Iran Sanctions Regime
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) administers a complex and comprehensive sanctions regime against Iran. The Iran sanctions prohibit virtually all direct and indirect transactions involving Iran, the Government of Iran, persons who ordinarily reside in Iran, and entities either located in Iran or formed under Iranian law. The JCPOA also created new business risks.
The Iran sanctions also prohibit the exportation, re-exportation, sale, or supply of goods to a person in a third country undertaken with knowledge or reason to know that the goods are intended specifically for supply, transshipment, or re-exportation — directly or indirectly — to Iran or the Government of Iran.
Although the Iran sanctions are broad, there are several well-developed exemptions, general licenses, and statements of licensing policy that permit U.S. businesses and U.S. persons to undertake transactions that would otherwise be prohibited. The sanctions targeting Iran are also unique because the Secretary of the Treasury and the President are authorized to target foreign persons and foreign financial institutions who do business with Iran by imposing secondary sanctions against them.
Below are several links to question-and-answer pages excerpted from an interview with an OFAC Attorney in which he discusses sanctions on Iran.
OFAC’s Legal Authorities for Iran Sanctions
OFAC sanctions targeting Iran are authorized pursuant to many overlapping legal authorities. Iran sanctions are primarily implemented pursuant to the International Emergency and Economic Powers Act. The President annually declares a national emergency with respect to Iran, which authorizes the continued applicability of the Iranian Transactions and Sanctions Regulations. There are numerous executive orders that build upon and expand the nature of the emergency Iran poses to the national security and foreign policy objectives of the United States.
There are also other important statutes that impose sanctions against Iran. They include:
Some of these authorities empower the President to utilize national emergency powers to implement Iran sanctions at his discretion. Other authorities obligate OFAC to implement and enforce sanctions against Iran. These are commonly referred to as congressionally mandated OFAC sanctions. Some even authorize OFAC and the President to impose secondary sanctions against third country persons who continue to transact with Iran.
Impact of Sanctions
Iranian Transactions and Sanctions Regulations (31 CFR Part 560)
OFAC promulgated the Iranian Transactions and Sanctions Regulations (ITSR) at 31 C.F.R. Part 560 to implement most of the sanctions targeting Iran. The ITSR is the primary set of regulations that make up the country-based sanctions against Iran. In addition, OFAC posts on its websites general licenses on an as-needed basis. Longstanding general licenses from the website are eventually incorporated into the text of the regulations.
OFAC Prohibited Exports, Imports, and Transshipments Involving Iran
The sanctions broadly prohibit “the importation into the United States of any goods or services of Iranian origin or owned or controlled by the Government of Iran, other than information and informational materials.” See Section 560.201.
The sanctions also broadly prohibit the exportation, re-exportation, sale, or supply of goods, technology, or services to Iran. See Section 560.204. The prohibition includes the indirect exportation or transshipments of goods, technology, or services to Iran, including the Government of Iran.
Even if an exported good is not destined for Iran, a person or business may run afoul of the sanctions. This is because transshipments through Iran to third countries are also prohibited. See Section 560.403.
This is significant because many U.S. businesses have a presence in the Middle East and Central Asia. Businesses shipping parts to Dubai, Afghanistan, Pakistan, Oman, and other neighboring countries must be alert and ensure that none of the goods are being transshipped through Iran to their final destinations.
The mere act of having the goods go through Iran is considered a violation of the ITSR.
OFAC Prohibited Trade-Related Transactions with Iran
U.S. persons and businesses, wherever they may be located, are prohibited from engaging in any transaction or dealings with or related to:
- Goods or services of Iranian origin or owned or controlled by the Government of Iran; or
- Goods, technology, or services for exportation, re-exportation, sale, or supply — directly or indirectly — to Iran or the Government of Iran.
Prohibited “transactions or dealings” are broadly construed to include any purchasing, selling, transporting, swapping, brokering, approving, financing, facilitating, or guarantees related to Iran. Therefore, even if a U.S. business is only involved in shipping or financing an underlying export to Iran, that U.S. business would be in violation of the sanctions.
OFAC Prohibited Facilitation by U.S. Persons of Transactions Between Foreign Persons and Iran
The Iran sanctions also prohibit what is known as “facilitation.” The regulation specifically states that “no United States person, wherever located, may approve, finance, facilitate, or guarantee any transaction by a foreign person where the transaction by that foreign person would be prohibited by this part if performed by a United States person or within the United States.” See Section 560.208.
