The Sanctions Shuffle: U.S. Offers Iran Relief While Imposing New Sanctions One Day Later

The complicated relationship between the U.S. and Iran continued to evolve after a flurry of events over this past weekend.  The U.S. lifted sanctions on targeted sectors of the Iranian market as part of implementing a key part of a multi-lateral agreement concerning Iran’s nuclear enrichment program, while new sanctions were imposed on persons and entities involved in ballistic missile testing from last December.  The sanctions relief opens up a new potential market for billions of dollars in trade, but also presents a reminder to those looking to do business in Iran that vigilance over the complex web of sanctions and export controls is essential.

Implementation Day Brings Targeted Sanctions Relief

January 16 marked the arrival of “Implementation Day” under the July 14, 2015 Joint Comprehensive Plan of Action (“JCPOA”) between the U.S., Iran, EU, and the remaining “P5+1” countries.[1]  The Implementation Day was triggered by a report issued by International Atomic Energy Association earlier that day finding that Iran had performed its nuclear-related commitments under the JCPOA.  Based on this finding, the U.S. has agreed to lift certain “secondary nuclear-related economic and financial sanctions” targeting Iran. 

The list of industries targeted for sanctions relief is significant.  Among the sanctions lifted include: Financial and banking-related sanctions; sanctions on the provision of underwriting services, insurance, or re-insurance; sanctions on Iran’s energy and petrochemical sectors; sanctions on transactions with Iran’s shipping and shipbuilding sectors and port operators; sanctions on trade in gold and precious metals; sanctions on trade in graphite, raw or semi-finished metals, coal, and software for integrating industrial processes; sanctions on the transfer of goods and services used in connection with the automotive sector; and associated services for each of the above categories.  Implementation Day also brought about the removal of over 400 individuals and entities from the Specially Designated Nationals (“SDN”) List, the Foreign Sanctions Evaders List, and/or the Non-SDN Iran Sanctions Act List, although hundreds of entities and individuals from Iran remain on these lists.

The lifting of these sanctions is expected to open the doors to billions of investment dollars into the country, although it is important to note that the relief specified here is targeted toward specific industries and specific classes of people.  Most of the sanctions lifted under the JCPOA pertain to restrictions imposed on non-U.S. persons.  U.S. persons and entities continue to be broadly prohibited from engaging in transactions, directly or indirectly, with Iran or its government.  The sanctions relief under the JCPOA does include a license authorizing certain activities by non-U.S. persons owned or controlled by a U.S. person, but this is a very limited license in its own right; it does not authorize, for example, non-U.S. entities to export goods, services, or technology from the United States without an OFAC license.  So, with few exceptions, U.S. entities looking to the Iranian market as an opportunity to expand their businesses will not find much in this round of sanctions relief.

Lifting Bans On Commercial Passenger Aircraft Sales, Importation of Certain Iranian-Origin Articles

Although most of the sanctions relief listed above does not apply to U.S. persons, the U.S. also committed to license certain activities for U.S. persons that were previously prohibited.  These changes involved include the licensing of: (1) individuals and entities seeking to engage in transactions with Iran for commercial passenger aircraft and related parts and services; (2) non-U.S. entities owned or controlled by U.S. entities to conduct certain actions consisted with the JCPOA and U.S. law; and (3) U.S. persons to import into the U.S. Iranian-origin carpets and foodstuffs, including pistachios and caviar.[2]
The authorizations pertaining to the latter two activities above are “general” licenses that apply to all U.S. persons, but the ability to engage in transactions for commercial passenger aircraft must still be authorized by OFAC.  Any U.S. person who wants to engage in commercial aircraft sales with Iran must apply beforehand for a license and provide all relevant details of the transaction with OFAC.  OFAC will analyze license applications in light of the Iraq-Iran Arms Nonproliferation Act and any other relevant statutes, and will grant licenses on a case-by-case basis. 

It will be critical for those seeking to do business with Iran’s commercial aircraft industry to be able to provide and explain all pertinent details of proposed transactions to OFAC, including knowing their customer and the intended end-use for the merchandise or services provided.  Parties must also continue to heed all restrictions on dealing with parties on the OFAC SDN List and other blocked party lists (e.g., Mahan Air continues to be a designated entity under the SDN List), as well as the Denied Persons and Entity Lists published by the Department of Commerce’s Bureau of Industry and Security and the List of Statutorily Debarred Parties published by the U.S. State Department’s Office of Defense Trade Controls.  Similarly, parties must continue to address all licensing and other requirements under other export control laws and regulations, if the transaction involves goods or technology that would require a license from the Bureau of Industry and Security.

Sanctions Over Iran’s Ballistic Missile Tests

While many saw the actions of January 16 as a potential step toward a broader opening of Iran’s market to the West, the ongoing diplomatic struggles between the U.S and Iran were highlighted when the U.S. imposed a new set of targeted sanctions the day after it implemented limited sanctions relief.  On January 17, OFAC designated eleven entities and individuals as providing support for or otherwise being involved in procuring goods for Iran’s ballistic missile program in response to Iran’s ballistic missile tests in December 2015.[3]  These individuals have been added to OFAC’s SDN List, and U.S. persons are prohibited from engaging in transactions with or in otherwise dealing with them.

In the midst of this new activity it is important to remember that the relationship between Iran and the U.S. is continuously evolving.  Implementation Day has brought forward certain new trade opportunities, among them: easing of restrictions on financial transactions, sanctions relief for select industries and a significant removal of persons and entities from various blocked party lists. However, the new sanctions imposed the following day stand in contrast. Given the unpredictability of U.S.-Iranian relations, the extent to which new sanctions may be imposed or old sanctions phased out may prove unpredictable.  

[1]  See Treasury Sanctions Those Involved in Ballistic Missile Procurement for Iran, U.S. Department of Treasury Press Release, January 16, 2016.
[2]  See JCPOA, Annex II, Section 5.1.1.
[3]  The "P5+1" countries refers to the five UN Security Council countries—United States, China, France, United Kingdom and Russia—plus Germany.

Should you have any questions concerning how the Iran sanctions may impact your business or provide for potential business opportunities, please contact one of the Rock Trade Law LLC trade professionals.