Continuing its “maximum pressure” campaign against Iran, the United States has (a) ratcheted up sanctions under Executive Orders that provide for the imposition of secondary sanctions on non-U.S. companies that engage in transactions with Iranian financial institutions, and (b) authorized the imposition of secondary sanctions on non-U.S. companies that engage in arms-related transactions with Iran pursuant to a new Executive Order, notwithstanding the expiration of the United Nations arms embargo under Security Council Resolution 2231 implementing the Joint Comprehensive Plan of Action (JCPOA).
On November 2, 2018, the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) issued a final rule effective Monday, November 5, 2018 that amends the Iranian Transactions and Sanctions Regulations and reinstates sanctions on Iran that had been suspended during implementation of the Joint Comprehensive Plan of Action (“JCPOA”). On May 8 of this year, the Trump Administration had announced that the United States would withdraw from the JCPOA, but provided for 90-day and 180-day wind-down periods for specified activities involving Iran.
The 90-day wind down period ended effective August 6, 2018, and the U.S. government took steps to re-implement sanctions via Executive Order 13846. This included the application of secondary sanctions to the purchase or acquisition of U.S. dollar banknotes by the Government of Iran, certain trade in gold or precious metals, certain trade in graphite, raw or semi-finished metals such as aluminum, steel, coal and software for integrating industrial processes, transactions relating to Iranian rials, transactions relating to issuance of Iranian sovereign debt, and sanctions relating to Iran’s automotive sector. (See our previous post here).
The latest announcement addresses the end of the 180-day wind down period and implements certain additional aspects of Executive Order 13846.
- The amendments include deleting the “EO 13599 List” of individuals and entities who were removed from the SDN List pursuant to the JCPOA, but still were considered “Government of Iran” parties or Iranian financial institutions subject to blocking by U.S. persons pursuant to EO 13599. The Federal Register notice states that OFAC will relist “as appropriate” certain individuals and entities who were on the EO 13599 List. It is therefore unclear at this time whether all persons who were on the EO 13599 List will be re-added to the SDN List.
- The Iranian Transactions and Sanctions Regulations will authorize sanctions against a person upon a determination that:
- On or after August 7, 2018, the person has materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the purchase or acquisition of U.S. bank notes or precious metals by the Government of Iran; or
- On or after November 5, 2018, the person has materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), or the Central Bank of Iran.
- OFAC amended a pre-existing general license allowing U.S. persons to sell real property in Iran provided it was acquired before the individual became a US person or was inherited from persons in Iran. The general license has been expanded to include personal property subject to the same conditions.
During a telecom briefing on Friday, Secretary of State Michael Pompeo mentioned that the administration decided to grant “temporary allotments” to eight jurisdictions to continue purchasing Iranian oil. Some reports indicate that South Korea, Japan, India, and Turkey are among the countries receiving such waiver. Although Mr. Pompeo did not say how long the waivers will be in place, he mentioned that the purpose of the waivers is to give countries a few “weeks longer to wind down.”
We expect that the actual re-designations of persons and entities to the SDN List will be published on Monday along with guidance and FAQs. We will follow up next week with further details.
On August 6, 2018, the Treasury Department’s Office of Foreign Assets Control (OFAC) released a new Executive Order to implement the previously announced re-imposition of U.S. sanctions for Iran. There were no major surprises, with the Executive Order paralleling the guidance released on May 8, 2018 when the President announced his decision to cease the United States’ participation in the Joint Comprehensive Plan of Action (JCPOA) and to begin re-imposing the U.S. nuclear-related sanctions that had been lifted, following a wind-down period.
Today, President Trump issued a statement on the status of the Joint Comprehensive Plan of Action (“Iran nuclear deal”) and the Office of Foreign Assets Control designated 14 individuals and entities in connection with serious human rights abuses and censorship in Iran, and support to designated Iranian weapons proliferators. Below, we provide notable highlights from the President’s statement.
On December 15, 2016, the Office of Foreign Assets Control (OFAC) provided updated guidance on what companies can expect in the event of the “snapback” of sanctions under the Joint Comprehensive Plan of Action (JCPOA). Previously, OFAC Frequently Asked Questions (FAQs) had only offered the possibility of working with companies in the event of snapback. The guidance offers assurances of a 180-day wind down period. OFAC issued this clarification in response to many questions it received, but it is not intended to signal an expectation that the sanctions will snapback.
In addition, OFAC issued a new General License J-1 to replace General License J addressing the temporary sojourn of U.S.-origin aircraft in Iran. The updated general license authorizes the temporary sojourn of U.S.-origin aircraft as part of a code sharing arrangement with an Iranian air carrier. Our prior blog post on the issuance of General License J is available here.
Donald Trump’s victory in the 2016 Presidential election put the Republican Party in charge of the White House and Congress for the first time in a decade. President-elect Trump ran as an anti-establishment candidate who departed from many traditional Republican positions and promised bold and in some respects controversial reforms. How his administration will govern and the extent to which its policies will be supported in Congress are key questions facing companies and investors.
