On January 20, 2014,
after the International Atomic Energy Agency determined that Iran had begun
to meet its obligations to curtail nuclear development activities, the
United States and the European Union implemented sanctions relief for Iran
as contemplated by the November 23, 2013 "Joint Plan of Action"
regarding Iran's nuclear program (the "Agreement"). The
permanent United Nations Security Council members (China, France, Russia,
the United Kingdom and the United States) and Germany – the "P5 Plus
1" – entered into the Agreement with Iran as an interim arrangement to
try to impose discipline on Iran's nuclear program.
As implemented on January 20, the Agreement relaxes U.S. and EU sanctions
measures in significant ways. But U.S. and EU authorities have
confirmed that the Agreement is limited in critical respects.
First, sanctions relief applies only to activity that occurs wholly within
a six-month window – January 20 to July 20, 2014 – and even that
relief could be withdrawn if Iranian compliance with its Agreement
obligations is not continually confirmed. There is no relief for
actions before January 20, and careful monitoring will be needed on the
extent to which sanctions relief remains in place moving forward.
Second, by and large the Agreement does not relax the U.S. embargo on
Iran-related activity of U.S. persons and entities that are owned or
controlled by U.S. persons. The only exception relates to potential
issuance of licenses for aircraft replacement parts as needed for safety
reasons. Otherwise, the Agreement affects only "secondary"
U.S. sanctions measures – U.S. statutes and executive orders that provide
for sanctions against non-U.S. companies that engage in specified types of
activities relating to Iran.
Third, even relaxation of secondary sanctions measures generally does not
extend to non-U.S. companies' dealings with specifically sanctioned
individuals and entities on the U.S. Treasury Department's List of
Specially Designated Nationals ("SDN List").
Finally, U.S. and EU authorities stress that they will continue vigorously
to enforce sanctions measures that are not suspended and that they will
reimpose suspended sanctions if Iran fails to satisfy commitments under the
Agreement.
Sanctions
Relief
The Obama Administration has exercised waiver and other
authority in sanctions measures to implement the sanctions relief discussed
below. The EU has implemented sanctions relief by adopting Council
Regulation N. 42/2014, amending previous Council Regulation N. 267/2012
concerning restrictive measures against Iran.
The foremost sanctions relief implemented by the United States and the
EU is summarized below.
1.
Crude Oil Sales
Pursuant to the Agreement, the P5 Plus 1 are to "pause efforts to
further reduce Iran's crude oil sales." For oil sales at current
levels, the United States and the EU are to suspend "sanctions on
associated insurance and transportation services."
United States
The United States has established several measures to encourage
other nations to reduce their oil imports from Iran. The National
Defense Authorization Act for 2012, enacted in December 2011, generally provides
for sanctions against non-U.S. banks that knowingly conduct or facilitate
significant financial transactions for the purchase of Iranian petroleum or
petroleum products, unless the host countries significantly reduce their
oil imports from Iran.
To implement its obligations under the Agreement, the U.S. government has
generally suspended imposition of sanctions on exports of petroleum or
petroleum products from Iran to China, India, Japan, the Republic of Korea,
Taiwan and Turkey, including related services such as insurance and
transportation services. Sanctions are not to be imposed even if
these activities involve the National Iranian Oil Company
("NICO") or the National Iranian Tanker Company
("NITC") (entities on the SDN List) or Iranian depository
institutions sanctioned solely pursuant to Executive Order 13599
("EO 13599"), which sanctioned all Iranian financial
institutions.
During the Agreement period, the United States will not insist that these
nations continue to reduce levels of oil imports from Iran but, rather,
will forego sanctions if they maintain current levels of such imports.
EU
The EU temporarily suspended its prohibition on the provision of
insurance and transport services for Iranian crude oil.
2.
Petrochemical
Products and Associated Services
Pursuant to the
Agreement, the United States and the EU are to suspend sanctions on Iran's
petrochemical exports and associated services.
United States
A variety of U.S. measures authorize secondary sanctions against
non-U.S. companies for trade in petrochemical products with Iran and
related services in some circumstances.
The United States has generally suspended enforcement of these measures to
permit exports of petrochemical products from Iran, as well as
"associated services" required to facilitate those
transactions. These transactions will remain unsanctionable even if
they involve any of fourteen specified petrochemical companies (regardless
of SDN status) or depository institutions blocked solely pursuant to EO
13599.
The U.S. government interprets "associated services" to encompass
any necessary service, including any "insurance, transportation, or
financial services" ordinarily incident to the underlying activity.
EU
The EU has temporarily waived enforcement of its prohibition on
the import, purchase or transport of Iranian petrochemical products and on
the provision of related services.
