On 16 January 2016, the International Atomic Energy Agency (IAEA) confirmed that Iran has complied with its obligations under the Joint Comprehensive Plan of Action (JCPOA) conditional to the first phase of sanctions relief. The JCPOA is the result of an agreement reached on 14 July 2015 between the E3/EU+3 (France, Germany, the United Kingdom, the European Union, China, Russia and the US) and Iran. The JCPOA was subsequently adopted on 18 October 2015 (Adoption Day).
As a result of last Saturday’s event, significant EU and US sanctions relief is in effect as of 16 January 2016, known as Implementation Day under the JCPOA. Certain nuclear-related sanctions remain in place, however, and the sanctions related to the Iranian human rights situation remain entirely unaffected and in full force.
This Legal Alert outlines EU and US sanctions relief now in effect and highlights EU and US restrictions which require careful attention and remain applicable to doing business with Iran.
EU sanctions relief
EU sanctions relief covers a broad range of sanctions. Below is a brief, non-exhaustive overview of the most important changes in EU sanctions.
Export and import
Sanctions against designated persons and entities
Transfers of funds and financial services
US sanctions relief
US sanctions relief is largely limited to “secondary” sanctions. These sanctions, targeting non-US persons and entities that are not owned or controlled by US persons or entities engaging in activities relating to Iran and deemed contrary to US interests, are lifted as of Implementation Day. However, secondary sanctions continue to apply to non-US persons for conducting transactions with any of the more than 200 Iranian or Iran-related individuals and entities who remain or are placed on the Specially Designated Nationals (SDN) List (with notations referencing secondary sanctions), despite the general lifting of secondary sanctions. Thus, it remains important to screen any prospective business partners involved in Iran-related transactions against the SDN List.
US persons, however, remain subject to very strict “primary” sanctions against Iran and are still prohibited from engaging in virtually any transactions involving Iran. This includes US-incorporated and/or US-based entities as well as any US nationals and permanent residents working abroad. Other persons working and residing in the US also may not engage in any business involving Iran. They also may not “facilitate”, i.e. support or act in furtherance of any Iran-related business of any foreign entities or employees in any way, including administrative and technical support. Finally, they may not refer any Iran-related business to foreign entities or employees.
Of particular importance, owned or controlled foreign affiliates of US companies now are generally authorised to engage in a broad range of activities involving Iran, subject to certain limitations. Thus, foreign affiliates of US companies are not prohibited from re-entering the Iranian market. Moreover, their US parent companies are now authorised to amend corporate compliance policies to authorise such business of their non-US subsidiaries and to allow the subsidiaries to utilise 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 authorised transactions. The use of such systems in connection with any transfer of funds to, from, or through a US depository institution or a US-registered broker or dealer in securities in furtherance of any Iran-related transactions, however, is not authorised. As noted, US personnel and US parent companies also may not facilitate transactions undertaken by their foreign affiliates, which can create significant compliance challenges, despite the broad authorisation accorded to foreign subsidiaries of US companies.
Specially Designated Nationals
Furthermore, a great number of parties are delisted from the Specially Designated Nationals (SDN) list. However, dealings with these parties remain prohibited for US persons under US Iranian Transactions and Sanctions Regulations (ITSR).
In addition, significant product-related restrictions remain applicable to items subject to US law for re-export to Iran. Specifically, no controlled items (i.e., items with an ECCN other than EAR99) subject to the US Export Administration Regulations may be re-exported to Iran, and no items (regardless of export classification) may be procured directly or indirectly from the US specifically or predominantly to fill any Iran-related order. These restrictions also apply to non-US persons dealing with US controlled products. Thus, due care must still be taken that when fulfilling any order or service request relating to Iran or an Iranian person, those orders may not be fulfilled using US products controlled for Iran. Finally, no US vendors or service providers may become involved in any Iran-related transaction, meaning that non-US companies may not induce a US person to get involved in any such transaction.
Snap-back: possibility of re-imposition of sanctions
The EU, the US and the UN may re-impose all or certain sanctions if Iran does not comply with its commitments under the JCPOA. Such re-imposed sanctions, however, would not apply retroactively, and should therefore not affect any conduct taken place prior to any re-imposition.
What it means
As outlined above, significant sanctions relief is in effect as of 16 January 2016, which opens up important business opportunities for many foreign companies. The lifting of sanctions will allow foreign companies to invest in the Iranian economy and enter into various transactions with Iranian parties and relating to Iranian products.
However, important EU and US restrictions remain applicable to doing business with Iran, which require careful attention. In addition, there will be practical hurdles to take. It is expected that international banks, especially those with ties to the US, will continue to be hesitant to process payments relating to transactions with Iran, even when the underlying transaction is allowed under the remaining sanctions.
When considering entering into any business in Iran or with Iranian parties, a number of steps need to be taken into account, including to:
What is next under the JCPOA
As set out in our Legal Alert of 17 July 2015 the JCPOA provides for a phased approach:
19 May 2020
16 April 2020
29 March 2020
15 January 2020
17 December 2019
16 December 2019
16 December 2019
14 November 2019
14 November 2019
15 October 2019