US Tightens Iran Sanctions by Revoking Authorizations

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has tightened Iran sanctions. Specifically, OFAC revoked authorizations that (1) allowed foreign subsidiaries of U.S. companies to do business in Iran; and (2) supported sales of commercial aircraft to Iran. These reflect the continued ramp-up of Iranian sanctions following the U.S. withdrawal from the Iran nuclear deal (JCPOA). 

This OFAC action is not a surprise, as OFAC announced in May that these changes would be forthcoming. In an announcement on June 27, 2018, OFAC revoked General License (GL) H and GL I and issued new general licenses to authorize the wind-down of GL H and GL I activity through November 4, 2018, and August 6, 2018, respectively. GL H allowed foreign entities owned or controlled by U.S. persons to engage in most transactions with Iran and permitted limited facilitation activities by their U.S. parents. GL I authorized U.S. persons to contract with Iranian entities for the supply of commercial passenger aircraft. 

Snapping Back U.S. Sanctions 

Although the U.S. primary sanctions regime on Iran remained in place under the JCPOA, OFAC issued limited authorizations for certain specified business, and lifted most primary sanctions as they applied to foreign entities owned or controlled by U.S. persons. However, on May 8, 2018, President Donald Trump declared that the United States would withdraw from the JCPOA, initiating the process of fully re-imposing nuclear-related sanctions against Iran. OFAC’s latest notice takes the concrete step of eliminating the limited sanctions relief provided under the JCPOA to U.S. persons and U.S. owned or controlled entities. In the absence of these authorizations, non-U.S. companies owned or controlled by U.S. persons will again be subject to all of the prohibitions of the Iranian Transactions and Sanctions Regulations (ITSR) on doing business with Iran. U.S. persons will also no longer be authorized to contract with Iranian entities for the export and re-export of commercial passenger aircraft. As another part of the snap-back, Iranian-origin carpets and foodstuffs will be blocked from import into the United States, including removal of authorization for related letters of credit and brokering services. 

In connection with this action, OFAC established wind-down periods that enable affected parties to cease previously authorized activities over the next few months. The wind-down of activities previously allowed under General License I, as well as for the importation of Iranian-origin carpets and foodstuffs, are authorized through August 6, 2018, after which the ITSR will prohibit those activities. The wind-down period for activities allowed under General License H, meanwhile, will run until November 4, 2018. During the wind-down period, U.S. persons and their foreign subsidiaries may undertake activities to perform under and terminate existing obligations, but any new business or expansion of existing obligations during that time would be grounds for potential enforcement action or the imposition of sanctions. Additionally, OFAC’s latest announcement has no impact on the re-imposition of secondary sanctions announced in May. 

Although companies that do not expect to be able to wind-down their previously authorized business before August 6, 2018, or November 4, 2018, respectively, can request specific authorization from OFAC to extend such activity, OFAC has given no public indication that it will be inclined to grant such extensions. Companies should make every effort to wind-down completely before such dates, as OFAC is likely to weigh such actions heavily in any future decisions to either license an extension or take enforcement action. 

Increasing Pressure on Iran 

OFAC’s revocation of these authorizations comes as the U.S. government continues to signal that it will aggressively enforce the re-imposition of U.S. sanctions with respect to Iran. For example, U.S. law allows the Secretary of State to sanction foreign financial institutions in countries that import Iranian crude oil, but also allows waivers for countries that “significantly reduce” their crude oil imports. However, the administration recently threatened to impose sanctions on countries that do not completely eliminate their Iranian crude oil imports by November 4, 2018. In accordance with the practice of the Obama administration, importers of Iranian crude oil may have expected that the Trump administration would allow them to gradually wean themselves from Iranian imports through the issuance of sanctions waivers. However, senior officials at the State Department have reportedly said that the U.S. government does not expect to issue any sanctions waivers and that it will request other countries to cut their imports completely in the coming months. 

The administration’s aggressive posture will continue to complicate the situation for non-U.S. companies, particularly those in jurisdictions, like the E.U., that have professed their ongoing commitment to the JCPOA. Although the E.U. recently amended its blocking regulation to prohibit E.U. companies from complying with the re-imposed U.S. sanctions on Iran, the Trump Administration is continuing to signal an inflexible posture ahead of November 4. While that may be regarded as a negotiating tactic, non-U.S. companies need to carefully assess their potential exposure under U.S. law and determine their risk tolerance in the coming months. 

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.