Iran, the Joint Comprehensive Plan of Action, and International Trade

On 8th May 2018 President Donald Trump announced the United States’ (U.S.) withdrawal from the Joint Comprehensive Plan of Action (JCPOA) and renewal of U.S. far reaching sanctions. The Agreement, signed in 2015 between Iran, the P5+1 (China, France, Russia, United Kingdom, United States—plus Germany) and the European Union (EU), aimed to curb Iran’s efforts to develop its nuclear program and enrich uranium.

Since the implementation of the JCPOA, the EU and UN relaxed sanctions regimes on trade with Iran. The U.S. however, maintained primary sanctions, prohibiting trade in U.S. products or business by U.S. persons with Iran. President Trump’s announcement was issued alongside a National Security Presidential Memorandum directing the Office of Foreign Assets Control (OFAC) and other agencies to take steps necessary to re-impose U.S. sanctions previously revoked under the JCPOA.

In effect, this means that there is a 90-180 day ‘wind-down’ timeline, leading to 6th August and 4th November 2018, after which OFAC expects that all the U.S. nuclear-related sanctions that had been lifted under the JCPOA will be re-imposed with full effect. The 90 and 180 day wind-down periods have different criteria which must be fulfilled by the respective dates.

The 90-day wind-down period

After the 90-day wind down period ends on 6th August 2018, the U.S. government will re-impose the following measures:

• Sanctions on the purchase and facilitation of Iranian sovereign debt;
• Sanctions on the acquisition of U.S. dollar banknotes by the Government of Iran;
• Sanctions relating to trade in Iranian rials, and funds and accounts in Iranian rials;
• Sanctions in relation to metals, raw materials, precious metals (gold), and particular industrial software;
• Sanctions on activities relating to exporting commercial passenger aircraft and related parts and services to Iran.

The 180-day wind-down period

Following 4th November 2018, OFAC expects that all U.S. nuclear-related sanctions lifted under the JCPOA will be re-imposed. Most notably, this involves:

• Sanctions on Iran’s port and shipping sectors, energy sector, and petroleum-related transactions and products;
• Sanctions on transactions by foreign financial institutions with Iranian financial institutions, including the Central Bank of Iran;
• Sanctions on underwriting and insurance services;
• Sanctions on persons previously removed from the List of Specially Designated Nationals and Blocked Persons (SDN List);
• Revoking previously authorised services under General License H.

World Reaction

In the hours following from President Trump’s announcement, the international community was particularly proactive in issuing statements on their positions. While some countries such as Israel, Saudi Arabia, the United Arab Emirates, and Bahrain have praised President Trump for his decision, most world leaders expressed concern, emphasising their continued commitment to the agreement and urging Iran to remain in full compliance. Within hours, UK Prime Minister Theresa May, German Chancellor Angela Merkel and French President Emmanuel Macron released a joint statement of commitment to the JCPOA. The UN, the EC, China, Russia, Japan, and Turkey were amongst others that released official statements pledging and calling for commitment to JCPOA.

It is anticipated that additional sanctions will focus on prohibiting use of the U.S. banking system and financial markets in relation to business with Iran. Despite more relaxed regulations in other jurisdictions, worldwide, many banks have implemented sanctions policies in line with U.S. requirements. It is anticipated that many European banks will remain conservative, making it next to impossible for many non-U.S. companies to trade with Iran. This could have practical implications for existing contracts with Iran, even before the 90 day wind-down period expires.

Implications on Trade – How should companies respond?

The announcement comes with significant implications for companies engaged in business with Iran. From a trade compliance perspective, we recommend you take the following first 3 steps to understand the changes required to your business model:

1. Identify any current business activities with or involving Iran that will become subject to sanctions at the end of the wind-down period. Business activities with or involving Iran that were sanctioned prior to the JCPOA will again be sanctioned at the end of the wind-down period. These activities may include the financing of trade or the provision of goods that have been exported under OFAC licences. In addition, contracts, loans, and credits should be reviewed and any money owed paid prior to this deadline. For those companies who have invested in Iran, this could have a major impact on the supply chain (particularly where U.S. owned companies are supplying parts) and the ability to fulfil long term contracts. It is OFAC’s intention to replace General License H, General License I, and general licenses prescribed by 31 CFR § 560.534 and 560.535, with ‘more narrowly scoped authorisations to allow U.S. persons and U.S.-owned or controlled foreign entities’ to engage in wind-down activities that were previously authorised under these licenses. Companies should identify what licenses are currently being used for business with Iran and wind-down those activities accordingly.
2. Screen current business partners against the List of Persons Identified as Blocked Solely Pursuant to Executive Order 13599 (E.O. 13599 List). Per the JCPOA FAQs, no later than 5th November 2018, OFAC expects to move persons identified as meeting the definition of the terms ‘Government of Iran’ or ‘Iranian financial institution’ from the E.O. 13599 List to the DSN list. In anticipation of this, companies should screen all current business partners to confirm none are included on this list; and, if so, cease business with these individuals.
3. Investigate data and service sharing structures involving Iran. Companies should assess any potential changes required to online information sharing platforms, to comply with U.S. sanctions. This could include customer, 3rd party, and internal systems.

To further understand how the U.S.’ withdrawal from the JCPOA may affect your business, please contact our Deloitte Global Export Controls and Sanctions Team.