January 16, 2016 was Implementation Day for the Joint Comprehensive Plan of Action ("JCPOA") reached among the P5+1 (the United States, China, France, Germany, Russia, and the United Kingdom), the European Union, and Iran. On Implementation Day, the Secretary of State confirmed that the International Atomic Energy Agency ("IAEA") had verified Iran's completion of specified nuclear-related commitments, and the United States lifted certain nuclear-related "secondary sanctions" pertaining to the activities of non-US persons. These sanctions relate to (i) Iran's financial, banking, energy, petrochemical, shipping, shipbuilding, and automotive sectors; (ii) Iran's port operators; (iii) the provision of insurance, re-insurance, and underwriting services in connection with activities that are consistent with the JCPOA; (iv) Iran's trade in gold and other precious metals; (v) trade with Iran in graphite, raw, or semi-finished metals, such as aluminum and steel, coal, and certain software in connection with activities that are consistent with the JCPOA; and (vi) the provision of associated services for each of the categories above.
In addition, the United States implemented more limited relief pertaining to the primary sanctions applicable to US persons. The United States issued: (i) a Statement of Licensing Policy allowing for the case-by-case licensing of individuals and entities seeking to export, reexport, sell, lease, or transfer to Iran commercial passenger aircraft and related parts and services for exclusively civil, commercial passenger aviation end-use; (ii) a general license, authorizing non-US entities that are US-owned or -controlled to engage in certain activities involving Iran; and (iii) a general license, which is effective upon publication in the Federal Register, authorizing the importation into the United States of Iranian-origin carpets and foodstuffs, including pistachios and caviar. Further, the United States removed over 400 individuals and entities from sanctions lists maintained by the US Department of the Treasury, Office of Foreign Assets Control ("OFAC").1
OFAC has issued guidance and FAQs related to Implementation Day.
US sanctions relief
Nuclear-related secondary sanctions
The United States lifted the nuclear-related secondary sanctions described in sections 4.1-4.7 of Annex II and 17.1-17.2 of Annex V of the JCPOA. These secondary sanctions generally are directed toward non-US persons for specified conduct involving Iran that occurs entirely outside of US jurisdiction and does not involve US persons. As a result of the lifting of these sanctions, non-US persons may now engage in the following activities without running afoul of US sanctions:
- Financial and banking measures: Financial and banking transactions related to Iran, including: (i) transactions with individuals and entities set out in Attachment 3 to Annex II of the JCPOA, including, with certain exceptions, opening or maintaining correspondent accounts for the specified Iranian financial institutions; (ii) transactions and other activity involving the Iranian rial; (iii) the provision of US bank notes to the Government of Iran, including providing material support for such transactions; (iv) the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt, including governmental bonds; (v) the provision of specialized financial messaging services to certain Iranian banks and financial institutions removed from the SDN List on Implementation Day; and (vi) the provision of associated services for each of these categories. The US commitments also include the lifting of bilateral trade limitations on Iranian revenues held abroad, including limitations on their transfer. US persons continue to be generally prohibited under the ITSR from involvement in these activities. In addition, transactions related to these activities are prohibited from transiting the US financial system.
- Insurance measures: Underwriting services, insurance, or reinsurance in connection with activities consistent with the JCPOA, including activities by non-US persons with individuals and entities set forth in Attachment 3 to Annex II of the JCPOA. The US commitments also include underwriting services, insurance, or reinsurance in connection with activities in the energy, shipping, and shipbuilding sectors of Iran; for certain specified Iranian entities; or for vessels that transport crude oil, natural gas, liquefied natural gas, petroleum, and petrochemical products to or from Iran.
- Energy and petrochemical sectors: Transactions with Iran's energy sector, including: (i) investment, including participation in joint ventures, goods, services, information, technology and technical expertise and support for Iran's oil, gas, and petrochemical sectors; (ii) the purchase, acquisition, sale, transportation, or marketing of petroleum, petrochemical products, and natural gas from Iran; (iii) the export, sale, or provision of refined petroleum products and petrochemical products to Iran; (iv) transactions with Iran's energy sector, including certain specified Iranian entities; and (v) the provision of associated services for each of these categories. In addition, the United States has ceased efforts to reduce Iran's crude oil sales, including limitations on the quantities of Iranian crude oil sold and the nations that can purchase Iranian crude oil.
- Shipping, shipbuilding, and port sectors: Transactions with Iran's shipping and shipbuilding sectors and port operators, and the provision of associated services for these activities.
- Gold and other precious metals: Trade in gold and other precious metals, and the provision of associated services.
- Software and metals: Trade with Iran in graphite, raw, or semi-finished metals, such as aluminum and steel, coal, and software for integrating industrial processes, and the provision of associated services.
- Automotive sector: Sale, supply, or transfer of goods and services used in connection with Iran's automotive sector and the provision of associated services.
