President Trump announced today the United States’ withdrawal from the Joint Comprehensive Plan of Action and initiated plans to re-impose nuclear-related sanctions that had been suspended under the terms of the 2015 nuclear agreement.
President Trump ordered the Secretary of State and the Secretary of the Treasury to prepare immediately for “the re-imposition of all of the U.S. sanctions lifted or waived in connection with the JCPOA,” making clear that the snap-back of sanctions will be comprehensive and not, as some commentators had predicted, in piecemeal or partial fashion.
The announcement has significant effects for non-U.S. persons, who will again find themselves subject to the possibility of secondary sanctions for engaging in a wide variety of business dealings with Iranian counterparties. The Treasury Department’s Office of Foreign Assets Control (OFAC) published initial guidance establishing wind-down periods for activities involving Iran that were commenced pursuant to JCPOA sanctions relief.
Non-U.S. persons (including non-U.S. subsidiaries of U.S. persons) engaging in activity undertaken pursuant to the U.S. sanctions relief provided for in the JCPOA should take steps necessary to wind down those activities by either August 6, 2018 or November 4, 2018, as applicable, to avoid exposure to restrictive measures under U.S. law.
Non-U.S. persons conducting sanctioned transactions with Iranian counterparties after the wind-down periods could face penalties including restriction from accessing the U.S. financial system and capital markets; blocking of all property and interest in property that are in the U.S. or under the control of a U.S. person; and prohibition from importing goods, technology, or services into the U.S.
Under the JCPOA sanctions relief, U.S. persons remained broadly prohibited from engaging in transactions with Iranian entities. However, the JCPOA also contained provisions suspending certain primary sanctions, permitting U.S. persons to engage with Iranian counterparties in a few specific contexts, including the importation of Iranian-origin carpet and foodstuffs, and the case-by-case exportation of commercial aircraft and related goods and services. Per OFAC guidance, these authorizations will likewise be revoked following a 90-day wind-down period.
In addition, OFAC announced that it would be revoking two General Licenses issued pursuant to the JCPOA: General License H, which permitted foreign subsidiaries of U.S. companies to engage in certain business activities with Iran, and General License I, which permitted U.S. persons to enter into contingent contracts for activities permitted under the JCPOA. In addition, OFAC announced that it was removing from its website its Statement of Licensing Policy that reflected a favorable approach to licenses for passenger aircraft sales.
OFAC clarified that it would permit non-U.S. persons “to be made whole for debts and obligations owed or due to them for goods or services fully provided or delivered or loans or credit extended to an Iranian party prior to the end of” the applicable wind-down period.
OFAC stopped short of specifically prohibiting new Iran-related activity by non-U.S. persons, but noted that such activity must cease by the applicable wind-down period. OFAC further suggested that in the event of a potential enforcement action, the initiation of new Iran-related business following today’s announcement could serve as an aggravating factor.
This is a developing story, and we expect OFAC and other U.S. agencies to issue additional regulations, orders, and guidance in the coming days and weeks. In addition, of course, there were other parties to the JCPOA, and it remains to be seen whether those parties, particularly the E.U., will seek to preserve the JCPOA and push back against the threat of U.S. secondary sanctions by invoking their own sanctions, trade, and enforcement powers.
As always, please feel free to contact any of our sanctions partners or your relationship partner at Shearman & Sterling if you have any questions.