Iran Sanctions Implementation Day

By George W. Thompson

iran flagWhile it may not have been as eagerly awaited as Christmas, Implementation Day for Iranian sanctions relief did have many of us watching the calendar. The wait is over.

On January 16, 2016, the International Atomic Energy Agency certified Iran’s compliance with the nuclear nonproliferation requirements of the multilateral Joint Comprehensive Plan of Action (“JCPOA”). In exchange, the United States and European Union have removed the sanctions they imposed due to Iran’s putative nuclear weapon development program.

Restrictions on U.S. Persons Remain in Place

The JCPOA’s technical details were largely overshadowed by the political controversy over negotiating with Iran at all. There seem to be some popular misconceptions as a result. One common belief is that the United States is normalizing trade with Iran. That is not the case.

Although the U.S. will make significant changes to its sanctions program, for the most part they relate to the restrictions imposed on citizens of third countries (called “secondary sanctions”). Restrictions on trade between Iran and the United States, along with involvement by “U.S. persons” (citizens and permanent resident aliens) remains prohibited, with narrow exceptions. To a large extent, we have a return to the status quo that existed before recent extraterritorial restrictions were imposed by the United States; in particular, the sanctions imposed in 1995, primarily directed to U.S. persons, remain in place.

Multiple Iranian Industries Receive Sanctions Relief

In general, U.S. sanctions that had targeted specific Iranian business and industry sectors are removed. For example, the prohibitions on foreign banks engaging in financial transactions with designated Iranian institutions, including the Central Bank, have been lifted, along with prohibitions on using the Rial, providing U.S. banknotes to the Iranian government and facilitating issuance of sovereign debt. Also gone are most prohibitions on provision of insurance underwriting services or reinsurance

Another major easing involves foreign parties’ involvement in the petrochemical and energy sector. The United States had attempted to affect Iran’s energy industry through such measures as seeking reduction in crude oil sales to third countries and limits on investment. These sanctions are gone, along with those on supplying refined petroleum and petrochemical products to Iran.

Also lifted are the measures applying to Iranian shipping, shipbuilding and ports, trade in precious metals, graphite, raw or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes, and Iran’s automotive sector.

The prohibitions on foreign parties conducting business with “Specially Designated Nationals” identified by the U.S. Treasury Department, the Revolutionary Guard and certain other entities remain in place. Note, however, that many previously-covered SDNs have been removed from the list.

Finally, the U.S. import embargo on Iranian-origin goods is modified to permit importation of carpets and foodstuffs.

Limited Benefits for U.S. Persons

There is some good news, albeit limited, for U.S. companies. First, foreign-located subsidiaries and affiliates that are owned or controlled by a U.S. person are once again authorized to do business with Iran. For the past few years, such companies were subject to the same prohibitions applicable to their U.S. parent. A general license issued by the Treasury Department has dispensed with them.

Second, U.S. persons can now seek to supply aircraft and spare parts and components to Iran, including by direct export, under a favorable Treasury Department licensing policy. This applies as well to certain aircraft-related services.

I’ll be providing more detailed comment on the new provisions regarding foreign subsidiaries, aircraft and automobiles in coming days. Meanwhile, most of the measures discussed above will not be effective until the new regulations are published in the Federal Register, which should occur within the upcoming week.


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