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Iran Sanctions: Every Day Above Ground is a Good Day




by:
Mark L. Jensen
Cheryl Palmeri
Sheppard, Mullin, Richter & Hampton LLP - Washington Office

 
February 14, 2014

Previously published on February 6, 2014

What a difference a year makes.  As we reported last month, 2013 was filled with notable developments in U.S.-Iran relations.  The year was capped on November 24, 2013, when the United States and its negotiating partners were surprisingly able to reach a Joint Plan of Action with Iran (the “JPOA”) to loosen certain sanctions in exchange for Iran’s commitment to roll back its nuclear program.

On January 20, 2014, after determining that Iran had met the necessary commitments, the U.S. Departments of Treasury and State issued guidance on implementation of the JPOA.  As detailed below, that guidance articulates the newly permissible activities that previously were prohibited under various U.S. sanctions regulations.  This sanctions relief will be valid for six months, expiring on July 20, 2014, unless the United States determines that Iran has failed to meet its commitments under the JPOA, in which case the period of relief could be truncated.  Of course, if further negotiations lead to a longer-term deal, relief could be extended, or new measures to ease sanctions could be introduced.  Even within the limited time period of the JPOA, the relief provided is only valid for transactions or conduct fully completed within the JPOA period - in other words, initiated on or after January 20 and completed by July 20.

Details of Sanctions Relief

U.S. Persons

Notably, the JPOA does little to ease the comprehensive sanctions affecting the conduct of U.S. individuals and companies - including non-U.S. entities owned or controlled by U.S. persons.  Thus, most exchanges of goods, services, or funds between U.S. persons and Iran remain strictly prohibited.

The JPOA does provide some sanctions relief to U.S. persons.  Of particular note is authorization for the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”) to issue licenses in certain cases for U.S. persons to engage in transactions related to the safe operation of Iranian commercial passenger aircraft.  Licensable transactions include exporting and re-exporting (i) services related to the inspection or repair of commercial aircraft and parts, and (ii) related goods or technology, including spare parts.  Perhaps surprisingly, transactions with Iran Air, which OFAC has designated as a Specially Designated National (“SDN”), are eligible for licenses.

The potential benefit of this civil aircraft licensing scheme should not be ignored: the Iranian press has reported that U.S. sanctions have hit Iranian airlines particularly hard by cutting off the supply of replacement parts.  Apparently as a result, over 60 percent of Iran’s airplane fleet is grounded due to technical and logistical issues, and 16 out of 18 Iranian airlines are reportedly teetering on the brink of bankruptcy.  The JPOA therefore offers the potential to open up the starving Iranian civil aircraft market to U.S. companies.

Non-U.S. Persons

For non-U.S. entities not owned or controlled by a U.S. person, the extent of relief is more significant.  Relief provided includes the following:

  • Petrochemical Products: The United States will not impose correspondent or payable-through account sanctions, blocking sanctions, or menu-based sanctions on non-U.S. financial institutions or other persons that conduct or facilitate transactions within the JPOA period for exports of petrochemical products.  Such transactions cannot involve SDNs other than specific petrochemical companies or Iranian banks.

  • Auto Industry: The United States will not impose correspondent or payable-through account sanctions or menu-based sanctions for non-U.S. persons and financial institutions that conduct or facilitate transactions for goods or services in connection with the automotive sector of Iran.  Such transactions cannot involve SDNs other than certain Iranian banks.

  • Gold and Other Precious Metals: The United States will not impose correspondent or payable-through account sanctions or blocking sanctions for transactions by non-U.S. persons or financial institutions that further the acquisition of gold or precious metals to or from Iran or by the government of Iran.  Such transactions cannot involve SDNs other than the government of Iran or certain Iranian banks.

  • Civil Aviation: In addition to licenses available for U.S. persons related to activities for Iran’s civil aviation industry, the United States will not impose correspondent or payable-through account sanctions or blocking sanctions on non-U.S. persons or financial institutions related to the safe operation of commercial passenger aircraft.  No SDN other than Iran Air and certain Iranian banks may be involved in such transactions.

  • Crude Oil Exports:  The United States will allow China, India, Japan, South Korea, Taiwan, and Turkey to maintain their current level of crude oil imports from Iran, and will release agreed-upon amounts of funds that were previously blocked to Iran.  The United States has also agreed not to impose correspondent or payable-through account sanctions, menu-based sanctions, or blocking sanctions that relate to exports of petroleum and petroleum products from Iran to these countries.  Those transactions may not involve SDNs other than the National Iranian Oil Company, the National Iranian Tanker Company, or certain Iranian banks.

  • Facilitation of Humanitarian and Other Transactions:  The countries involved in the JPOA agreed to establish mechanisms to further facilitate the purchase of and payment for the export of food, agricultural commodities, medicine, and medical devices to Iran, as well as certain other payments.  The export of food, agricultural commodities, medicine, and medical devices to Iran will also continue to be authorized under pre-existing authorities.

Analysis

The JPOA presents a few complications from an operational perspective.  Depending on the type of transaction, particularly where conduct requires a license from OFAC, the brevity of the JPOA period may dissuade companies from seeking to carry out transactions that might otherwise be permissible.  OFAC may require some time to issue a license, so companies that want to take advantage of these developments should act quickly.  The loosening of sanctions provides more significant opportunities for non-U.S. persons, especially entities not owned or controlled by a U.S. person.  Nevertheless, non-U.S. actors must remain vigilant not to engage with prohibited SDNs in transactions that are otherwise allowed in accordance with the JPOA.

The JPOA is also a reminder of the political nature of economic sanctions.  While export control reform continues to move methodically according to a pre-set schedule, changes in sanctions may come unexpectedly based on significant breakthroughs then vanish just as quickly.  Iran is only the most recent example of this: in 2012, the United States dramatically eased sanctions on Myanmar following political reforms undertaken that country’s government.  A year prior it was Libya that went from limited sanctions to absolute sanctions and back again in the course of approximately 10 months.

What Libya, Myanmar, and now the JPOA illustrate is that the easing of even long-standing sanctions programs, while difficult, is possible.  July 2014 may come quickly, but the period until it arrives offers promise.



 

The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.
 

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Author
 
Mark L. Jensen
Cheryl Palmeri
Practice Area
 
International Trade
 
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