3.
Precious Metals and
Associated Services
Pursuant to the Agreement, the United States and the EU are to suspend
sanctions on gold and other precious metals as well as associated services.
United States
United States measures normally require sanctions against
non-U.S. companies that, in some circumstances, transfer precious metals,
including gold, to or from Iran and those that facilitate these
transactions.
The United States has generally suspended enforcement of these measures,
including to the extent that they would ordinarily reach "associated
services" relating to precious metal transactions. Political
subdivisions, agencies or instrumentalities of the Government of Iran and
Iranian depository institutions listed on the SDN List solely pursuant to
EO 13599 may participate in these permitted transactions.
EU
The EU has temporarily suspended its prohibition on trade in
gold and other precious metals with the provision of associated services to
the Government of Iran, its public bodies and the Central Bank of Iran, or
persons and entities acting on their behalf.
4.
Auto Industry and
Associated Services
Pursuant to the Agreement, the United States is to suspend "sanctions
on Iran's auto industry" and "associated services."
United States measures ordinarily provide for sanctions against non-U.S.
companies that, in some circumstances, supply goods or services for use in
connection with the Iranian automotive sector
The United States has generally suspended enforcement of these measures,
including to the extent that they would ordinarily reach "associated
services" relating to trade in the automotive sector. Iranian
depository institutions on the SDN List solely pursuant to EO 13599 may
participate in these transactions.
5.
Spare Parts for
Safety of Iranian Civilian Aircraft and Associated Services
Pursuant to the Agreement, the P5 Plus 1 are to "license the supply
and installation in Iran of spare parts for safety of flight for Iranian
civil aviation and associated services."
United States sanctions and export controls generally require licenses for
exports of aircraft parts and components to Iran, and U.S. authorities have
ordinarily denied licenses for such exports.
United States sanctions administrators at the Treasury Department's Office
of Foreign Assets Control ("OFAC") have advised that they will
license certain such activities by U.S. persons, U.S. owned or controlled
non-U.S. entities and non-U.S. persons involved in the export of U.S.
origin goods. In addition, the U.S. government has suspended
secondary sanctions measures to the extent that they would apply to such
activity by non-U.S. persons.
6.
Authorization
Thresholds for Transactions for Non-Sanctioned Trade
Pursuant to the
Agreement, the EU is to increase "authorisation thresholds for
transactions for non-sanctioned trade."
The EU has raised from EUR 40,000 to EUR 400,000 the value threshold at or
above which any transfer of funds to or from any Iranian person or entity
and related to non-sanctioned trade (e.g., certain personal
remittances or transfers related to diplomatic missions or other listed
non-nuclear related transactions) requires a prior authorization from
competent EU Member State authorities.
Certain transactions for foodstuff, healthcare, medical equipment or other
goods used for agricultural or humanitarian purposes occurring between
financial or credit institutions do not require authorization if their
value is below EUR 1,000,000 (raised from EUR 100,000). Further,
non-humanitarian transactions between financial or credit institutions and
related to non-sanctioned trade other than personal remittances do not
require prior authorization if their value is below EUR 100,000 (raised
from EUR 10,000).
7.
Humanitarian Trade
The P5 Plus 1 are to
"establish a financial channel to facilitate humanitarian trade for
Iran's domestic needs using Iranian oil revenues held abroad."
There are existing embargo exceptions that, on their face, permit supply of
humanitarian items, including food and medical supplies, to Iran. But
many have complained that western banks, citing financial sanctions
measures, have declined to provide banking services needed to facilitate
humanitarian trade. To enable parties to purchase and pay for
humanitarian items for supply to Iran and engage in related activity, the
U.S. Treasury Department is to contact certain financial institutions the
involvement of which Iran has requested and provide them with guidance as
to how to work with Iran for these purposes.
Conclusion
Suspension of sanctions could result in useful relief for some
non-U.S. companies. As indicated, however, sanctions suspension is
subject to critical limitations. Furthermore, suspensions could be
terminated at any time. For example, initiatives in the U.S.
Congress to enact additional Iran sanctions measures could result in Iran's
withdrawal from the Agreement which would, in turn, lead to reimposition of
suspended sanctions. Companies are well advised to monitor
developments closely.
The Orrick International Trade & Compliance Group is deeply involved in
economic sanctions and other international trade matters. For more
information about these developments, please contact Harry
L. Clark at (202) 339-8499 or hclark@orrick.com, W.
Clark McFadden II at (202) 339-8479 or cmcfadden@orrick.com, or your Orrick
relationship lawyer.
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