Glen Kelley, Doug Jacobson and Michael Burton, Jacobson Burton Kelley PLLC
the Joint Comprehensive Plan of Action (JCPOA) between the P5+1 countries and Iran
was announced in mid-July, the focus has been on whether the US Congress could
pass a resolution of disapproval. Now that the deadline has passed and the JCPOA has passed the first hurdle,
the attention will now turn to implementation of the sanctions relief by various
countries and the corresponding impact on companies once the JCPOA's Implementation
Day takes place, which is likely to occur in mid-2016.
JCPOA provides for a lifting of a majority of the EU economic and trade
sanctions on Iran, and the suspension of a majority of the US secondary
(extraterritorial) sanctions on Iran.
JCPOA Sanctions Compliance Considerations
In our July 24, 2015 post on International Trade Law News, we addressed a number of recurring questions that our US and non-US clients are facing in assessing the JCPOA and the potential
practical impact if it is implemented next year. The following are a number of
the key compliance-related considerations from that post and a few additional
ones based on questions that we have received during the past few weeks:
- Manage Your Company’s Expectations
and Don’t Jump the Gun. Have realistic expectations regarding sanctions relief
under the JCPOA and permitted business development activities (see below). Most
countries are not likely to implement sanctions relief until mid-2016 and US
primary and secondary sanctions will remain unchanged until the IAEA verifies
that Iran has met its obligations under the JCPOA.
- Despite Some Reports, the
US Embargo on Iran Will Remain Nearly Unchanged. While many EU
sanctions on Iran will be lifted if the JCPOA is implemented, the broadest US
sanctions on Iran, including the prohibitions applicable to US persons, US
companies and US-origin products will remain essentially unchanged.
- A General License to
Authorize non-US Affiliates of US Companies to Conduct Business with Iran Will
be Issued, but Facilitation and Other Risks Remain. The US Government is
expected to authorize non-US entities that are owned or controlled by a US
person, such as a non-US subsidiary of a US company, to engage in activities
with Iran that are consistent with the terms of the JCPOA. We understand that
this authorization is likely to take the form of a general license from the
U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) that will be
issued in the coming months. Although this general license represents an opportunity
for some non-US companies affiliated with US companies to conduct business with
Iran, there will be a significant risk of US persons unlawfully facilitating
their non-US affiliates’ lawful transactions involving Iran. While the scope of
authorized activities will depend on the breadth of authorization in the
general license, more information will be available once the general license is
published by OFAC. We encourage you to read the general license carefully and
consult counsel as needed to determine what activities are permissible.
- US Companies Should be
Cautious Toward Relaxing any Existing Policies Prohibiting Their Foreign
Affiliates Trading with Iran. OFAC views a change in existing policy
specifically to enable business with Iran to be form of prohibited
facilitation. It is important to have a
good understanding of this issue before approving any change in policy as it relates to doing business with Iran.
- Pay Attention to Remaining
US Secondary Sanctions and Blocked Parties in Iran. Some US secondary
(extraterritorial) sanctions on Iran are expected to remain in place once the
JCPOA is implemented. For example, more than 200 Iranian-linked companies and
individuals will remain on OFAC's Specially Designated Nationals (SDN) List,
including major Iranian firms in the military, defense, banking engineering,
construction and energy fields. Secondary sanctions continue to apply to all of
these Iran-related individuals and entities and therefore will remain problematic, even
for non-US persons.
- Early Entrants Might not be Compliant. While competitors might
commence activity involving Iran or Iranian companies, this does not mean that
business is compliant with the laws of the US or other countries. OFAC, the Commerce
Department's Bureau of Industry and Security (BIS) and the Department of
Homeland Security, will be closely monitoring transactions with Iran, both
before and after the JCPOA is implemented and enforcement of the applicable
Iran sanctions will remain a priority for the US.
- Financial Institutions are Likely to Remain Conservative
In light of the wave of large penalties assessed against banks in the EU and
elsewhere for alleged violations of OFAC sanctions and New York State banking
regulations, we expect that many banks will continue to be conservative with
regard to sanctions compliance and treat themselves as subject to US law,
notwithstanding their being incorporated outside the US, due to their
dependence on US correspondent banking relationships. It is important to
consider this factor with regard to payment and financing that might relate to authorized
activities involving Iran, including humanitarian items that are currently
permissible to be exported to Iran under OFAC general and specific licenses.
- US Export and Reexport Controls Will Remain in Place. Goods, software and
technology subject to US law (which includes US origin products and products
containing more than a de minimis amount of US content) still will require US authorization
for export or reexport to Iran. While certain general licenses authorize
limited export activity (e.g., food, agricultural commodities, medicine, medical
devices and personal telecommunications equipment) and reexports of
non-controlled items by non-US persons outside the United States are not
prohibited, any transactions involving controlled items or US persons will
still require a license from OFAC or BIS. As a result, non-US companies must determine whether the items they
manufacture or procure are subject to US law and should recognize that US
suppliers are likely to remain vigilant regarding potential end-use of their
products in Iran.