Facilitation is so broadly construed that it even prohibits a U.S. business or individual from referring business to a foreign person (located in a third country) if the referred business would be prohibited if performed by the U.S. person. See Section 560.417(b).
Such a broad prohibition of a common business courtesy can easily cause a person to violate the sanctions against Iran. Avoiding an inadvertent violation of the law can be achieved by consulting with an attorney who has experience handling OFAC sanctions issues.
OFAC Prohibited Investment in Iran
Section 560.207 prohibits U.S. persons from investing in Iran or in property owned or controlled by the Government of Iran. This prohibition includes investments in companies that may be owned or controlled by the Iranian Government that may operate overseas.
In several instances, the U.S. government has prosecuted investment-related cases under the theory that contributing to or placing funds in an Iranian bank account constitutes a prohibited investment in Iran. This theory is becoming more prevalent as Iranian banks try to encourage deposits in the face of crippling inflation by sky-rocketing interest rates, some of which have risen as high as 20 percent. With such high rates of return, however, deposits can reasonably be construed by OFAC and the Department of Justice as prohibited investments.
This theory of prosecution is also consistent with the definition of “new investment,” which broadly states that the term means “[a] commitment or contribution of funds or other assets . . . or [a] loan or other extension of credit.” See Section 560.316.
The Iran Deal
The Iran Deal, known as the Joint Comprehensive Plan of Action (JCPOA), was an agreement reached between the P5+1 countries and Iran over its nuclear program. In exchange for some sanctions relief, Iran has agreed to curb some of its nuclear-related programs. The Iran Deal was implemented in January 2016. The United States withdrew from the Iran Deal in May 2018.
Sanctions Enforcement After Re-imposition of Nuclear-related Sanctions – May 8, 2018
On May 8th, 2018 President Trump’s administration announced a decision to cease US participation in the JCPOA, and to begin reimposing, following a wind-down period, the U.S. nuclear-related sanctions that were lifted to effectuate the JCPOA sanctions relief. The President’s National Security Presidential Memorandum (“NSPM”) directs the Secretaries of State and Treasury to prepare for the immediate re-imposition of all U.S sanctions waived in connection with the JCPOA no later than 180 days from the issuance date of the NSPM.
To implement the withdrawal from the JCPOA, the Departments of State and the Treasury have established a 90-day and a 180-day wind-down period for activities involving Iran that were consistent with the U.S. sanctions relief provided under the JCPOA.
Following the two wind-down periods, OFAC expects that all the U.S. nuclear-related sanctions that had been lifted under the JCPOA will be re-imposed and in full effect following on November 4, 2018.
OFAC provides in relevant parts in the NSPM:
Sanctions Re-Imposed After August 6, 2018 (After the 90-day wind-down period)
The following sanctions will be reimposed upon conclusion of the 90-day wind-down period that ends on August 6, 2018:
- Sanctions on the purchase or acquisition of U.S. dollar banknotes by the Government of Iran;
- Sanctions on Iran’s trade in gold or precious metals;
- Sanctions on the direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes;
- Sanctions on significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial;
- Sanctions on the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
- Sanctions on Iran’s automotive sector.
The following JCPOA-related authorizations under U.S. primary sanctions regarding Iran will also be revoked:
- The importation into the United States of Iranian-origin carpets and foodstuffs and certain related financial transactions pursuant to general licenses under the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR);
- Activities undertaken pursuant to specific licenses issued in connection with the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (JCPOA SLP); and
- Activities undertaken pursuant to General License I relating to contingent contracts for activities eligible for authorization under the JCPOA SLP.
Persons currently engaged in activities listed above should take the necessary steps to wind down those activities by August 6, 2018 so as to avoid exposure to sanctions or enforcement actions under U.S. law.
Sanctions Re-Imposed After November 4, 2018 (After the 180-day wind-down period)
The following sanctions will be reimposed upon conclusion of the 180-day wind-down period that ends on November 4, 2018.
- Sanctions on Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, or their affiliates;
- Sanctions on petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
- Sanctions on transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA);
- Sanctions on the provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010 (CISADA);
- Sanctions on the provision of underwriting services, insurance, or reinsurance; and
- Sanctions on Iran’s energy sector.
