President Trump Re-Imposes First Wave of Sanctions Against Iran and EU Expands Blocking Regulation to Cover US Secondary Sanctions Legislation on Iran
Additionally, the New Iran EO implements provisions in two former EOs (EOs 13716 and 13628) and revokes those EOs.
August 6, 2018 marked the end of the 90-day wind-down period following the President’s decision to end the United States’ participation in the Joint Comprehensive Plan of Action (JCPOA). Effective August 7, 2018, the US government can re-impose secondary sanctions that had been suspended under the Iran nuclear deal on persons who engage in specified transactions involving any of the following sectors/activities:
- The purchase or acquisition of US dollar banknotes by the Government of Iran;
- Iran’s trade in gold or precious metals;
- The direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes;
- Significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial;
- The purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
- Iran’s automotive sector.
Following the end of the 90-day wind-down period on August 6, 2018, the US government is also revoking the below JCPOA-related authorizations under US primary sanctions regarding Iran:
- The importation into the United States of Iranian-origin carpets and foodstuffs and certain related financial transactions pursuant to general licenses under the Iranian Transactions and Sanctions Regulations;
- Activities undertaken pursuant to specific licenses issued in connection with the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (JCPOA SLP); and
- Activities undertaken pursuant to General License I relating to contingent contracts for activities eligible for authorization under the JCPOA SLP.
The remaining secondary sanctions can be re-imposed on November 5, 2018, following the end of the 180-day wind down period on November 4, 2018, on persons who engage in specified transactions involving any of the following sectors/activities:
- Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines, South Shipping Line Iran, or their affiliates;
- Petroleum-related transactions with, among others, the National Iranian Oil Company, Naftiran Intertrade Company, and National Iranian Tanker Company, including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
- Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012;
- The provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010;
- The provision of underwriting services, insurance, or reinsurance; and
- Iran’s energy sector, including a variety of separate specific activities related to the petroleum and petrochemical industries under the Iran Sanctions Act as amended.
Additionally on or by November 5, 2018:
- The US government will revoke the General License H wind-down authorization that had allowed US-owned or-controlled foreign entities to wind down certain activities with the Government of Iran or persons subject to the jurisdiction of the Government of Iran that were previously authorized by General License H; and
- The US government can re-impose, as appropriate, the sanctions that applied to persons removed from the List of Specially Designated Nationals and Blocked Persons (SDN List) and/or other lists maintained by the U.S. government on January 16, 2016.
OFAC’s FAQs about the re-imposition of Iran sanctions can be found on OFAC’s website.
One question that OFAC answers in its updated FAQs (FAQ 601) is whether the New Iran EO expands the scope of sanctions that were in effect prior to January 16, 2016 (Implementation Day of the JCPOA), and the answer is:
- Yes. The New Iran EO broadens the scope of the sanctions that were in effect prior to January 16, 2016 and provides for greater consistency in the administration of Iran-related sanctions provisions.
OFAC provides a list of added measures, but they are largely in the nature of tweaking the authorities for providing new blocking sanctions and slightly expanding the sanctions that can be imposed for activities involving petroleum and petrochemical sectors in Iran. More specifically, according to OFAC, the new Iran EO:
- Provides new authority for: (i) blocking sanctions on persons who provide material support for, or goods and services in support of, persons blocked for various already existing sanction activities, such as being part of the energy, shipping, or shipbuilding sectors of Iran; (ii) correspondent and payable-through account sanctions on foreign financial institutions determined to have knowingly conducted or facilitated any significant financial transaction on behalf of the persons blocked under the new authorities;
- Expands the menu of sanctions available to impose on persons determined to have engaged in certain significant transactions relating to petroleum, petroleum products, or petrochemicals from Iran by authorizing the imposition of:
- Visa restrictions on corporate officers, principals, or controlling shareholders of a sanctioned person;
- Additional sanctions on principal executive officers of a sanctioned person; and
- Prohibitions on US persons investing in or purchasing significant amounts of equity or debt instruments of a sanctioned person.
- Expands the prohibition on US-owned or -controlled foreign entities by prohibiting transactions with persons blocked for:
- Providing material support for, or goods and services in support of, Iranian persons on the SDN List and certain other designated persons; or
- Being part of the energy, shipping, or shipbuilding sectors of Iran or a port operator in Iran or knowingly providing significant support to certain other persons blocked or on the SDN List.
Since these last activities were already prohibited under Section 218 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and OFAC’s implementing regulations, it is unclear whether in fact this last is a true expansion or an adjustment of authority.
EU Reaction – Amendment of Blocking Regulation
As anticipated, the EU reacted by publishing, and thereby bringing into effect, an amendment to the Annex to Council Regulation No 2271/96 protecting against the effects of extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom.
The revised Annex increases the number of laws subject to the blocking regulations, including, notably:
- The energy sanctions contained in the Iran Sanctions Act of 1996 as amended;
- The Iran Freedom and Counter-Proliferation Act of 2012;
- The National Defense Authorization Act for Fiscal Year 2012;
- The Iran Threat Reduction and Syria Human Rights Act of 2012; and
- The Iranian Transactions and Sanctions Regulations.
According to the guidance published by the EU, the Blocking Statute:
- Prohibits EU operators from complying with the listed extra-territorial legislation, or any decision, ruling or award based thereon, given that the EU does not recognize its applicability to/effects towards EU operators (Article 5, paragraph 1);
- Requires EU operators to inform the European Commission within 30 days of any events arising from listed extra-territorial legislation or actions based thereon or resulting thereof, that affect, directly or indirectly, their economic or financial interests;
- Nullifies the effect in the EU of any foreign decision, including court rulings or arbitration awards, based on the listed extra-territorial legislation or the acts and provisions adopted pursuant to them (Article 4);
- Allows EU operators to recover damages arising from the application of the listed extra-territorial legislation from the natural or legal persons or entities causing them (Article 6). Damages are defined as ‘any damages, including legal costs, caused by the application of the laws specified in its Annex or by actions based thereon or resulting therefrom’; and
- Allows EU operators to request an authorization to comply with the listed extra-territorial legislation, if not doing so would cause serious harm to their interests or the interests of the EU (Article 5, paragraph 2).
The Blocking Regulation applies to the EU subsidiaries of US companies, thereby placing them in a potentially difficult position. Moreover, the EU Guidance specifically states that EU operators cannot, consistent with the EU Blocking Regulations, request licenses from the United States unless they request the European Commission to authorize them to apply for such a license. At the same time, the EU Guidance specifically notes that EU companies remain free to do or not to do business with Cuba and Iran, provided such business decisions are not forced on the EU companies by the listed US legislation.