by Jim Lobe
The following is the introduction and summary of a paper prepared by the law firm Berliner Corcoran and Rowe (BCR) LLP. It addresses the current state of sanctions on Iran in light of the July 14 Joint Comprehensive Program of Action (JCPOA) agreed between the P5+1 and Iran in Vienna and the implications for U.S. individuals and entities wishing to do business in Iran. The entire brief can be found here.
State of U.S. Sanctions on Iran in the aftermath of the P5+1 Agreement
Permissible Scope of Commercial Activities by U.S. Persons
1 This paper contains general legal guidance on the matters discussed herein, but should not be construed as legal opinions on the application of this guidance to any specific facts or circumstances. Opinions provided herein are solely those of the authors.
2 An entity is deemed owned or controlled by U.S. Persons if such U.S. Persons (i) hold a 50% or greater equity interest by vote or value in such entity, (ii) hold a majority of seats on its board of directors, or (iii) otherwise control its actions, policies or personnel decisions.
Benjamin H. Flowe, Jr.
August 10, 2015
On July 14th, the United States, Russia, China, France, the United Kingdom, Germany (collectively known as the “P5+1”) and Iran reached a historic agreement (the “Joint Comprehensive Plan of Action” or the “JCPOA”) whereby the P5+1 agreed to remove certain US, EU, and UN economic sanctions on Iran in exchange for Iran agreeing to significantly scale back its nuclear program. Notwithstanding the welcome anticipation of the “removal” of U.S. sanctions on Iran by some in the United States and the great trepidation about such “removal” by others, the JCPOA in fact only provides for rather limited easing of U.S. sanctions on Iran, principally those directed at non-U.S. Persons, and no sooner than probably sometime in mid to late 2016.
For purposes of this paper and as provided under applicable U.S. regulations, “U.S. Persons” are defined to include U.S. citizens, permanent residents, persons physically in the U.S., entities organized under U.S. law, non-U.S. branches of U.S. entities (i.e., not separate legal entities), non-U.S. entities that are owned or controlled by U.S. Persons2 (i.e., subsidiaries organized under other countries’ laws), and non-U.S. Person officers, directors, employees, or other agents of U.S. Persons, including any such persons who are of Iranian heritage or nationality (i.e., an Iranian employed by a U.S. company).
This paper is intended to serve as a practical guide on the state of U.S. sanctions on Iran in the aftermath of the JCPOA, specifically outlining (1) the provisions of the JCPOA providing for the easing of U.S. sanctions on Iran, as well as the steps and timelines for implementing the same, (2) the activities that U.S. Persons continue to be prohibited from undertaking under U.S. law in connection with commercial transactions in or related to Iran, and (3) the limited scope of currently permissible activities by U.S. Persons in or relating to Iran, including activities to explore and assess potential future business opportunities there if and to the extent U.S. sanctions are scaled back, pursuant to the JCPOA or otherwise.
Relief from U.S. sanctions on Iran pursuant to the JCPOA will not go into effect until the following two conditions have been met: (1) the U.S. Congress does not disapprove the Agreement within a 60 day review period ending on September 17th, or is unable to override President Obama’s promised veto of such resolution of disapproval by the required two-thirds majority in both the House and the Senate (this process is expected to conclude by the end of September), and (2) the IAEA has verified Iran’s satisfactory performance of certain obligations under the JCPOA to significantly scale back its nuclear activities (the date of such verification is defined under the JCPOA as the “Implementation Day”). As such, even if the foregoing two conditions are satisfied, U.S. sanctions relief under the JCPOA will not go into effect, and hence the current state of U.S. sanctions on Iran will remain unchanged, until Implementation Day, which is currently estimated to occur sometime in mid to late 2016.
If and when Implementation Day occurs, the easing of international and U.S. sanctions on Iran under the JCPOA will be limited to the following sectors: (1) financial and banking, (2) oil, gas and petrochemical, (3) shipping, shipbuilding, and port operations, (4) automotive, (5) trade in gold and other precious metals, (6) trade in graphite, raw or semi-finished metals, coal and software for integrating industrial processes, and (7) insurance for the foregoing activities otherwise permitted under the JCPOA.
Moreover, under the JCPOA, the U.S. has committed to terminate only those secondary and extraterritorial U.S. sanctions that are directed towards non-U.S. Persons, and to also license and authorize (1) U.S. Persons to export commercial aircraft, spare parts and related services to Iran, (2) U.S. Persons to import food and carpets to the U.S., and (3) non-U.S. entities that are owned or controlled by U.S. Persons to engage in activities that are consistent with the JCPOA (i.e., relating to the above mentioned sectors). In contrast, the EU and other P5+1 countries are expected to significantly relax their sanctions, providing their businesses a significant competitive advantage in the Iranian market.
The extent to which such authorizations by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) will be in the form of general or specific licenses as well as the process and timing of the issuance of any such licenses is not entirely clear and remains to be seen when new U.S. regulations and other guidance is issued in advance of Implementation Day. It also remains unclear whether and to what extent licenses issued to foreign entities owned or controlled by U.S. Persons may authorize involvement or facilitation of the activities of the foreign entity by U.S. Persons, be they parent companies or affiliates or individuals who may be involved as board members, officers, managers, employees, or advisors of the non-U.S. subsidiary and/or the parent company. If as reported to date U.S. Persons are ultimately prohibited from facilitating commercial activities of foreign entities owned or controlled by them, non-U.S. subsidiaries of U.S. companies with significant U.S. Person participation may effectively be prevented from taking full advantage of commercial opportunities presented by the easing of sanctions on Iran.
Until such time when U.S. sanctions against Iran may be eased pursuant to the JCPOA and to prepare for resultant potential business opportunities in or relating to Iran, U.S. Persons may
- undertake internal studies, evaluations and analyses of the Iranian market and its prospects, as well as potential future business partners there,
- internally strategize and otherwise prepare to capitalize on such business opportunities if and when doing so becomes permissible under U.S. law,
- travel to Iran to explore such opportunities,
- take steps to protect intellectual property rights in Iran,
- attend conferences and exchange and/or pay for existing information and informational materials with people or entities (other than SDNs) in Iran or elsewhere without acquiring or providing any services from or to persons or entities in Iran or ordinarily resident in Iran, and
- discuss such future business opportunities with people or entities (other than SDNs) in Iran or elsewhere without agreeing to engage in any of the prohibited activities in the future if and when U.S. sanctions on Iran are eased or removed.
In addition, U.S. Persons may continue to legally export food, medicine, basic medical supplies, and services, software and hardware incident to personal communications (i.e., smart phones, laptops, and tablets) to Iran under existing OFAC general licenses, and otherwise engage in any activities authorized by OFAC pursuant to a specific license.
In the meantime, subject to the foregoing limited exceptions, U.S. Persons will continue to be prohibited from engaging in most commercial activities in or relating to Iran, including (i) dealings with the Government of Iran or SDNs, (ii) exporting goods or services to Iran, (iii) importing Iranian-origin goods or services to the U.S., (iv) other dealings in Iranian-origin goods or services, (v) new investments in Iran, (vi) facilitating any of the foregoing transactions undertaken by non-U.S. Persons, or (vii) entering into any executory or other contracts concerning any of the foregoing transactions to be undertaken in the future.
The lines between permissible and prohibited activities in these and other cases are fine ones that depend on the application of rules and regulations to precise facts and practices that at times may defy common sense….
Photo: Iranian shopkeeper (courtesy of Kamyar Adl via Flickr)