Implementation Day for Iran: Goodbye to Most Secondary Sanctions and What Do US Persons Get Out of It?

On Saturday, January 16, 2016, the US Department of State and US Department of Treasury’s the Office of Foreign Assets Control (OFAC) announced the lifting of certain US sanctions against Iran pursuant to the Joint Comprehensive Plan of Action (JCPOA) – the Iran Nuclear Agreement reached between the United States, China, France, Germany, Russia, and the United Kingdom.

Saturday marked “Implementation Day” when the International Atomic Energy Agency (IAEA) verified that Iran has fulfilled its nuclear-related obligations under the JCPOA. Implementation Day also means the first of the domino impact to US sanctions.

OFAC released General License H, Licensing Policy regarding export/reexport of commercial aircraft parts and services, amendments to the Iranian Transactions and Sanctions Regulations (ITSR) concerning foodstuffs and carpets, Guidance, and FAQs. The highlights:

Removal of secondary sanctions against non-US persons related to several industries;
General License H authorizing foreign subsidiaries of US parents to engage in certain business in Iran (we will share an alert on this tomorrow);
A general license authorizing the importation to the US from Iran of carpets and certain foodstuffs;
A statement of policy that OFAC will consider on a case-by-case basis specific licenses related to the export, reexport, sale, lease or transfer to Iran of commercial passenger aircraft, spare parts, components, and associated services; and
Removal of over 400 persons and entities from OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List), the Foreign Sanctions Evaders List (FSE List), and the Non-SDN Iran Sanctions Act List (NS-ISA List).

It should be stressed that although over 400 persons and entities were removed from various OFAC restricted/prohibited party lists, US persons cannot engage with removed persons or entities that meet the definition of the Government of Iran or an Iranian financial institution. Transactions by US persons with those persons or entities remain prohibited and blocked by Executive Order 13599 and the Iranian Transactions and Sanctions Regulations (ITSR). For our convenience, OFAC has published a separate List of Persons Identified as Blocked Solely Pursuant to Executive Order 13599.

Most Secondary Sanctions Lifted

Through a series of actions waiving and revoking sanctions,^{^[1]} committing to refrain from imposing sanctions of sanctions, the US Government and OFAC have rolled back secondary sanctions, which are sanctions against non-US persons for specified conduct that involves Iran occurring outside of the United States. Highlights of permissible activities for non-US persons that could previously have resulted in secondary sanctions include:

Financial and banking industry: transactions involving the rial, Iranian sovereign debt, provision of US dollars to the Government of Iran, financial messaging services, maintaining correspondent accounts for Iranian financial institutions that are not SDNs, issuing credit cards for Iranians, and associated services to facilitate these activities;
Certain insurance-related activities: underwriting, insurance, and reinsurance consistent with JCPOA including payment of insurance/reinsurance claims to non-US persons, and associated services to facilitate these activities;
Energy and petrochemical industry: investing in, participating in joint ventures related to, providing certain services related to, purchasing, transferring, and selling certain Iranian energy sources, including crude oil, petroleum, natural gas, and petrochemical products, and associated services to facilitate these activities;
Shipping, shipbuilding, and port operators: transactions involving investment, provision of services and goods used in connection with shipping and shipbuilding and Iranian ports and the selling, leasing, provision, or insuring of vessels to Iran, and associated services to facilitate these activities.
Precious metals: transaction involving the sale, transfer to or from Iran of gold, silver, and certain precious metals, and associated services to facilitate these activities.
Raw and semi-finished metals, including software for integrating industrial processes: sale, transfer to or from Iran of graphite, raw or semi-finished metals, and coal, including software for integrating industrial processes, and associated services to facilitate these activities.
Automotive: sale, supply, and transfer of non-US origin automotive goods and services and associated services to facilitate these activities.

