Iran Sanctions Program

On January 16, 2016, the IAEA verified Iran’s fulfillment of key concessions to its nuclear program as required pursuant to the JCPOA, ushering in the sanctions relief promised on Implementation Day. The post-Implementation Day nuclear-related sanctions relief applies primarily to non-US persons, and it is largely limited to certain economic sectors. For US-persons, the US primary sanctions are still in effect, except for three very limited exceptions:

  1. A case-by-case licensing policy for civil aviation exports and transfers by US-persons
  2. A general license for foreign entities controlled or owned by US-persons
  3. A general license for the importation of Iranian foodstuffs and carpets.

However, even these three exceptions are nuanced and limited in scope. Please contact an attorney before making any decisions regarding post-Implementation Day Iranian business transactions.

Additionally, foreign individuals and companies should continue to exercise caution when dealing with Iran. Although many activities conducted by foreign persons involving Iran are no longer sanctionable, foreign persons still face an appreciable risk of being sanctioned by the United States for transactions involving Iran-related SDNs and the Iranian Revolutionary Guard Corp.  Furthermore, foreign financial institutions may still face special measures as a result of FinCEN’s finding in 2011 that Iran is a jurisdiction of primary money laundering concern. Please contact an attorney before engaging in any post-Implementation Day Iranian business transactions.

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 will also create 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 OPAC 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:

  1. Goods or services of Iranian origin or owned or controlled by the Government of Iran; or
  2. Goods, technology, or services for exportation, re-exportation, sale, or supply — directly or indirectly — to Iran or the Government of Iran.

Section 560.206(a)(1)-(2)

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. If you have questions about how the Iran Deal may impact your business, call and speak with an experienced Iran Sanctions Lawyer today.

Effect on Iran

This deal affects Iran by allowing some sanctions relief to support its economy, in exchange for curbing its nuclear program. It will allow Iran to engage in some business with the international business community without having to evade sanctions. In a lot of ways, this will normalize Iran’s business climate and business environment, in exchange for its nuclear concessions.

Effect on the United States

For the United States, this deal helps ensure that Iran remains far away from developing a nuclear bomb for as long as possible. There was concern that Iran was very close to producing a nuclear bomb. Experts were calling it a very short “breakout period” to develop a nuclear weapon, as it is called. With this nuclear deal, the concessions that Iran has made in its nuclear program should keep them about a year to a year and a half away from making a nuclear bomb, and that will give the United States and the global community a sense of security in exchange for some sanctions relief for Iran.

JCPOA Timeline

The Iran Deal is anticipated to last 15 years. There are multiple stages throughout the deal. There is Finalization Day, which is the day that the agreement was signed. The agreement is known as the Joint Comprehensive Plan of Action, or the JCPOA. Then there is Adoption Day, which is the day that all the parties involved in the agreement begin undertaking all of their obligations under the JCPOA. Finally, there is Implementation Day, which is possibly the most significant day in the agreement. It is when the sanctions relief becomes law. Implementation takes effect when the IAEA, which is the International Atomic Energy Association, confirms that Iran has undertaken and accomplished its nuclear-related steps in the agreement. Once that happens, the sanctions relief goes into effect.

The Iran Deal’s Implementation Deal was on January 16, 2016.

JCPOA: Adoption Day

Adoption Day was conceived in the JCPOA as the day when the deal goes into effect. Beginning on Adoption Day, the JCPOA participants will make the necessary arrangements and preparations, including legal and administrative preparations, for the implementation of their JCPOA commitments.

The parties start completing their obligations – for the P5+1 it is putting in place the sanctions relief framework the parties agreed to. For Iran it means starting the process of taking down parts of its nuclear program consistent with the terms in the agreement. For example, the United States issued conditional sanctions waivers that would go into effect if Iran verifiably upholds its end of the deal by dismantling parts of its nuclear program.

Adoption Day was on October 18th, 2015. It was approximately 90 days after the signing of the JCPOA.

Sanctions Relief in the JCPOA

The nuclear commitments are very technical and they are related to Iran’s nuclear program. Specifically, what the JCPOA spells out is what Iran has to do to dismantle and give up parts of its nuclear program and extend out its ability to create a nuclear bomb. They are so technical that most people without a science or technical background would not understand what it is saying.

However, the sanctions relief that is set out by the JCPOA is extensive, in the sense that it ends almost all nuclear-related secondary sanctions that are imposed by the United States and will lift virtually all of the European Union sanctions against Iran. But no sanctions relief comes into play on Adoption Day. Adoption Day is simply the day that the parties start undertaking their responsibilities under the JCPOA. It is Implementation Day, which is later, when the sanctions relief kicks in. Implementation Day was on January 16, 2016. OFAC lifted its nuclear-related secondary sanctions. Additionally, OFAC made three changes to the primary sanctions program against Iran. First, it authorized the importation of Iranian origin food (including caviar and pistachios). Second, it issued a favorable statement of licensing policy for activities related to the export or reexport to Iran of commercial passenger aircraft and related parts and services. Third, it issued General License H, authorizing US owned or controlled foreign subsidiaries to engage in business with Iran. In order to give effect to the authorization in General License H, OFAC also issued limited authorization enabling US persons to initially facilitate the Iran-related transactions of their foreign subsidiaries..

Sanctions Enforcement After Adoption Day

All of the sanctions in existence prior to the JCPOA are still in effect and enforceable during the time between Adoption Day and Implementation Day. Anyone engaging in any activities which are contrary to the current sanctions laws could be liable for such activities. Therefore, although there is a lot of excitement surrounding the JCPOA and Adoption Day, people should exercise restraint and caution and wait until Implementation Day to undertake their transactions with Iran which might be covered under the sanctions relief.

UPDATE 2/18: Implementation Day occurred on January 16, 2016. Most of the sanctions relief that was negotiated in the JCPOA went into effect on that day.