctions for conducting or facilitating transactions with Iran, OFAC also included in GL H limited authorization for U.S. persons to engage in "activities related to the establishment or alteration of operating policies and procedures of a United States entity or a U.S.-owned or -controlled foreign entity" to the extent necessary to allow a U.S.-owned or -controlled foreign entity to engage in transactions with Iran that are authorized by GL H. This authorization permits U.S. person board members, senior management, and employees of U.S. parent companies and their owned/controlled foreign entities, as well as their U.S. outside consultants and counsel, to draft, alter, advise, train, or consult on policies and procedures permitting the transactions with Iran permitted by GL H, without engaging in prohibited facilitation. However, U.S. persons may not engage in activities involving Iran that go beyond this limited authorization. The inclusion of this limited authorization in GL H is a sobering reminder of the breadth of activities that OFAC considers to constitute facilitation and of the critical need for caution on the part of U.S. persons serving as board members, employees, or consultants to non-U.S. entities that engage in activities implicating U.S. economic sanctions regimes.
Removal of Entities from SDN List. On Implementation Day, the United States removed over 400 individuals and entities from OFAC's SDN List, the Foreign Sanctions Evaders List, and/or the Non-SDN Iran Sanctions Act List. Beginning on Implementation Day, non-U.S. persons will no longer be subject to secondary sanctions for conducting transactions with any of these more than 400 individuals and entities. However, this does not mean that U.S. persons are free to do business with these 400-plus individuals and entities. OFAC has identified a number of the individuals and entities removed from the SDN List as meeting the definitions of "Government of Iran" or "Iranian financial institution," which means that U.S. persons continue to have an obligation to block their property and interests in property and to be generally prohibited from engaging in transactions or dealings with them, except as otherwise authorized by general or specific license.
Special Licensing Policy for Commercial Aviation. Effective on Implementation Day, OFAC issued a Statement of Licensing Policy (SLP), establishing a regime through which U.S. persons and, where necessary due to a nexus to U.S. jurisdiction, non-U.S. persons, may request a specific license to engage in the export, reexport, sale, lease, or transfer of commercial passenger aircraft and related parts and services to Iran, as well as services ordinarily incident and necessary to such transactions (such as transportation, legal, insurance, shipping, delivery, and financial payment services), provided that the licensed items are used exclusively for commercial passenger aviation and that the transactions do not involve SDNs. Cargo aircraft, state aircraft, unmanned aerial vehicles, military aircraft, and aircraft used for general aviation or aerial work are not eligible for licensing under the SLP. OFAC will also consider applications for specific licenses to provide associated services that are not ordinarily incident and necessary to authorized transactions and that would otherwise be prohibited by 31 C.F.R. Part 560.
Importation of Carpets and Foodstuffs. The United States is adding a general license, effective upon publication in the Federal Register, authorizing the importation into the United States of Iranian-origin carpets and foodstuffs, including pistachios and caviar. These imports will still be subject to all other laws and regulations applicable to goods imported into the United States.
Under the Iranian Transactions and Sanctions Regulations ("ITSR"), U.S. depository institutions and registered brokers or dealers in securities are authorized to process transfers of funds to or from Iran, or for the direct or indirect benefit of persons in Iran or the Government of Iran, if the transfer arises from, and is ordinarily incident and necessary to give effect to, an underlying transaction that has been authorized by a general or specific license issued pursuant to, or set forth in, the ITSR and does not involve crediting or debiting an Iranian account, as defined in section 560.320 of the ITSR (see section 560.516 of the ITSR). This payment mechanism is available for transactions related to generally-licensed importations of Iranian-origin carpets and foodstuffs. In addition, subject to certain conditions, U.S. depository institutions are authorized under the general license to process letters of credit for payments for Iranian-origin carpets and foodstuffs, and U.S. persons are also authorized to act as brokers for the purchase or sale of the categories of Iranian-origin carpets and foodstuffs covered by the general license.
Caution – Many Sanctions Remain in Place. Despite Implementation Day, U.S. persons continue to be broadly prohibited from engaging in transactions or dealings with Iran, its government, and its financial institutions unless exempted from the regulations or otherwise authorized by OFAC. In addition, persons that OFAC previously identified as meeting the definition of the Government of Iran or an Iranian financial institution remain persons whose property and interests in property are blocked. And while certain secondary sanctions on non-U.S. persons were lifted, as described above, sanctions will still apply to foreign persons who engage in conduct that seeks to evade Iranian sanctions. Department of Commerce licensing requirements for exports and reexports also remain intact, including restrictions on exports or reexports to individuals and entities enumerated on the Entity List. Evidence that the United States will continue to pursue non-nuclear-related sanctions is seen in the fact that just days after Implementation Day, OFAC, pursuant to Executive Order 13382, designated 11 entities and individuals as SDNs involved in procurement on behalf of Iran's ballistic missile program. Also, entities availing themselves of the sanctions relief after Implementation Day should take note the JCPOA contains what some call "snap-back" provisions. These provisions create a mechanism that allows the United States to reinstate the secondary sanctions that were lifted if Iran fails to meet its commitments under the JCPOA.
The foregoing is only a summary of a complicated set of rules. If you have any questions, please do not hesitate to contact Wiggin and Dana's International Trade Practice.