Limited Sanctions Relief for Iran Remains Rife with Risk for U.S. and Non-U.S. Entities
On January 20, 2014, the U.S. Departments of State and Treasury published guidance relating to the roll-out of limited secondary sanctions relief for the Government of Iran resulting from the International Atomic Energy Agency's Report on the status of Iran's nuclear program published that same day. Pursuant to the Joint Plan of Action (JPOA) agreed upon by Iran and the P5+1 (the United States, United Kingdom, Germany, France, Russia, and China), U.S. sanctions targeting certain activities not involving U.S. persons (with limited exceptions) will be rolled back for six months, ending on July 20, 2014.
Based on informal State and Treasury Department guidance, companies are advised that (1) any activities now permissible must commence on or after January 20, 2014 and terminate before July 20, 2014; (2) there is no guarantee that the relief will be extended past July 20, 2014; and (3) remaining sanctions will continue to be vigorously enforced.
For U.S. persons and U.S.-owned or -controlled foreign entities – The implementation of the JPOA has changed the sanctions landscape in only two very limited circumstances: (1) the Department of Treasury Office of Foreign Assets Control (OFAC) has published a favorable licensing policy for certain transactions intended to ensure the safe operation of Iranian commercial passenger aircraft; and (2) OFAC and other members of the P5+1 are establishing means to facilitate payments for the already licensed exports of goods pursuant to the Trade Sanctions and Export Enhancement Act of 2001.
For non-U.S. persons – Sanctions relief, while broader than for U.S. persons, is also limited and will expire (unless extended) on July 20, 2014. This limited scope will be especially problematic for companies providing services that are typically for terms longer than six months. In particular, non-U.S. insurers and reinsurers may have difficulty issuing coverage limited to the six-month period—the U.S. agencies have counseled that all claims and payments must be made within the six month window to fall within the limited relief.
Suspension of Certain U.S. Sanctions Against Iran
On January 20, 2014, pursuant to the JPOA, OFAC released: (1) a Guidance detailing the Iran sanctions that have been temporarily suspended, (2) a Statement of Licensing Policy that establishes a mechanism through which persons can request authorization to engage in transactions to ensure the safe operation of Iranian passenger aircraft, and (3) a Frequently Asked Questions designed to address certain questions companies may have.
The vast majority of sanctions targeting the Government of Iran remain in place; U.S. persons and U.S.-owned or -controlled foreign entities are still prohibited from virtually all transactions with Iran and many secondary sanctions targeting the activities of non-U.S. persons who do business with Iran remain in place. The limited, targeted, and reversible relief involves the relaxation of only a small number of secondary sanctions.
Sanctions relief will cover only activities and services (including related payments) initiated and completed during the six-month period beginning on January 20, 2014 and ending July 20, 2014. Transactions cannot involve persons that are named on OFAC's Specially Designated Nationals (SDNs) List except for those SDNs explicitly authorized in the guidance.
The following is a summary of the guidance's key provisions:
- Petrochemical Products – Secondary sanctions on the export of petrochemical products from Iran and associated services defined as any necessary service such as insurance, transportation, or financial services have been suspended.
- Auto Industry – Secondary sanctions on "the sale, supply, or transfer to Iran of significant goods or services used in connection with the automotive sector of Iran" and associated services have been suspended.
- Gold and Other Precious Metals – Secondary sanctions on the purchase or acquisition of precious metals to or from Iran and associated services have been suspended.
- Crude Oil – Secondary sanctions on exports of "petroleum and petroleum products" from Iran to the six countries currently receiving a "waiver" permitting them to import Iranian crude oil (at current levels) – China, India, Japan, the Republic of Korea, Taiwan and Turkey—and associated insurance and transportation services have been suspended.
- Civil Aviation Industry – OFAC has established a favorable specific licensing regime for applications to engage in transactions intended to ensure the safe operation of Iranian commercial passenger aircraft. OFAC has committed to reviewing these applications as quickly as possible because all licenses will expire on July 20, 2014; all licensed activity, including export, shipment, and payment, must therefore also be completed by July 20, 2014. Licensable activities include safety related inspections and repairs of Iranian commercial passenger aircraft, the exportation or re-exportation of safety related U.S.–origin spare parts, and all associated services.
- Humanitarian Relief –The United States and the other P5+1 members are working with Iran to establish a mechanism to further facilitate the payment for humanitarian goods including agricultural commodities, medicine and medical devices; tuition payments for Iranian students; and payments of dues and other obligations owed by Iran to the United Nations. OFAC has emphasized that the mechanism will not be exclusive and humanitarian transactions may continue to be processed pursuant to pre-existing exceptions and mechanisms. OFAC is informally requesting that U.S. exporters seek banking channels in the six countries that have received crude oil waivers.
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