On 18 October 2015 (“Adoption Day”), Iran and the EU/E3+3 (China, France, Germany, the Russian Federation, the United Kingdom, and United States) began preparations to implement their respective commitments under the Joint Comprehensive Plan of Action (“JCPOA”) related to Iran’s nuclear programme. The EU adopted the legislative framework needed to lift its nuclear-related sanctions against Iran, while the U.S. Government issued contingent waivers of certain sanctions.
The publication on Adoption Day of measures that would take effect on Implementation Day has raised a degree of expectation that Iran is now “open for business”. While publication of these prospective measures is an indication of good faith on the part of the JCPOA countries, it is important to note that, until Implementation Day, there has not been and will not be any change in any sanctions or export control laws or regulations related to Iran. Even after Implementation Day, many important U.S. sanctions on Iran will remain in force, while the expectation is that the EU and other European states will remove most, if not all, restrictions on trade with Iran. Therefore, any corporate review of trade with Iran should carefully consider ongoing compliance risks before Implementation Day and always take into account the ongoing effects of U.S. sanctions. In particular, the position of Western banks regarding Iran-related transactions remains unclear.
Following the agreed-upon timeline (i.e., 90 days after UN Security Council endorsement of the JCPOA), Iran’s Foreign Minister Mohammad Javad Zarif and the EU Foreign Policy Chief Federica Mogherini issued a joint statement announcing the official adoption of the JCPOA. The joint statement can be found here.
The next JCPOA milestone will be Implementation Day, when the parties to the agreement are satisfied that Iran has fulfilled its initial nuclear-related commitments outlined in the JCPOA. The International Atomic Energy Agency must verify that Iran has fulfilled its key nuclear-related commitments before Implementation Day occurs. The precise timing of Implementation Day in 2016 is uncertain. In the meantime, all current sanctions measures targeting Iran remain in full force and effect.
On Adoption Day, the EU adopted framework legislation needed to terminate its nuclear-related economic and financial sanctions against Iran. Accordingly, Council Regulation (EU) 2015/1861, Council Implementing Regulation (EU) 2015/1862and Council Decision (CFSP) 2015-1863 were entered into on 18 October 2015. This legislation will amend the existing nuclear-related sanctions under Council Regulation (EU) 267/2012, although their measures will not come into force until Implementation Day. In practice, this means that the sanctions under Regulation 267/2012 (as amended) are unchanged and will remain so until Implementation Day.
The U.S. Government also issued certain sanction waivers on Adoption Day, which will come into effect on Implementation Day. Secretary of State John Kerry issued contingent waivers of secondary nuclear-related U.S. sanctions against Iran, which target specific activities of non-U.S. persons that are not otherwise subject to U.S. jurisdiction.
The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued FAQs about Adoption Day, emphasizing that certain activities may still be sanctionable: “Entering into contracts involving Iran or its government before Implementation Day may be sanctionable. In certain circumstances, this could include contracts that are contingent on the implementation of sanctions relief under the JCPOA, such as contracts involving individuals or entities on the SDN List.”
On 21 October 2015, the Swiss Government, the Federal Council, announced that it would also ease its sanctions measures on Implementation Day, in line with the EU/UN. The Swiss Federal Department of Economic Affairs, Education and Research (“EAER“) was instructed to prepare the necessary modifications to the Ordinance on Measures Against the Islamic Republic of Iran (SR 9184.108.40.206). Swiss sanctions currently in place against Iran will remain in place until Implementation Day. The announcement from the Swiss Confederation can be found here (available in German, French, and Italian).
Sanctions to be lifted
Following Implementation Day, a number of the existing EU sanctions measures will be lifted. Accordingly, Regulation 2015/1861 provides that:
- the sale, supply, transfer or export of certain dual-use items, which are the subject of an outright ban under Council Regulation (EU) 267/2012 will be permitted under Regulation 2015/1861 (Article 1(2));
- the sale, supply, transfer or export to Iran of key equipment or technology, including equipment in the oil and gas sectors, which is prohibited under Council Regulation (EU) 267/2012 will be permitted under Regulation 2015/1861 (Article 1(7));
- the import or purchase of crude oil, petrochemicals and gas, originating in Iran or having been exported from Iran, which is prohibited under Council Regulation (EU) 267/2012 will be permitted by Regulation 2015/1861 (Article 1(9));
- the sale, purchase , supply, transfer, import or export of gold, precious metals, diamonds, banknotes and coinage to or from the Government of Iran or any person controlled by it, which is prohibited under Council Regulation (EU) 267/2012 will be permitted by Regulation 2015/1861 (Articles 1(9) and (11));
- the provision of granting financial loans or credit to Iranian persons involved with oil and gas or petrochemicals which is prohibited under Council Regulation (EU) 267/2012 will be permitted by Regulation 2015/1861 (Article 1(11));
Implementation Day will also see the removal of restrictions on certain persons, entities and bodies who are currently subject to asset freezes and travel bans due to their involvement in the Iranian oil and gas. Financial or shipping sectors, including the Central Bank of Iran (“CBI“) (JCPOA, Annex II, Attachment 1). Certain other persons, entities and bodies will remain subject to sanctions (see below).
