Introduction

On 8 May 2018, President Donald Trump announced the USA’s withdrawal from the Iran nuclear deal – the Joint Comprehensive Plan of Action (“JCPOA”).[1] The JCPOA was entered into by the P5+1 permanent member countries of the UN Security Council (the USA, United Kingdom, France, China, Russia, and Germany) and Iran on 14 July 2015 and contained provisions that lifted various sanctions that were previously imposed on Iran. The JCPOA called for the lifting or easing of three forms of sanctions by the international community: (1) US “secondary” sanctions designed to restrict non-US parties from doing business with Iran; (2) sanctions imposed by the UN Security Council; and (3) European Union (the “EU”) sanctions.

The USA’s announcement to abandon the JCPOA re-imposes the US nuclear related sanctions on the Iranian regime and will result in a host of ramifications on international trading activities, and entities and persons outside of Iran undertaking Iran-related activities.

This Insight Article provides a brief overview in respect of the sanctions imposed on Iran over the past four decades, and the immediate and long-term implications of the USA’s withdrawal from the JCPOA.

Background: Sanctions Imposed on Iran

Before the implementation of the JCPOA on 16 January 2016, sanctions against Iran have had a long history and can first be traced back to 1979, when the USA froze over US$12 billion worth of assets held by the government of Iran in the USA. Although the 1979 frozen assets matter was resolved in 1981, the USA subsequently approved and imposed various other sanctions against Iran including the embargo on Iranian goods and services in 1987, which was introduced as a consequence of “Iran’s support for international terrorism and its aggressive actions against non-belligerent shipping in the Persian Gulf”.[2] In 2012, the EU imposed a ban on the import of Iranian crude oil, natural gas and petroleum products, and further introduced travel related restrictions which prevented access to EU airports of Iranian cargo flights carrying certain prohibited materials or goods.[3]

The USA further blacklisted more than 700 entities and individuals on the US Department of the Treasury’s Office of Foreign Assets Control’s list as well as imposing economic restrictions on individuals under the jurisdiction of the USA (“Primary Sanctions”) and restrictions on entities outside the remit of the USA’s jurisdiction (“Secondary Sanctions”)[4]. The Secondary Sanctions in essence, provided non-US entities with an ultimatum, to deal with either the USA, or Iran but not both.

Since the implementation of the JCPOA, although some restrictions still remain, the EU has lifted all nuclear-related economic and financial sanctions against Iran.[5] In spite of the USA’s announcement on 8 May 2018, the EU has stated that “as long as Iran continues to

implement its nuclear related commitments, as it is doing so far, the EU will remain committed to the continued full and effective implementation of the nuclear deal”.[6] The other signatories have also rallied to reaffirm their commitment to the JCPOA. In particular, as a response, on 6 June 2018 the EU Commission published the draft ‘Blocking Statute’ which expands the scope of Council Regulations (EC) No. 2271/96[7] and seeks to limit the extra-territorial effects of some of the USA’s sanctions in an effort to protect business in the EU. The Blocking Statute “forbids EU persons from complying with US extra-territorial sanctions, and allows companies to recover damages from such sanctions from the person causing them, and nullifies the effect in the EU of any foreign court judgments based on them”.[8] The EU Parliament and Council have a period of two months to object to the measures proposed by the Blocking Statute, if none are made then the proposed measures will come into effect in August 2018. In addition, on 4 June 2018, the EU sent a letter to the US Treasury Secretary Mr. Steven Mnuchin and US Secretary of State Mr. Mike Pompeo formally requesting certain exemptions from the US sanctions, including exemptions in respect of existing contracts.[9] However, there is no indication at the time of writing this Insight Article, whether the requested exemptions will be granted.

Implications: Withdrawal from the JCPOA

The scope and application of the sanctions that were lifted or waived pursuant to the terms of the JCPOA will be reinstated “as expeditiously as possible and in no case later than a 180 days”[10] winding-down period from 8 May 2018. Once this winding-down period has concluded the applicable sanctions including the Primary and Secondary Sanctions will come back into full force.

Although the US has provided the winding down periods before the applicable sanctions are reestablished, the immediate implications of the USA’s announcement to withdraw from the JCPOA is the substantial amount of uncertainty it has caused entities who have dealings with Iran.

During an initial 90-day winding down period which will end on 6 August 2018, the US government will revoke JCPOA-related authorizations and re-impose the following Primary Sanctions: a ban on the importation of Iranian-origin carpets and foodstuffs, and a ban on the exportation of aircraft and aircraft parts from the USA to Iran. Entities carrying out these activities and who are relying on the relief provided for in the JCPOA will need to take the required steps to wind-down those activities by 6 August 2018 in order to avoid any exposure to enforcement action and penalties under the law of the USA.