This report comments on aspects of international trade, sanctions and export control policies that are currently at the forefront of discussion.
There has been much discussion of U.S. and EU sanctions changes following Implementation Day under the Joint Comprehensive Plan of Action (“JCPOA”), but a number of countries had imposed sanctions for Iran and it is worth examining how other key markets are adjusting policy. In particular, Canada and Australia recently implemented amendments to their sanctions regimes pertaining to Iran.
Canada had maintained a broad and complex sanctions regime for Iran, as described below. Following the arrival of Implementation Day, Canada took action on February 5, 2016 to remove many of these sanctions, opening a wide variety of permitted economic activity. The sanctions and export controls still in place include:
- A reduced, but still substantial list of designated parties subject to asset freezes.
- Export controls on dual-use and certain other strategic goods and technology. Applications for export permits will be considered on a case-by-case basis, but exports of more sensitive items normally will be denied.
- Prohibition on trade in arms and related material as well as the export of goods, items, material and technology related to uranium enrichment.
- The provision of property, technical or financial assistance and services to Iranian persons for the supply sale, transfer, manufacture or use of products whose export is prohibited.
These rules apply to persons in Canada and Canadian citizens and corporations wherever situated.
Canada’s sanctions regime has been imposed under the United Nations Act implemented by the Regulations Implementing the United Nations Resolutions on Iran (“UN Regulations”) and the Special Economic Measures Act, implemented by the Special Economic Measures (Iran) Regulations (“SEMA Regulations”). With the reforms of February 5, 2016, the following key restrictions have been removed:
- Prohibitions against engaging in and financing the Iranian oil and gas sector or providing services to Iranian vessels.
- Prohibitions against engaging with the Iranian financial sector including the prohibition on opening of correspondent banking accounts in Canada.
- The blanket prohibition on exports to Iran and imports from Iran expect for sensitive items discussed above.
- The prohibition on making investments in Iranian entities.
Like Canada, Australia had maintained a complex sanctions regime for Iran. Australia’s Department of Foreign Affairs and Trade (DFAT) has announced that it will implement plans to lift nuclear-related economic and financial sanctions by making changes to the Charter of the United Nations (Sanctions-Iran) Regulations 2008 and suspending certain provisions of the Autonomous Sanctions Regulations 2011. Australian law will generally permit business with Iran with the following continuing limitations:
- There will be a reduced, but still substantial list of designated parties subject to asset freezes.
- Australia will continue to maintain anti-money laundering controls for Iran. Under the Anti-Money Laundering and Counter-Terrorism Financing (Iran Countermeasures) Regulations 2014, Australian financial institutions are prohibited from providing certain designated services to Iranian persons and entities for transactions exceeding AUD 20,000 unless exempted by the DFAT.
- Restrictions on export to Iran of arms and related material, including some dual use goods, remains in place.
Australia’s revised rules with respect to Iran will no longer prohibit:
- Exports, including – equipment and technology for the oil, gas and petrochemical industry; vessels for transport and storage of oil and gas; gold, diamonds and precious metals; newly issued Iranian bank notes; and certain naval equipment and technology.
- Imports, including – crude oil, petroleum, petrochemical and natural gas products; and gold, diamonds and precious metals from the Government of Iran.
- Provision of technical advice or financial assistance and service for the export of certain goods such as oil and gas, naval equipment or gold, diamonds and precious metals.
- Investment in Iranian companies in the oil, gas and petrochemical sector. Likewise, Iranian entities will be able to invest in Australia’s oil, gas and financial services sector including the establishment of representative offices, subsidiaries and correspondent banking relationships with Australian financial institutions.
Continued monitoring of legal risk
The amendments to the Australian and Canadian sanctions regimes, and continuing sanctions, should be considerations for businesses and banks with exposure to Iran-related transactions or Iranian customers.
With “Implementation Day” came the lifting of certain key U.S. and EU sanctions on the civil aviation industry. However, many prohibitions still remain, and licensing requirements may attach to U.S. persons or non-U.S. persons who seek to do business in Iran or operate airline services to/from Iran. Companies must continue to navigate this complex sanctions framework if seeking to engage in Iran’s aviation sector.
The front line of Iran sanctions compliance and enforcement has been the banking sector. With the arrival of “Implementation Day” under the Joint Comprehensive Plan of Action (JCPOA), financial institutions and persons engaging in financial transactions face an adjusted, but still complex, sanctions environment. Continue reading →
On January 16, 2016, known as “Implementation Day” under the Joint Comprehensive Plan of Action (JCPOA), the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued General License H, which allows foreign subsidiaries of U.S. companies to engage in business with Iran, but with strict limitation on the extent to which their parent companies can be involved. Prior to 2012, the U.S. embargo did not apply to companies incorporated abroad, including foreign subsidiaries of U.S. companies. Section 218 of The Iran Threat Reduction and Syria Human Rights Act of 2012 extended the reach of U.S. sanctions, making U.S. companies potentially liable if their foreign subsidiaries did business with Iran. As part of the JCPOA, the United States committed to rolling back this sanction.