Global | Publication | July 2016
On 16 January 2016, the European Union and United States lifted a wide range of sanctions against Iran in accordance with the Joint Comprehensive Plan of Action (“JCPoA”). Importantly, “Implementation Day” under the JCPoA did not extend to all sanctions against Iran and there remains a mechanism for the reintroduction or “snapback” of the lifted sanctions in the event of Iran not meeting its ongoing commitments to comply with specific nuclear-related measures.
While this first round of sanctions relief may open significant commercial opportunities for EU banks, a number of important sanctions remain in force and US sanctions still generally prohibit “US persons” from engaging in Iranian-related transactions. In practice, the lifting of sanctions will increase the need for robust compliance procedures as global financial institutions navigate the revised EU and US sanctions framework.
The sanctions relief discontinued asset freezes on 34 individuals and 298 entities and has permitted a wide range of trade and associated services in respect of Iran and Iranian persons. Those of particular relevance to financial institutions include relief on precious metals and currency, financial transfers and banking activities and financial services. More information.
However, a range of restrictions remain in place post-Implementation Day, including asset freezes on various Iranian persons and various prohibitions relating to nuclear or military material.
Further detailed guidance has been published in respect of the EU sanctions.
The United States historically has maintained both primary sanctions, prohibiting US persons from engaging in transactions relating to Iran or involving parties on the List of Specially Designated Nationals and Blocked Persons (SDN List) maintained by the US Treasury Department’s Office of Foreign Assets Control (OFAC), and secondary sanctions, which target the activities of non-US persons. Most of the relief under the JCPoA relates to nuclear-related secondary sanctions. The primary sanctions remain largely in place.
Under the JCPoA, the United States has removed sanctions directed at non-US persons with respect to certain activities. Those with particular relevance to financial institutions include financial and banking measures, insurance measures and gold and other precious metals. More information.
The US commitments to lift secondary sanctions do not apply to transactions or activities involving individuals and entities who remain or are placed on OFAC’s SDN List after Implementation Day or to any other US sanctions that may apply under legal provisions other than those cited in the JCPoA.
The United States removed over 400 individuals and entities from sanctions lists maintained by OFAC. 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 SDN List, notwithstanding the lifting of certain secondary sanctions.
In addition, the United States implemented certain limited relief related to the primary sanctions directed at the activities of US persons, including a general license (General License H), authorizing non-US entities that are US-owned or US-controlled, with certain limitations, to engage in transactions involving Iran.
Importantly, many restrictions and/or limitations still apply post-Implementation Day. Those of particular relevance to financial institutions include primary US sanctions on Iran and limitations for non-US subsidiaries in engaging in Iran-related activities. Further information.
Further detailed guidance and FAQs have been published by OFAC.
The extent of the sanctions relief is substantial and may pave the way for significant commercial opportunities for non-US financial institutions. From a compliance perspective, banks will need to carefully manage their transition into the new business environment, given that a number of important sanctions remain in force. For most sectors, the key sanctions to consider will be the asset freeze restrictions, meaning that companies going into Iran will need to carefully screen their proposed counterparties and include appropriate provisions in their contracts. This is important not only in connection with the EU asset freezes, but also the US secondary sanctions, since the relief of these sanctions does not generally extend to transactions involving targets of US asset freezes (Specially Designated Nationals). In the UK, this could perhaps be an area of focus for the new Office for Financial Sanctions Implementation (OFSI), which will be tasked with ensuring that financial sanctions are properly implemented and enforced.
Financial institutions will therefore need to review and update their operating procedures for doing business with Iran to focus on the sanctions still in force. For non-US subsidiaries of US banks proposing to engage in such business under General License H, this task could prove to be somewhat complex, as the provisions and conditions of that Licence will need to carefully interpreted.
Banking and financial services have been targeted for sanctions relief in the EU and secondary sanctions in the US. While this is welcome to financial institutions, any expansion by them into Iran-related business will require robust and precise procedures to ensure compliance with the remaining elements of the sanctions regime.
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The US Supreme Court has ruled that a “pure omission” under Item 303 of Securities and Exchange Commission Regulation S–K cannot give rise to a private action for securities fraud under Section 10(b) and Rule 10b-5(b) of the Securities Exchange Act of 1934.
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