Some Secondary Sanctions and US Export Controls Still in Place

The possibility of secondary sanctions remain for non-US persons who engage in the following activities (among others)^{^[2]}:

Any of the permissible activities described above if they involve persons or entities remaining on the SDN List or the Islamic Revolutionary Guard Corps;
Certain transactions under CISADA, including facilitating the efforts of Iran to acquire or develop weapons of mass destruction, supporting terrorist organizations, and engaging in money laundering or facilitating such efforts by an Iranian financial instruction;
Transfers of raw and semi-finished metals not approved by the procurement channel established by JCPOA and United Nations Security Council Resolution (UNSCR) 2231, ¶16;
Diversion of goods, including agricultural commodities, food, medicine, and medical devices, intended for the people of Iran, or the misappropriation of proceeds from the sale or resale of such goods;
Knowingly and directly providing specialized financial messaging services to, or knowingly enabling or facilitating direct or indirect access to such messaging services for a financial, institution whose property or interests in property are blocked in connection with Iran's proliferation of WMD or their means of de-livery, or Iran's support for international terrorism; and
Any conduct to evade US restrictions on transactions or dealings with Iran or that causes the export of goods or services from the United States to Iran.

In addition, US export and reexport controls continue to be force, and prohibit non-US persons from:

Exporting, reexporting, selling or supplying, directly or indirectly, from the United States of any goods, software, technology, or services if the items are destined for Iran or the Government of Iran at the time they leave the United States;
Reexporting to Iran US-origin goods, software, or technology, or services that require a license for reexport to Iran^{^[3]} if undertaken with knowledge or reason to know that the reexportation is specifically for Iran or the Government of Iran; and
Reexporting goods, software or technology containing 10 percent or more US export-controlled content or are otherwise subject to US export controls under the Export Administration Regulations or International Traffic in Arms Regulations that require a license for reexport to Iran, if undertaken with knowledge or reason to know that the reexportation is specifically for Iran or the Government of Iran.

Additionally, non-US persons will not be able to use US financial institutions to clear US dollar transactions, as the Iranian sanctions continue to affect US persons, such as US financial institutions.

Effects on US Persons – Primary Sanctions Remain But There are Three New Licenses

US persons are still subject to the full force of US primary sanctions except for three new exceptions.^{^[4]} OFAC has issued:

A statement of licensing policy allowing for a case-by-case review for specific licenses permitting the export, reexport, sale, lease or transfer to Iran of commercial passenger aircraft, spare parts and components for such aircraft, and associated service;
A general license authorizing the import to the United States of Iranian-origin carpets and foodstuffs, including pistachios and caviar (33 C.F.R. §§ 560.534 and 560.535); and
General License H authorizing US-owned or controlled foreign entities to engage in certain activities consistent with the JCPOA.

To spread the Implementation Day celebration, we’ve decided to tackle the OFAC changes in parts. Although we were highly motivated by the thought of caviar, our next alert will concern General License H. Later this week, tune in for a summary on Implementation Day’s effect on various industries including the aircraft, automobile, and energy sectors.

^{^[1]} To lift sanctions set out in the JCPOA, President Obama issued an Executive Order – a “Termination EO” – to terminate certain Iran-related executive orders, including 13574, 13590, 13622, and 13645, and sections 5-7 and 15 of 13628. Notably, to the extent there are investigations of apparent violations that relate to activities that occurred prior to January 16, 2016, such apparent violations will be analyzed in light of the laws and regulations that were in place at the time of the underlying activities.

^{^[2]} Please note this is a non-exhaustive list of remaining secondary sanctions.

^{^[3]} The exportation or reexportation of US-origin goods that are designated as EAR99 by non-US persons only from a third country to Iran without knowledge or reason to know at the time of export from the United States that the goods are intended specifically for Iran is not prohibited.

^{^[4]} OFAC has a number of existing general licenses and issues specific licenses in several areas, most notably for the supply of agricultural, medical supplies, medicines and medical devices, as well as personal communications devices.