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 and are without prejudice to any other US sanctions that may apply under legal provisions other than those cited in section 4 of Annex II of the JCPOA.
Primary sanctions relief
The United States has licensed or committed to license three categories of activity that would otherwise be prohibited under the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 ("ITSR"), provided that the transactions do not involve individuals and entities on the SDN List and are otherwise consistent with the JCPOA and applicable US law.
In particular, OFAC issued a Statement of Licensing Policy that allows for the case-by-case licensing of individuals and entities seeking to export, reexport, sell, lease, or transfer to Iran commercial passenger aircraft, and related parts and services, for exclusively commercial passenger aviation.
In addition, OFAC issued General License H ("GL H"), effective on Implementation Day, authorizing non-US entities that are owned or controlled by a US person ("US-owned or -controlled foreign entities")2 and that are established or maintained outside the United States to engage in certain transactions, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran.3 GL H also allows a US person to engage in the following limited activities in support of such authorized transactions by a US-owned or -controlled foreign entity:
- Activities related to the establishment or alteration of operating policies and procedures of a US entity or US-owned or -controlled foreign entity, to the extent necessary, to allow the US-owned or -controlled foreign entity to engage in transactions involving Iran that are authorized under GL H; and,
- Activities to make available to US-owned or -controlled foreign entities certain automated4 and globally integrated business support systems (e.g., computer, accounting, email, or telecommunications systems, platforms, databases, applications, or servers necessary to store, collect, transmit, generate, or otherwise process documents or information related to authorized transactions).
As OFAC's FAQs explain, the authorization in GL H is intended to cover the involvement of US person board members, senior management, and employees of either a US parent company or a US-owned or -controlled foreign entity in the establishment or alteration of operating policies and procedures of the US parent company or any of its owned or controlled foreign entities, to the extent necessary to allow any of the US-owned or -controlled foreign entities to engage in transactions with Iran authorized under GL H. This authorization is also intended to cover US persons who may be hired as outside legal counsel or consultants to draft, alter, advise, or consult on such operating policies and procedures. GL H also authorizes US persons, including employees and outside legal counsel and consultants, to provide training, advice, and counseling on the new or revised operating policies and procedures, provided that these services are not provided to facilitate transactions in violation of US law. Importantly, while US persons may be involved in the initial determination to engage in activities with Iran authorized by GL H, as well as the establishment or alteration of the necessary policies and procedures, GL H does not authorize US person involvement in the ongoing Iran-related operations or decision making of its owned or controlled foreign entity engaging in activities with Iran authorized by GL H after these actions are taken. US persons may not be involved in the Iran-related, day-to-day operations of a US-owned or -controlled foreign entity, including by approving, financing, facilitating, or guaranteeing any Iran-related transaction by the foreign entity.
Notwithstanding GL H, the prohibition against facilitation in the ITSR remains in effect for US persons.5 GL H also does not authorize the use of any automated computer, accounting, email, telecommunications, or other business support system, platform, database, application, or server in connection with any transfer of funds to, from, or through a US depository institution or a US-registered broker or dealer in securities. Additionally, GL H does not authorize transactions involving:
- The direct or indirect exportation, reexportation, sale, or supply of goods, technology, or services from the United States absent separate authorization from OFAC;6
- Any transfer of funds to, from, or through the US financial system;
- Any individual or entity on the SDN List or any activity that would be prohibited by non-Iran sanctions administered by OFAC if engaged in by a US person or in the United States;
- Any individual or entity identified on the Foreign Sanctions Evaders ("FSE") List pursuant to Executive Order 13608;
- Any activity involving any item (including information) subject to the US export Administration Regulations ("EAR"), 15 C.F.R. parts 730-774, that is prohibited by, or otherwise requires a license under, part 744 of the EAR, or participation in any transaction involving a person whose export privileges have been denied pursuant to part 764 or 766 of the EAR, without authorization from the US Department of Commerce;
- Any military, paramilitary, intelligence, or law enforcement entity of the Government of Iran, or any officials, agents, or affiliates thereof;
- Any activity that is sanctionable under Executive Orders 12938 or 13382 (relating to Iran's proliferation of weapons of mass destruction and their means of delivery, including ballistic missiles); Executive Order 13224 (relating to international terrorism); Executive Order 13572 or 13582 (relating to Syria); Exeuctive Order 13611 (relating to Yemen); or Executive Orders 13553 or 13606, or section 2 or 3 of Executive Order 13628 (relating to Iran's commission of human rights abuses against its citizens); or
- Any nuclear activity involving Iran that is subject to the procurement channel established pursuant to paragraph 16 of UN Security Council Resolution 2231 (2015) and section 6 of Annex IV to the JCPOA that has not been approved through the procurement channel process.