Following the 90-day winding down period, which will end on 6 August 2018, the USA will re-impose most of its Secondary Sanctions that it had suspended pursuant to the JCPOA. As noted above, the Secondary Sanctions in essence are aimed at non-US persons for non-US conduct that occurs outside the USA and are likely to be the most controversial. The Secondary Sanctions will be re-imposed on certain activities in respect of: the sale and/or supply of goods or services to Iran’s automotive sector; trading of gold or precious metals with Iran; certain banking and finance transactions relating to Iran’s sovereign debt; and the sale or purchase of Iranian Rials, or dealing with accounts or funds denominated in Iranian Rials outside of Iran.

Following the 180-day winding down period ending on 4 November 2018, the USA will re-impose further Secondary Sanctions these are aimed at foreign persons carrying out the following activities:

– transactions carried out by foreign financial institutions with the Iranian Central Bank and/or other Iranian financial institutions;

– certain petroleum related transactions including the purchase of petroleum products from Iran;

– certain investments and transactions related to the energy sector in Iran; and

– transactions relating to Iran’s ports, shipping and shipbuilding sectors.

Non-US persons failing to adhere to the Secondary Sanctions once the 90-day and 180-day winding periods have expired may be faced with enforcement action and penalties under US law.

Impact: Businesses Outside of the USA

The USA’s re-imposed sanctions will have an immediate impact on non-US businesses that are controlled or majority owned by US persons. In addition, on the 5 November 2018, the USA will “revoke the authorisation for USA-owned or controlled foreign entities to wind down certain activities with Iran or persons subject to the jurisdiction of the Government of Iran that were previously authorised pursuant to General License H”[11] and other general and specific licenses pursuant to the JCPOA.

During the winding down period, non-US businesses should immediately review and reassess their existing Iran-related activities and/or dealings, as well as those that are pending to ensure compliance with the restored sanctions of the USA. As a result of the extra-territorial effect of some of the sanctions, failing to adhere to the sanctions imposed by the USA may result in a non-US business being subject to punitive measures levied by the USA.

The short and long term implications of the USA’s announcement on businesses are somewhat opaque. Despite the fact that other nations in the P5+1 have stated that they will remain part of the JCPOA and continue to abide by the terms of the JCPOA, the Secondary Sanctions, as noted earlier will potentially apply to non-US entities that conduct business with Iran from within the jurisdictions of P5+1 nations and elsewhere. A failure to adhere to the sanctions imposed by the USA can be severe, and can include restrictions on accessing the USA’s financial system and the possibility of being designated as “Specially Designated Nationals” and being listed on the Blocked Persons List.

Consequently, entities in the United Arab Emirates and elsewhere should carefully reassess their Iran related activities to ascertain and establish whether they will fall within the ambit of the re-imposed sanctions and take appropriate action to ensure compliance.

The information mentioned in this article is current at the date of publication of this article and available from public sources. Nothing in this article constitutes legal advice and should not be construed as any form of advice. For further information, please do not hesitate to contact us.

[1] Per Federica Mogherini, EU Article accessed on 16.05.2018 at 14:56 https://eeas.europa.eu/delegations/iran/44239/iran-deal-eu-remains-committed-continued-implementation-nuclear-deal-mogherini-says_en

[2] Accessed on 28.06.2018 https://publications.europa.eu/en/publication-detail/-/publication/056540f9-40e5-4b0c-9bfb-c5165d60ef77/language-en

[3] European Commission Press Release http://europa.eu/rapid/press-release_IP-18-3861_en.htm accessed on 01.07.2018 at 10:00

[4] Letter from the EU to the USA dated 4 June 2018, https://static01.nyt.com/files/2018/world/Letter_to_U.S._Mnuchin_and_Pompeo_on_Iran_EU.pdf accessed on 01.07.2018 at 10:09

[5] FAQ Regarding the Re-Imposition of Sanctions Pursuant to the May 8, 2018 National Security Presidential Memorandum Relating to the JCPOA dated 8 May 2018.

[6] Memorandum for the Secretary of State issued on 8 May 2018 accessed on 15.05.2018 at 14:28 https://www.whitehouse.gov/presidential-actions/ceasing-u-s-participation-jcpoa-taking-additional-action-counter-irans-malign-influence-deny-iran-paths-nuclear-weapon/

[7] US Department of Treasure – Accessed on 15.05.2018 at 15:43 https://www.treasury.gov/resource-center/sanctions/Programs/Documents/iran.txt

[8] EU Restrictive Measures Against Iran accessed on 16.05.2018 at 13:01 http://www.consilium.europa.eu/en/policies/sanctions/iran/

[9] Ibid.

[10] Ibid.

[11] Accessed on 22.05.2018 at 9:00 am https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_winddown_faqs.pdf

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Mehrnaz Mehrabi

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