JCPOA: Risks of Business Deals in Iran

UPDATE 5/18: The United States withdrew from the JCPOA on May 8, 2018. All of the authorizations provided due the JCPOA are now revoked and a 90 or 180-day wind-down period contingent upon the type of transaction is in place. 

The sanctions relief offered by the United States in the JCPOA was limited primarily to the nuclear-related secondary sanctions. Those secondary sanctions connected to Iran’s role in terrorism and human rights abuses remain in effect even after Implementation Day. The relief is very narrowly construed to affect just nuclear-related sanctions programs relief. The U.S. vowed to continue to aggressively enforce its remaining secondary sanctions regimes targeting Iran for its involvement in human rights abuses and global terrorism.

Risks of New Non-Nuclear Sanctions on Iran

Since the United States has vowed to continue to enforce the global terrorism and human-rights-abuses-based sanctions programs, foreign businesses need to be cognizant of whom they transact with in Iran. For example, if a foreign business transacts with a party in Iran linked to either terrorism or human rights abuses, that foreign business risks being targeted for secondary sanctions by the United States.

These particular secondary sanctions programs are not subject to the JCPOA, which again was primarily limited to nuclear-related sanctions. Due diligence will be incredibly important to protecting a company’s reputation.

There is also the risk that sanctions can be snapped back if Iran violates the terms of the agreement. This can disrupt the activities of foreign businesses who have entered the Iranian market under the JCPOA and the JPOA.

Risks for Foreign Subsidiaries of U.S. Companies

Foreign subsidiaries owned by the United States or U.S. persons will continue to be prohibited from engaging in business with Iran. However, the JCPOA does mention the possibility of a narrower set of sanctions relief applicable to U.S. persons and entities which own foreign entities. The full scope of this possible sanctions relief is currently unknown. OFAC has said that it will provide guidance on the issue soon and possibly issue a new rule or general license related to it. OFAC has stated several times that such guidance is forthcoming and will be issued prior to Implementation Day. Legal professionals and U.S. businesses eagerly await OFAC’s guidance.

Risks for Intermediaries and Financial Institutions

Intermediaries like banks and financial institutions will continue to be subject to secondary sanctions if they transact with Iranian parties who are linked to global terrorism and human rights abuses. Additionally, Iran remains a jurisdiction of primary money laundering concern pursuant to Section 311 of the U.S.A. Patriot Act. This designation carries with it a very strong stigma which will likely discourage major foreign financial institutions from engaging in business with Iran. Additionally, sanctions can be snapped back at any time if Iran violates the terms of the agreement. This can disrupt the activity of intermediaries who have decided to enter the Iranian market and imbed themselves in the Iranian economy. One’s investment of time and money into Iran may be lost in the event of “snap back” as OFAC has mentioned that there will be no grandfathering of existing contract in the event of a snap back.