Additionally, November 5, 2018, will mark the U.S. government’s revocation of authorizations for U.S.-owned or U.S.-controlled foreign entities to wind down certain activities with the Government of Iran or Iranian persons and entities that were previously authorized pursuant to General License H.
Also, by November 5th, the U.S. government will reimpose, as appropriate, sanctions that applied to persons and entities removed from the List of Specifically Designated Nationals and Blocked Persons (SDN List) and/or other lists maintained by the U.S. government on January 16, 2016.
Persons currently engaged in activities listed above should take the necessary steps to wind down those activities by November 4, 2018 so as to avoid exposure to sanctions or enforcement actions under U.S. law.
The Wind-Down Period
The U.S. government has been known to work with U.S. or third-country companies to minimize the impact of sanctions on legitimate activities undertaken prior to the imposition of sanctions.
To implement the May 8, 2018 NSPM, the Departments of State and Treasury established the 90-day and 180-day wind-down periods for activities involving Iran that were consistent with U.S. sanctions under the JCPOA.
Although JCPOA-related statutory waivers have been revoked to implement the NSPM, the necessary sanctions waivers have been issued to provide appropriate wind-down periods, i.e. August 6, 2018, or November 4, 2018. Non-U.S., non-Iranian persons are advised to use these periods to wind-down their activities involving Iran that will become sanctionable at the conclusion of the relevant period.
If a non-U.S., non-Iranian person is owed payment after the conclusion of the applicable wind-down period for goods or services fully provided/delivered to an Iranian counterparty prior to the applicable wind-down period (August 6, 2018, or November 4, 2018), pursuant to a written agreement entered into prior to May 8, 2018, and such activities were within U.S. sanction authorizations in effect at the time of delivery or provision, the U.S. government would allow the non-U.S., non-Iranian person to receive such payment. Similarly, the U.S. government would also allow for loans or credits extended to an Iranian counterparty to be repaid to non-U.S., non-Iranian persons under the same conditions. Any such payments must nonetheless be consistent with U.S. sanctions, including that payments must not involve U.S. persons or the U.S. financial system unless the transactions are exempt or authorized by OFAC.
Consistent with the above conditions, OFAC will also allow U.S. persons and U.S.-owned or -controlled foreign entities until August 6, 2018, or November 4, 2018, as applicable, to wind down operations in or business involving Iran conducted pursuant to an OFAC authorization, and to receive payments according to the terms of the written agreement entered into prior to May 8, 2018, for goods or services fully provided or delivered pursuant to an OFAC authorization. Soon, OFAC will replace General License H, General License I, and other general licenses relating to the trade of Iranian-origin rugs and foodstuff with more narrowly scoped authorizations that would allow U.S. persons and, as appropriate, US-owned or -controlled foreign entities, to engage in all transactions ordinarily incident and necessary to wind down activities previously authorized pursuant to those general licenses and to receive payments according to the written agreement entered into prior to May 8, 2018, for goods or services fully provided/delivered pursuant to an OFAC authorization.
New business pursuant the JCPOA sanctions relief will not be authorized during the wind-down periods. OFAC advises that when considering a potential enforcement or sanction action with respect to activities engaged after the conclusion of the wind-down periods, it will evaluate efforts and steps taken to wind down activities and will assess whether any new business was entered into involving Iran during the applicable wind-down period. In addition, the provision or delivery of additional goods and services and/or the extension of additional loans or credits to an Iranian person or entity after the wind-down period, even pursuant to written agreements entered into before May 8, 2018, may result in the imposition of US sanction unless exempt or authorized by OFAC.
No later than November 5, 2018, OFAC expects to move persons identified as meeting the definition of the terms “Government of Iran” or “Iranian financial institution” from the List of Persons Blocked Solely Pursuant to E.O. 13599 (“E.O. 13599 List”) to the SDN List. OFAC will not add these persons and entities to the SDN List on May 8, 2018 so as to allow for the orderly wind down of activities by non-U.S., non-Iranian persons that had been untaken prior to the NSPM issuance. The Government of Iran and Iranian financial institutions remain as persons whose property and interests in property are blocked pursuant to E.O. 13599 and the ITSR, and U.S. persons continue to be broadly prohibited from engaging in transactions with the Government of Iran and Iranian financial institutions. Starting November 5, 2018, activities with most persons moved from the E.O. 13599 List to the SDN List will be subject to secondary sanctions.