Iran Sanctions and the Implementation of the JCPOA: Lots of Changes, but Little Impact on U.S. Businesses?

January 20, 2016

In recent days, the news has been full of stories referring to the “end” or “lifting” of U.S. sanctions against Iran, actions that were taken after the International Atomic Energy Agency confirmed on January 16, 2016, that Iran has met its obligations under the July 14, 2015, Joint Comprehensive Plan of Action (JCPOA) in connection with Iran’s nuclear program. The United States and Iran agreed to a prisoner exchange on the same day, and these actions may represent some thawing of almost 40 years of hostility between the two nations. Yet, notwithstanding the news stories describing the lifting of sanctions, very little has changed for most U.S. businesses.

In fact, some very important sanctions remain, in that the vast majority of transactions with Iran by U.S. persons, including U.S. companies, are prohibited under the general embargo that continues in place. There is little reason to expect further loosening of U.S. sanctions in the near future. Indeed, even as certain U.S. sanctions against Iran “ended,” the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned 11 additional individuals and entities in connection with Iran’s ballistic missile program.

I. U.S. Sanctions Against Iran – What has Changed

The implementation of the JCPOA did include a number of important changes to the U.S. sanctions against Iran. Among other things, the implementation of the JCPOA resulted in the lifting of nuclear-related secondary sanctions against non-U.S. businesses engaged in commerce with Iran’s financial, energy, shipping, metal, and automotive industries. The removal of these sanctions, along with similar moves by other countries, will permit non-U.S. businesses to resume trade with Iran. The U.S. also unblocked hundreds of entities related to these Iranian sectors, thereby allowing them to conduct business around the world (though, as described below, generally not with U.S. persons).

Of most interest to U.S. entities, pursuant to the JCPOA, OFAC has issued General License H, which permits foreign entities owned or controlled by U.S. entities to engage in transactions with Iran that would be otherwise prohibited if engaged in by a U.S. person, as long as such activities do not otherwise violate U.S. law. Thus, foreign subsidiaries of U.S. entities are now lawfully permitted to engage in business with Iran in certain circumstances pursuant to General License H. The same license allows U.S. persons to alter the policies of U.S. entities in order to permit their foreign subsidiaries to pursue business in Iran. These changes could represent a significant opportunity for some foreign subsidiaries of U.S. businesses.

In addition, OFAC has amended its licensing policy with respect to civil passenger aircraft and related parts and services. Under this amended policy, both U.S. and non-U.S. persons will be permitted on a case-by-case basis to export, re-export, sell, lease, or transfer to Iran commercial passenger aircraft for civil use, as well as spare parts, components, and services related to such commercial passenger aircraft. This opening of Iran’s civilian aviation industry could bring significant benefits to the U.S. aviation industry.

Finally, the U.S. will also allow the unlicensed import of Iranian food, including saffron and caviar, and carpets pursuant to the JCPOA. These changes, taken as a whole, are a significant change in U.S. policy toward Iran. They do not, however, represent the end of U.S. sanctions against Iran and, most importantly, do not significantly reduce the compliance risk for U.S. companies concerned about sanctions against Iran.

II. U.S. Sanctions Against Iran – What hasn’t Changed

Critically for U.S. business, and notwithstanding the implementation of the JCPOA, the U.S. government’s trade embargo on Iran remains in place. Iran remains subject to sanctions in connection with its support for terrorism (E.O. 13224), regional destabilization (E.O. 13572, 13582, 13611), human rights abuses (E.O. 13553 and 13628), and ballistic missile development (E.O. 12938 and 13382), and to secondary sanctions under the Specially Designated Nationals List. Accordingly, with only limited exceptions, U.S. persons, including U.S. companies, continue to be broadly prohibited from engaging in transactions with Iran and its government, including the import of Iranian-origin goods and services and the export from the U.S. of goods and services to Iran. Both the Government of Iran and Iranian financial institutions remain persons whose property and interests in property are blocked by U.S. law. And U.S. persons remain generally prohibited from knowingly engaging in conduct intended to evade U.S. restrictions on Iranian dealings. As a result, any engagement with Iran by U.S. businesses remains subject to considerable restrictions, and U.S. businesses must remain cognizant that they are subject to more significant limitations with respect to Iranian business than their European counterparts.

III. U.S. Sanctions Against Iran – What’s Next?

The changes to U.S. sanctions against Iran have not decreased the compliance challenges for U.S. businesses. Moreover, the changes to sanctions may not remain in place for long. There is already considerable political pressure within the U.S. on the Obama administration to be tough on Iran as a result of its ongoing efforts in support of terrorism, regional instability in the Middle East, and missile proliferation. In addition, Iran policy has continued to be a topic of discussion in the U.S. presidential election cycle, and it is possible, depending on the outcome of the election, that a future U.S. administration will seek to undercut the JCPOA. Finally, the JCPOA itself provides that sanctions may “snap back” into place in the event that Iran violates its nuclear activity-related obligations under the agreement. It thus remains to be seen whether the implementation of the JCPOA will have a lasting impact on U.S. sanctions.