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17 May, 2018
On 8 May 2018, President Trump announced his decision to cease the United States’ participation in the Joint Comprehensive Plan of Action (JCPOA), and within 180 days, to begin re-imposing the US Sanctions, that were previously lifted or waived in accordance with the JCPOA.
The decision will inevitably lead to an uncertain period whilst parties decide whether or not they must extract themselves from their relationships and transactions with Iran. It may also bring to an end commercial relationships and transactions that parties have worked hard to build since the suspension of sanctions on 16 January 2016.
We consider below the sectors and activities that will be effected by the recent US decision, what is now required from parties that are dealing with Iran, and what the new Iranian sanctions landscape looks like.
RECAP ON THE JCPOA AND THE SANCTIONS RELIEF
The JCPOA was a landmark agreement signed between EU/EU3+3 (UK, Germany, France, China, Russia and the US) and Iran which provided for the suspension of sanctions on Iran.
Whilst the sanctions were not lifted wholesale, the suspension permitted:
- EU Persons to deal with Iran save for where the Iranian party is designated or the activity relates to nuclear or military type activity.
- Non US Persons and foreign subsidiaries of US Persons to deal with Iran in a similar way to EU Persons provided that no US products were involved, a currency other than US dollars was used, the counterparty was not on a designated list, and the transaction was not nuclear related. Effectively there was a lifting of US Secondary Sanctions.
US Primary Sanctions continued to apply to completely prohibit US Persons from dealing with Iran.
THE NATIONAL SECURITY PRESIDENTIAL MEMORANDUM
By the decision of 8 May 2018, the US has decided to re-impose those sanctions that were previously lifted or waived in accordance with the JCPOA. In the main, these are US Secondary Sanctions which can apply to penalise Non-US Persons who engage in trade with Iran.
The details of the decision and its requirements for implementation are set out in the National Security Presidential Memorandum (NSPM). The NSPM provides for a two-tier approach to implementation whereby there will be (a) a 90 day window; and (b) a 180 day window for Non US-Persons to wind down activities involving Iran, following which US Sanctions will be re-imposed.
The 90 day wind down period – money, precious metals, metals, automotive
The NSPM provides that by 6 August 2018, the following activities must be wound down:
- Purchase of US dollars by the Government of Iran
- Trade with Iran in gold, precious metals, and specified metal products
- Purchase of or sale of Iranian rials
- Involvement in Iranian sovereign debt
- Trade in Iran’s automotive sector
Further, certain licenses and authorizations relating to US Primary Sanctions will be revoked including (a) the importation into the US of Iranian-origin carpets and foodstuffs and related financial transactions; and (b) the export or re-export to Iran of commercial passenger aircraft and related parts and services (General License I).
The 180 day wind down period – shipping, petroleum, finance, insurance, energy
The NSPM also provides that by 4 November 2018, activities and associated services provided to the following key industry sectors in Iran should be wound down:
- The port, shipping and shipbuilding industry, including dealing with IRISL, SSLI or affiliates
- The petroleum, products and chemical related industry, including dealing with NIOC, ICO, and NITC
- The banking and finance sector
- The underwriting, insurance, or reinsurance sector
- Iran’s energy sector
Further, as of 5 November 2018, the authorization for US owned or controlled foreign entities to engage in certain activities with Iran which were previously permitted by General Licence H will be revoked.
The US government will also re-impose, as appropriate, the sanctions that applied to persons previously removed from the US Sanctions lists. It is expected that all parties previously removed will be once again placed on the US sanctions lists.
Exceptions and allowances to facilitate completion of business
There is a minor exception/allowance for payments for goods or services, or repayments of loans or credit fall from an Iranian party after the wind down periods. Such payments are to be permitted where (a) the agreement for the goods/services/loan was entered into prior to the 8 May 2018; (b) those services/loans are provided within the wind down periods; and (c) the payment provisions provide for payment after the wind down periods; and (d) those payments do not involve US persons or the US financial system.
Each matter will be dealt with on a case-by-case basis taking into account efforts to wind down activities during the applicable wind-down period.
NEW US SANCTIONS LANDSCAPE
The decision of President Trump to re-impose sanctions that were previously waived in accordance with the JCPOA is a decision, in the main, to re-impose US Secondary Sanctions which target Non-US Persons.
US Secondary Sanctions apply to prevent Non-US Persons from engaging in activities with Iran by the imposition of sanctions and penalties on those Non-US Persons (including Non-US individuals and companies). They do so by effectively blocking the Non-US Person’s access to the US financial system and economy. In particular, they can be applied to prohibit access to the US banking system, US dollar transactions and business with US Persons as well as physical entry into the US.
Taking into account the central role of the US dollar and US banking system in the international community, it is not difficult to see why such sanctions lead Non-US Persons to avoid trading with Iran.
NEW INTERNATIONAL SANCTIONS LANDSCAPE
Whereas previously the EU and the US have been, to an extent, aligned in their position with regard to Iran, the EU and all other countries party to the JCPOA have chosen not to follow the US in this instance and have confirmed 100% support and commitment to the JCPOA.
We are therefore entering a new chapter where the major world players have very differing positions on engagement with Iran as follows:
- The EU Regime permits EU persons to deal with Iran save for where the Iranian party is designated or the activity relates to nuclear or military type activity.
- The US Primary Sanctions prohibit US persons from dealing with Iran.
- The US Secondary Sanctions apply to penalise Non-US Persons dealing with Iran.
For those European and international entities which are not prohibited by their home countries from trading with Iran, yet are now exposed to the risk of being blocked from trading with the US and using US dollars if they choose to trade with Iran, this throws up some new and unprecedented legal and commercial issues.
It is yet to be seen whether international parties will be able to structure their activities in a way in which they can trade with both Iran and the US although this would seem difficult in the current political atmosphere. We await further input from the international community to see how the new sanctions landscape unfolds.
For further information, please contact:
Rovine Chandrasekera, Partner, Stephenson Harwood
rovine.chandrasekera@shlegal.com
