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US Completes Withdrawal from Iran Nuclear Deal with Conclusion of Wind-Down Period, Imposition of New SanctionsNovember 6, 2018
Effective November 5, 2018, the US Government implemented additional economic sanctions targeting Iran. Implementation of these sanctions effects the complete reversal of the Obama Administration’s Joint Comprehensive Plan of Action (JCPOA), commonly referred to as the Iran Nuclear Deal. The process of terminating US participation in JCPOA began on May 8, when President Trump issued a National Security Presidential Memorandum directing US agencies to take action to reimpose the sanctions lifted by JCPOA, with wind-down deadlines of 90 and 180 days. The US Departments of State and Treasury took the lead in implementing the President’s directive, including removal of waivers for secondary sanctions effective August 6, and termination of remaining waivers, licenses, and other authorizations effective November 5. At the same time, the Treasury Department’s Office of Foreign Assets Control (OFAC) added 700 names – including 300 persons or entities not previously listed – to its Specially Designated Nationals and Blocked Persons List. We discussed the Trump Administration’s decision to withdraw from JCPOA in our previous client alert, “President Trump Withdraws United States from Iran Nuclear Deal.” The Trump Administration has signaled its intent to vigorously enforce the sanctions, which in Secretary Mnuchin’s words, constitute “a massive economic pressure campaign against Iran, which remains the world’s largest state sponsor of terrorism.”
The most recent round of State Department sanctions cover the following industries and transactions:
- Transactions involving Iran’s port operators and shipping and shipbuilding sectors, including the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, and their affiliates;
- 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;
- Transactions by foreign financial institutions with the Central Bank of Iran and Iranian financial institutions designated under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA);
- 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, Accountability, and Divestment Act of 2010 (CISADA);
- The provision of underwriting services, insurance, or reinsurance; and
- Iran’s energy sector.
The sanctions targeting Iran’s oil industry have received the most international media attention of the reimposed sanctions given US aims to prevent any Iranian oil exports and the universal interest in maintaining stability in the oil market. Under NDAA section 1245, a foreign financial institution’s (FFI) US operations may be severely curtailed if the President determines that adequate oil supplies are available on global markets to permit the country of the institution’s primary jurisdiction to significantly reduce its oil imports from Iran, and the country fails to do so. President Obama waived this sanctions threat after the JCPOA, a waiver that President Trump continued until his May 8 decision. The Trump Administration at that time further announced its determination to require a country to eliminate Iranian oil imports entirely in order for its FFIs to avoid sanctions.
On November 5, the US State Department granted 180-day waivers of these oil sanctions to eight countries—China, India, Italy, Greece, Japan, South Korea, Taiwan, and Turkey—forestalling the imposition of sanctions on their FFIs for now. Secretary of State Mike Pompeo described these waivers as “temporary allotments,” which the Administration issued only to jurisdictions that it found “demonstrated significant reductions in their crude oil and cooperation on many other fronts and have made important moves towards getting to zero crude oil importation.” Notably, waivers were not granted to the United Kingdom, France, and Germany, the “E3” countries that have criticized the United States for its withdrawal and attempted to hold the nuclear deal together in its absence.
Implications for US and Non-US Companies
For the most part, US businesses are unlikely to be directly affected by the latest reimposition of sanctions by the Administration. The JCPOA provided little relief for US persons from the US embargo of commerce with Iran. The main benefit was in the form of a general license permitting foreign subsidiaries of US firms to operate in Iran. US companies that availed themselves of this general license were required to complete their winding down of operations in advance of the November 5 deadline.
Non-US companies with Iranian business face more direct consequences as a result of the reimposition. As made clear in additional Frequently Asked Questions issued by OFAC on November 5, while non-US companies may continue to receive payment for goods and services pursuant to contracts entered into before May 8, companies that attempt to deliver goods or services, or to extend loans or credit, pursuant to such contracts may be sanctioned. Non-US companies should also carefully review the list of 700 individuals and companies added to the Treasury Department’s blocking lists. Secondary sanctions may result from engaging in transactions with those and other Iranian SDNs.
Global Reactions to the Sanctions
The global reaction to the reimposition of sanctions has not been positive. The European Union has made clear that it plans to continue to honor its JCPOA commitments, though it has struggled to implement measures to facilitate continued Iranian business in time to match the US sanctions. In August, the EU passed an updated Blocking Statute, which allows EU companies “to recover damages arising from the extra-territorial sanctions within its scope from the persons causing them and nullifies the effect in the EU of any foreign court rulings based on them”; the Blocking Statute also “forbids EU persons from complying with those sanctions” unless authorized to do so by the European Commission. The statute, however, is not effective as a practical matter until implemented and enforced by a member state. The EU also currently plans to establish a “special purpose vehicle” to process payments between member countries and Iran, although reportedly no member state has been willing to host the vehicle thus far for fear of inducing retaliation by the United States. The Russian government has similarly pledged to continue its trade relationship with Iran. Iran’s president has touted the international support as a partial victory for the country, writing that the rallying of European nations around the country is a “rare historic political victory for the Iranian nation.”
Potential For Additional Sanctions
Additional economic sanctions on Iran remain a distinct possibility. While the Trump Administration has not announced anything definitive, the JCPOA withdrawal, coupled with the strong rhetoric of the President and his key advisors, suggests that there may be more to come. As well, Congress legislated many of the secondary sanctions that have just been reimposed, and could enact additional restrictions. For example, Senators Ted Cruz (R-TX), Tom Cotton (R-AR), and Marco Rubio (R-FL) have argued that the Treasury Department sanctions are insufficient, and requested that the agency block Iranian banks from Society for Worldwide Interbank Financial Telecommunication (SWIFT), which banks use to conduct financial transactions. On November 2, Secretary of the Treasury Mnuchin declared that SWIFT must disconnect all Iranian banks listed on November 5 as SDNs “as soon as technologically feasible,” or SWIFT would be subject to US sanctions.1 SWIFT announced that it would cut off several Iranian banks, though it is not clear how quickly it will disconnect all 50 of the listed banks.
1 “I want to make a couple of comments on the SWIFT messaging systems since I’ve received lots of questions about this over the last few weeks. So I’d like to make four points. Number one, SWIFT is no different than any other entity. Number two, we have advised SWIFT the Treasury will aggressively use its authorities as necessary to continue intense economic pressure on the Iranian regime, and that SWIFT would be subject to US sanctions if it provides financial messaging services to certain designated Iranian financial institutions. Number three, we have advised SWIFT that it must disconnect any Iranian financial institution that we designate as soon as technologically feasible to avoid sanctions exposure. Number four, just as was done before, humanitarian transactions to nondesignated entities will be allowed to use the SWIFT messaging system as they have done before, but banks must be very careful that these are not disguised transactions or they could be subject to certain sanctions.”
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Theodore Kassinger, an O’Melveny partner licensed to practice law in the District of Columbia and Georgia, Greta Lichtenbaum, an O’Melveny partner licensed to practice law in the District of Columbia, David Ribner, an O’Melveny counsel licensed to practice law in the District of Columbia and New York, and Mary Pat Dwyer, an O’Melveny associate licensed to practice law in the District of Columbia and Pennsylvania, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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