- Business Risks If Sanctions are Reimposed on
Iran violate its commitments once sanctions have been suspended, the JCPOA
includes mechanisms to "snap them back" into place. In fact, the US could
restore sanctions within a matter of days in some cases. The JCPOA does not
include any grandfather clause that would protect preexisting contracts against
the snap-back of sanctions. While the US will not retroactively penalize
permissible activities while the JCPOA is in place, the US will require any
prohibited activity to cease if sanctions are reimposed. Thus, if the US
reimposes sanctions in 2018, a contract that was entered into in 2016 gives it
no special status under the JCPOA and any new transactions taking place under that
contract will be subject to sanctions as any new contract would be. In light of this risk companies should consult counsel regarding appropriate contractual safeguards to ensure ongoing compliance.
Development Activities in Iran
JCPOA implementation seems more likely, many companies and financial
institutions will be interested in engaging in general discussions and research
to better understand the Iranian market, and to identify potential
opportunities to explore once the JCPOA is implemented. We set out below a few
key principles to bear in mind in any such discussions or market research.
speaking, it is not prohibited under current US or EU sanctions to engage in
exploratory and non-binding business discussions about the Iranian market, including
with Iranian companies and individuals, either within or outside of Iran.
is also generally not prohibited to provide information to other parties
regarding potential business or projects in Iran if the information is clearly
in the public domain (meaning it is published on a website or a widely
available printed publication). However, gathering or formulating public domain
information into a new document or communication takes that information out of
the public domain. Also be careful regarding technology in the public
domain, as its treatment under US sanctions regulations can depend on the export controls classification of that technology.
Prohibited Activities Involving Iran
the other hand, the following business development activities are generally
prohibited under current US sanctions and those that are expected to remain in
place after the JCPOA is implemented. These prohibitions may be applicable if any
US company or other US person is involved (any US citizen or permanent
resident, company formed under US law or non-US citizen located in the US), or if
there is any other sufficient nexus (connection) to the US:
- No Specifics. No specific transactions should be discussed
or negotiated with Iranian companies or individuals.
- No Contracts, Even if Executory. It is generally
prohibited to enter into any contract, agreement or memorandum of
understanding, whether written or oral, with regard to potential business or
projects in Iran, involving any Iranian government agency or entity, or
involving any US-sanctioned person. This is generally impermissible even if the
document is made conditional on the lifting of sanctions.
- No Services to Iran. It is also generally prohibited for companies
and individuals subject to US jurisdiction to take any action that could be
considered a “service” to any such person, including steps to prepare to enter
into or perform an agreement. This includes any action that might confer a
benefit, directly or indirectly, on any person in Iran, Iranian government
agency or entity, or US-sanctioned person.
- No Pre-Performance Activities in Anticipation of Market
There should not be any planning or preparation of products or services
intended for the Iranian market, in preparation for the easing of sanctions. If
no US person or other US nexus is involved, it would not be prohibited to carry
out such work if it is general in nature and is not undertaken for any
particular potential Iranian customer.
other words, talking with and thinking about Iran is not prohibited, but
business activity related to Iran still is until the sanctions are formally relaxed.
In addition, under US secondary sanctions, some of which are expected to remain
after JCPOA implementation, a non-US person or company can be penalized for
entering into significant agreements relating to certain targeted sectors,
persons and activities relating to Iran, its government, Iranian persons or
Iranian-origin petroleum products. We expect that the US government will release guidance in the coming months to
clarify which secondary sanctions will remain in place after JCPOA
Iran Sanctions Enforcement
Will Remain High
Various US Government law enforcement agencies, including OFAC and BIS's Office
of Export Enforcement, will continue to monitor closely US and non-US business
activities involving Iran to see if any companies have overstepped the bounds of
US primary and secondary sanctions or the limited sanctions relief in the Joint
Plan of Action announced in November 2013.
US Government has stressed that they will continue to “vigorously enforce" all
US sanctions that have not been suspended. We believe that Iran remains the
primary target of US sanctions and export control enforcement and will continue
to generate a large number of enforcement cases.
many media reports to the contrary, much of the complex US sanctions
architecture on Iran will remain in place after JCPOA implementation.
A full analysis should be carried out prior to engaging in any
negotiations or other business activity, other than the generally permissible
activities set out above, relating to Iran, its government or US-sanctioned
analysis should include US sanctions considerations if the proposed conduct
would involve any US person or other US nexus, or any sectors, persons or
activities covered by US secondary sanctions.
For further information, see www.jbktradelaw.com for our contact information.