Iran Sanctions – President Trump’s Announcement of US Withdrawal from JCPOA

President Trump announced today, May 8, 2018, that the United States would withdraw from the Joint Comprehensive Plan of Action (“JCPOA”), the Iran nuclear deal implemented in January 2016. In connection with the announcement, the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) published guidance clarifying that, following applicable wind-down periods, the United States would begin re-imposing all nuclear-related sanctions that were lifted pursuant to the JCPOA.

Background

Pursuant to the JCPOA, UN, EU and U.S. sanctions on Iran were eased in exchange for commitments from Iran to dismantle its nuclear weapons program and submit to international inspections. During his announcement, President Trump stated that the United States would institute the “the highest level of economic sanctions” against Iran and would impose sanctions on any nations that assist Iran obtain weapons of mass destruction.

What Happens Now

Subject to certain wind-down periods described below, the U.S. withdrawal from the JCPOA will impact primarily non-U.S. persons, as nearly all sanctions relief provided by the United States pertained to secondary sanctions (i.e., sanctions that apply to non-U.S. persons acting outside U.S. jurisdiction). Even after the implementation of the JCPOA, U.S. persons remained prohibited from virtually all dealings with Iran; accordingly, the impact on U.S. persons from the withdrawal will largely be limited to non-U.S. entities owned or controlled by U.S. persons.

Depending on the applicable sanctions, non-U.S. persons now have 90 days (until August 6, 2018) or 180 days (until November 4, 2018) to wind down activities with or involving Iran that were consistent with the U.S. sanctions relief provided under the JCPOA before facing exposure to potential sanctions imposed by the United States. OFAC’s guidance makes clear that new business entered into by non-U.S. persons after today’s announcement (i.e., those transactions that go beyond wind-down activities) will be taken into consideration in assessing whether such conduct is subsequently sanctionable. As a result and pending any further developments, all of the U.S. nuclear-related sanctions that had been waived under the JCPOA will be re-imposed and in full effect after November 4, 2018. Such measures included sanctions targeting Iran’s petroleum, petrochemical and automotive sectors and Iran’s central bank. For additional details regarding sanctions that will be re-imposed after the wind-down periods, see OFAC’s FAQ 1.2 and 1.3.

For U.S. persons, both the JCPOA and today’s announcement have limited impact. U.S. persons remain prohibited from engaging in virtually any dealings with Iran. Effective November 5, 2018, General License H – which authorized non-U.S. entities owned or controlled by U.S. persons to engage in certain activities with Iran – will be terminated, after which point such activities will be prohibited. Additionally, OFAC is revoking its favorable licensing policy applicable to U.S. persons for civil aircraft and parts, and U.S. imports of Iranian carpets and foodstuff once again will be restricted.

OFAC also announced a new licensing policy. Licenses previously issued to specifically authorize certain Iran-related activities may now be revoked, and new licenses are unlikely to be issued.

Additional actions and guidance from OFAC and the U.S. State Department in connection with the President’s announcement are expected. For example, by November 5, 2018, OFAC is expected to re-designate Iranian entities that were removed from the Specially Designated Nationals and Blocked Persons List when the JCPOA went into effect, which will mean transactions with such entities by non-U.S. persons will once again be subject to secondary sanctions.

Reaction from Other Parties to the JCPOA

The U.S. withdrawal is not expected to trigger any snap-back of EU, UN or other non-U.S. sanctions in Iran. At the time of writing, the European Union, Russia and China are reported to remain expressly committed to preserving the JCPOA. At the same time, Iran may deem the U.S. withdrawal as a breach of the terms of the JCPOA and decide to walk away from the JCPOA as well.

How Dechert Can Help

With sanctions, trade and government relations experts in both London and Washington and a wealth of experience in this sector, Dechert is available to advise regarding the impact of these changes and those still to come. Companies with exposure to Iran should evaluate potential secondary sanctions risks from dealings during and after the wind-down period.

Dechert will continue to monitor sanctions-related developments and issue updates as appropriate.