Iran sanctions: it’s still uncertain what will happen, but here’s what could happen

On 12 January this year, US President Trump announced his intention to not renew US sanctions waivers that underpin US participation in the Joint Comprehensive Plan of Action (JCPOA) for Iran if that agreement’s “terrible flaws” are not fixed.

President Trump has also said that if he believes fixing the JCPOA is not within reach, he would withdraw from it.

For all those with a business interest in Iran, the deadline is fast approaching, which could result in sanctions being reapplied.

As almost everyone interested in the JCPOA knows, the next date for renewal of waivers is 12 May 2018. Though barely a week away, there is significant uncertainty about what the US might do. Will it refrain from taking action on 12 May in deference to European allies? Will it non-renew JCPOA waivers on and after 12 May? Will it “withdraw” from the JCPOA (a step not contemplated in the agreement itself)?

While it remains to be seen what will happen, here are some things that could happen:

• If, by 12 May, 2018, the President does not renew waivers of sanctions in the National Defense Authorization Act of Fiscal Year 2012 (the NDAA), those sanctions will come back into force. Subject to certain exceptions, the NDAA provides for sanctions against foreign financial institutions (FFIs) that engage in “significant financial transactions” with Iran’s Central Bank. The sanctions apply to FFIs that are central banks only if the financial transactions with Iran’s Central Bank concern oil purchases. Applicable sanctions under the NDAA include prohibiting FFIs from opening accounts in the US or imposing strict limitations on their existing accounts in the US. Thus, an FFI caught by the NDAA sanctions can be denied access to the US financial system and the ability to process US dollar payments.
• If, after non-renewing the NDAA waiver, the President continues to non-renew JCPOA waivers, then:

o          On 11 July, 2018, waivers of sanctions under the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA) would expire. The IFCA, the last of the significant US-Iran sanctions acts, includes sanctions for (among other things): providing support for certain entities in the Iranian energy, shipping or shipbuilding sectors or Iranian port operators; providing goods or services used in connection with the energy, shipping or shipbuilding sectors of Iran; selling or transferring to or from Iran precious metals and certain graphite, raw and semi-finished metals; providing insurance or reinsurance for certain Iran-related transactions; and sanctions against FFIs that facilitate significant transactions for the sale or transfer to or from Iran of natural gas.

o          On 12 July, 2018, waivers of sanctions in the Iran Sanctions Act of 1996 (ISA) would expire, including sanctions that target non-US persons for involvement in: development of petroleum resources in Iran; production of refined petroleum product in Iran; exportation of refined petroleum products to Iran; development and purchase of petrochemical products from Iran; transportation of crude oil from Iran; and ownership, operation or control of a vessel used in a manner that conceals the Iranian origin of crude oil transported on the vessel.

o          On 12 July, 2018, waivers in the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA) would also expire, including sanctions for providing insurance or reinsurance for the National Iranian Oil Company (NIOC) or Naftiran Intertrade Company (NICO), or purchasing or facilitating the issuance of sovereign debt of the government of Iran.

• If, instead, President Trump decides to “withdraw” from the JCPOA and decides that “withdraw” means reinstatement of US sanctions that were in force prior to the negotiations that led to the JCPOA, then the US might:

o          Non-renew and terminate waivers under the NDAA, IFCA, ISA and ITRA all at once (on 12 May or some other date).

o          Reimpose sanctions under presidential executive orders that were revoked on 16 January, 2016 to implement the JCPOA (Implementation Day). Sanctions under the revoked executive orders targeted (among other things): sales to Iran of goods and services that significantly contributed to the maintenance or expansion of Iran’s domestic production of petrochemical products; facilitation of significant financial transactions with NIOC or NICO; the purchase or acquisition of petroleum, petroleum products, or petrochemical products from Iran; provision of material support to NIOC, NICO, or the Central Bank of Iran; the purchase or acquisition of US bank notes or precious metals by the Iranian government; the purchase or sale of the Iranian rial; provision of significant goods or services used in connection with Iran’s automotive sector; provision of material support to Iranians on the US list of Specially Designated Nationals (SDNs); provision to Iran of goods, services or support that could directly and significantly facilitate the maintenance or expansion of Iran’s domestic production of refined petroleum products; provision to Iran of refined petroleum products; or provision to Iran of goods, services, technology, information, or support that could directly and significantly contribute to the enhancement of Iran’s ability to import refined petroleum products.

o          Redesignate as SDNs the 400 or so Iranian entities that were removed from the SDN list on Implementation Day.

o          Terminate the two general licences that were issued on Implementation Day: (1) General License H, which authorises US-owned or -controlled foreign entities to engage in Iran-related transactions (subject to certain limitations); and (2) a general licence that authorises importation into the US of certain Iranian foodstuffs and carpets.

o          Terminate the favourable licensing policy for sales of commercial passenger aircraft and related parts and services to Iran that was established on Implementation Day.

Alternatively, of course, the Trump administration may head off in an entirely unexpected direction, which, given President Trump’s track record, might reasonably be expected.

The JCPOA had little impact on US persons, as they continue to be broadly prohibited from involvement in Iran-related transactions. Thus, as nearly all sanctions relief provided by the US under the JCPOA pertained to secondary sanctions – sanctions that apply to non-US persons – the brunt of any renewed sanctions will be felt principally by non-US persons.

• For more see: clydeco.com/blog/Sanctions

 

Contributed by Douglas Maag, senior counsel, Clyde & Co, New York