Additionally, Regulation 2015/1861 provides that fund transfer controls currently in place, including prohibitions on the transfer of funds to or from financial institutions in Iran, the opening of representative offices or bank accounts in Iran, the sale or purchase of public bonds from Iran and the provision of insurance or reinsurance to Iran and its government, will be repealed on Implementation Day (Article 1(15)).
On Implementation Day, the U.S. Government will cease the application of certain U.S. secondary sanctions targeting Iran applicable to non-U.S. persons with respect to:
- Financial and banking transactions
- Insurance transactions
- Iranian energy and petrochemical sectors
- Iranian shipping, shipbuilding, and port sectors
- Gold and other precious metals
- Supply to Iran of software and metals
- Iranian automotive sector
- Nuclear proliferation measures
In addition, the U.S. will delist certain Iranian parties as Specially Designated Nationals. More information about each area of U.S. sanctions relief can be found in the prior Client Alert, “Outline of EU and U.S. Sanctions Relief for Iran under Joint Comprehensive Plan of Action.” The contingent waivers issued by the State Department will implement most of the above sanctions rollback, but other aspects of the U.S. sanctions rollback will be implemented through the termination of certain executive orders. OFAC has stated that it will publish detailed guidance and information on sanctions relief prior to Implementation Day.
The Swiss Government, the Federal Council, had already on 13 August 2015 amended the Ordinance on Measures Against the Islamic Republic of Iran (the “Ordinance”) by lifting the ban on precious metals transactions with Iranian state bodies (except for diamonds), lifting the requirement to report the trade in Iranian petrochemical products, lifting the requirement to report the transport of Iranian crude oil and petroleum products as well as insurance and reinsurance policies taken out in relation to such transactions and increasing the thresholds for the reporting and licensing obligations in relation to funds transfers from and to Iranian persons ten-fold to CHF 100,000 and CHF 500,000, respectively. It had also introduced a new exemption clause enabling the authorisation of steps to implement UN Security Council Resolution 2231 (2015). As a next step, the EAER will now have to prepare the necessary amendments to the Ordinance to provide for sanctions relief which shall become effective on Implementation Day.
Sanctions to remain in place
Post-Implementation Day, controls will remain at the EU level for certain items which could be diverted to nuclear proliferation uses, and licences will be required for the export of such items. Accordingly, Regulation 2015/1861 provides that provides that:
- a prior authorisation shall be required for certain items listed in the Nuclear Suppliers Group list (as also included in the EU Dual Use List) (Article 1(3), Annex I);
- a prior authorisation shall be required for certain other dual-use goods and technology, including the provision of technical, brokering or financial assistance related to those goods, derived from items on the EU Dual Use List (Article 1(4), Annex II); and
- the supply of certain goods and technology contained in the Missile Technology Control Regime List (as included in the UK Military List and the EU Dual Use List) shall be prohibited (Article 1(5), Annex III).
Regulation 2015/1861 states that certain other controls will also remain in place for the export of products where they could be used in connection with nuclear proliferation-related activities, Iran’s military programme or for the benefit of the Iranian Revolutionary Guard Corps. As such, a licence will be required for:
- the sale, supply, transfer or export of certain software to Iranian persons or for use in Iran, including the provision of technical, brokering or financial assistance related to such software (Article 1(8)); and
- the sale, supply, transfer or export of graphite or semi-finished metals including the provision of technical, brokering or financial assistance related to such products (Article 1(10)).
In addition, following Implementation Day, certain persons, entities and bodies will remain subject to sanctions, including Islamic Revolutionary Guards Corps and Ansar Bank (JCPOA, Annex II, Attachment 2), until Transition Day.
The JCPOA’s sanctions relief does not apply to U.S. sanctions that have been imposed to address human rights or terrorism issues relating to Iran. It also does not apply to U.S. sanctions imposed under the Iranian Transactions and Sanctions Regulations by OFAC, which will continue to prohibit most Iran-related transactions by U.S. persons. OFAC will license a few additional categories of transactions pursuant to the JCPOA. More information about remaining U.S. sanctions can be found in the prior Client Alert, “Outline of EU and U.S. Sanctions Relief for Iran under Joint Comprehensive Plan of Action.”
All other sanctions provided for in the Ordinance, except for those lifted on 13 August 2015, will remain in place until Implementation Day.
The EU legislation provides that the commitment to lift sanctions is without prejudice to the reintroduction of restrictive measures in the event of significant non-performance by Iran of its commitments under the JCPOA. Any reintroduction of sanctions in response to Iran breaking the provisions of the JCPOA would seemingly follow the usual procedures (there being no specific “snap back” provisions).
Regulation 2015/1861 provides that, in the event that sanctions are reintroduced, adequate protection will be provided for the execution of contracts concluded whilst the sanctions were lifted.
As with the EU sanctions, if Iran violates the JCPOA, U.S. sanctions may “snapback” into effect and apply in the same manner as they applied before the JCPOA. The U.S. Government has indicated that it will not “grandfather” preexisting Iran-related agreements begun between Implementation Day and the snapback of U.S. sanctions. Thus, Iran-related activities pursued after the reinstatement of sanctions could potentially be sanctionable.
The Swiss position remains that the commitment to lift sanctions is without prejudice to the reintroduction of restrictive measures in the event of significant non-performance by Iran of its commitments under the JCPOA. Any reintroduction of sanctions in response thereto would follow the usual procedures, i.e. adoption of sanctions by the Federal Council (there being likely no specific “snap back” provisions).