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September 17, 2015 

Iran Sanctions Compliance Considerations Under the Joint Comprehensive Plan of Action

By Glen Kelley, Doug Jacobson and Michael Burton, Jacobson Burton Kelley PLLC

Since 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. 

The 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 Regarding Iran. 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. Should 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. 
Business Development Activities in Iran

As 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.

Generally 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.

It 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. 

Generally Prohibited Activities Involving Iran

On 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 Opening. 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.    
In 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 implementation. 

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.

The 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. 

Other Considerations

Despite 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 persons. This 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 for our contact information.   
Disclaimer: The information contained herein is for general informational and compliance purposes and does not constitute legal advice. This information is not intended to facilitate or otherwise assist in any prohibited transaction involving Iran, nor is it intended to evade or avoid any applicable US sanctions. Qualified counsel should be consulted with respect to any specific transaction contemplated with Iran.



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