OFAC further submitted for publication in the Federal Register a final rule adding a general license under the ITSR, authorizing the importation into the United States of Iranian-origin carpets and foodstuffs, including pistachios and caviar.
Sanctions list removals
The United States removed over 400 individuals and entities from the SDN List, the Foreign Sanctions Evaders List ("FSE List"), and/or the Non-SDN Iran Sanctions Act List ("NS-ISA List"). Beginning on Implementation Day, non-US persons will no longer be subject to sanctions for conducting transactions with any of these individuals and entities (set out in Attachment 3 to Annex II of the JCPOA), provided these transactions do not involve persons on the SDN List after Implementation Day or other conduct that remains prohibited. 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.
- Primary US sanctions on Iran remain in place. Other than certain limited exceptions provided for in the JCPOA, the US trade embargo on Iran broadly remains in place. US persons continue to be generally prohibited from engaging in transactions or dealings with Iran or its government. In addition, the Government of Iran and Iranian financial institutions remain persons whose property and interests in property are blocked. Absent an exemption or other OFAC authorization, US persons continue to have an obligation to block the property and interests in property of all individuals and entities that meet the definition of the Government of Iran or an Iranian financial institution, regardless of whether or not the individual or entity has been designated by OFAC. In addition, non-US persons continue to be prohibited from knowingly engaging in conduct that seeks to evade US restrictions on transactions or dealings with Iran or that causes the export of goods or services from the United States to Iran.
- US export controls on Iran remain in place. US controls in the exportation or reexportation of goods, technology, and services to Iran imposed pursuant to the ITSR, as well as the EAR and the International Traffic in Arms Regulations, 22 CFR parts 120-130 ("ITAR"), remain in place. Absent an exemption or other authorization, the exportation or reexportation by a US person or from the United States to Iran or the Government of Iran, as well as the reexportation by non-US persons of items that contain 10 percent or more U.S.-controlled content with knowledge or reason to know that the reexportation is intended specifically to Iran or the Government of Iran, generally requires a license.
- Several US sanctions targeting Iran's other activities remain in place. US sanctions targeting Iran's support for terrorism, regional destabilization, human rights abuses, and missile activities will remain in effect and continue to be enforced.
- Secondary sanctions targeting non-US person dealings with Iran-related persons on the SDN List or trade in certain materials involving Iran remain in place. After Implementation Day, secondary sanctions continue to attach to significant7 transactions with: (1) Iranian persons that are on the SDN List; (2) a specified Iranian military organization and its designated agents or affiliates; and (3) any other person on the SDN List designated under Executive Order 13224 or Executive Order 13382 in connection with Iran's proliferation of weapons of mass destruction ("WMDs") or their means of delivery or Iran's support for international terrorism. In addition, sanctions targeting certain activities related to trade in materials described in section 1245(d) of the Iran Freedom and Counter-Proliferation Action of 2012 ("IFCA") that are outside the scope of the JCPOA and related waivers remain in place.
- Non-US subsidiaries still may face limitations in engaging in Iran-related activities. US-owned or controlled foreign subsidiaries can, with certain limitations, engage in Iran-related business. US persons, however, can have no involvement in the business, except that US persons can be involved in the alteration or establishment of operating policies and procedures of the parent or the foreign entity to the extent necessary to allow the foreign entity to engage in Iran-related transactions and also can engage in activities to make available certain automated and globally integrated systems owned or controlled by the parent. Importantly, GL H does not authorize payment to, from, or through US depositary institutions. Any such payments would need to be blocked by the financial institution. This places an important practical limitation on the ability of foreign subsidiaries to engage in Iran business.
1 Implementation Day also marked the close of the Joint Plan of Action of November 24, 2013, as extended ("JPOA"), including the provision of sanctions relief pursuant to the JPOA. Effective Implementation Day, all specific licenses that: (1) were issued pursuant to OFAC's Second Amended Statement of Licensing Policy on Activities Related to the Safety of Iran's Civil Aviation Industry, and (2) have an expiration date on or before July 14, 2015, are authorized to remain in effect according to their terms until May 31, 2016.
2 An entity is "owned or controlled" by a US person if the US person: (1) holds a 50 percent or greater equity interest by vote or value in the entity; (2) holds a majority of seats on the board of directors of the entity; or (3) otherwise controls the actions, policies, or personnel decisions of the entity.
3 Such transactions would otherwise be prohibited under 31 C.F.R. § 560.215.
4 The term "automated" refers to passive operation without human intervention to facilitate the flow of data between and among the US person and its owned or controlled foreign entities. The term "globally integrated" refers to general availability and use by the US person's global organization including the US person and its owned or controlled foreign entities.
5 See 31 C.F.R. § 560.208.
6 See 31 C.F.R. § 560.204.
7 See 31 C.F.R. § 561.404 of the IFSR in determining whether transactions, financial transactions, or financial services are significant.