- Previously permissible activities must be wound down in 90 or 180 days
- Non-U.S. companies at particular risk of enforcement action
- Only limited guidance issued so far, unclear what authority U.S. companies have
On May 8, 2018, President Trump announced that the United States is leaving the Joint Comprehensive Plan of Action (JCPOA). The U.S. Treasury, Office of Foreign Assets Control (OFAC), which administers most U.S. economic sanctions programs, has taken an initial stab at providing guidance in a set of Frequently Asked Questions (FAQs) released the same day as the President’s announcement.
While there were signs the President could leave the JCPOA (see our December 2016 blog posting), the President’s announcement means that the United States will indeed be re-imposing the nuclear-related sanctions that were lifted under the JCPOA. Some of the sanctions will be re-imposed within 90 days; all of the sanctions will be re-imposed within 180 days.
Things could be very messy for companies seeking to wind-down operations in Iran over the next months. And the wind-down period could be prolonged if the U.S. government issues waivers allowing non-U.S. companies or actors to continue operations in Iran, or at least have more time to conclude those operations. Potential countermeasures by European governments could further muddy the waters.
Recognizing that it is still early days, this article is an effort to summarize where things stand currently.
U.S. Government Establishes Two-Tier Wind-Down Approach
As noted above, the U.S. government has established 90-day and 180-day wind-down periods for halting activity that was authorized under the JCPOA. Those periods end on August 6, 2018, and November 4, 2018, respectively.
90-Day Period Wind-Down. No later than August 6, 2018, the U.S. government will re-introduce sanctions under which parties can be penalized for engaging in or providing services related to the following:
- The purchase or acquisition of U.S. 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
- Activities involving Iran’s automotive sector
In general, these measures are most pertinent to non-U.S. actors, who can be subject to U.S. trade limitations or prohibitions if engaging in such activities.
In addition, OFAC has rescinded its Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (SLP). Specific licenses issued under the SLP will be revoked, and parties will be required to wind down activities under the SLP by August 6, 2018. This will surely halt Boeing’s efforts to sell aircraft to Iran. See our prior blog posts from June 2016, September 2016 and April 2017.
180-Day Period Wind-Down. No later than November 4, 2018, the U.S. government will re-introduce sanctions on the following:
- Iranian port operators and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines, South Shipping Line Iran, and their affiliates
- Petroleum-related transactions, including the purchase of petroleum, petroleum products, or petrochemical products from Iran
- Transactions by foreign financial institutions with the Central Bank of Iran and certain designated Iranian financial institutions
- The provision of certain financial messaging services to the Central Bank of Iran and Iranian financial institutions
- The provision of underwriting services, insurance, or reinsurance related to Iran business
- Activities involving Iran’s energy sector
Again, many of these sanctions will have most impact on non-U.S. companies.
Elimination of General License H Has Most Significant Effect on U.S. Company Activity
Of particular note to U.S. companies, OFAC is also taking steps to revoke General License H (GL H). Under GL H, non-U.S. companies that are owned or controlled by a U.S. person have been permitted to engage in many transactions with Iran that a U.S. person cannot conduct. That is now changing.
OFAC is requiring activities conducted under GL H to be wound down by November 4, 2018.
It appears that, during the wind-down period, parties operating under GL H can perform under a contract that was entered into before May 8, 2018. Receipt of payment under such a contract would also be permitted.
However, the provision of additional goods, services, or loans to an Iranian counterparty after the wind-down deadline is prohibited. To that end, when considering potential enforcement action against a party that engaged in Iran business after the wind-down deadline, OFAC will evaluate steps the party took to wind-down activities and assess whether new Iran business was entered into during the wind-down period.
OFAC Provides Limited Guidance About What Is Permitted During Wind-Down Period
Unfortunately, the OFAC FAQs say little about what conduct will be permitted with respect to wind-down activities. Instead, the FAQs state the following:
As soon as administratively feasible, OFAC intends [to issue] narrowly scoped authorizations to allow U.S. persons and, as appropriate, U.S.-owned or -controlled foreign entities, to engage in all transactions ordinarily incident and necessary to wind down activities that were previously authorized…
In particular, it is not clear whether a U.S. company can have an active role in winding down the operations of its non-U.S. subsidiary conducting business in Iran. As noted above, some such business has been authorized under General License H. Yet a U.S. person cannot be involved in business that a non-U.S. person conducts under the authority of GL H. It seems to follow that a U.S. person can have no role in helping its non-U.S. subsidiary wind up that business.
The OFAC guidance does authorize some non-U.S. persons, in some cases, to receive payment after the wind-down period expires. But this authority does not extend to non-U.S. subsidiaries of U.S. companies.
Compliance Recommendation: Promptly Review Any Iran Business to Plan Next Steps
As with any new (or renewed) sanctions regime, the sanctions that will snap back on Iran creates a compliance challenge. Also, like with any new sanctions regime, the critical first step for compliance personnel is to understand the scope of their organization’s Iran business. Only then is it possible to assess what steps need to be taken, by what date, and who can be involved.
We expect OFAC to issue more guidance in the coming weeks. We will continue to provide updates as needed.
In the meantime, feel free to contact the Bass Berry & Sims International Trade team if you have questions. We routinely assist clients with challenging Iran matters. Let us know if we can help you.