- The U.S. and Other Nations Reach Historic Nuclear Deal with Iran
- July 16, 2015 | Authors: Cheryl I. Aaron; Mark D. Herlach; Beverly J. Rudy
- Law Firm: Sutherland Asbill & Brennan LLP - Washington Office
On July 14, the P5+1 (China, France, Russia, the United Kingdom, the United States and Germany) reached a historic nuclear agreement with Iran, following almost two years of negotiations. Under the Joint Comprehensive Plan of Action (the JCPOA or the Plan of Action), Iran will scale back its nuclear program for the next 10 years and will be subject to strict inspections and verification measures in exchange for international sanctions relief.
Sanctions relief will be phased in after the International Atomic Energy Agency (IAEA) verifies that Iran has implemented key nuclear-related measures. In exchange, Iran will receive broad relief from U.S. sanctions in key economic sectors - finance, energy, insurance, metals, shipping and others. All sanctions relief that has been in effect under the November 24, 2013 Joint Plan of Action will remain in effect until “Implementation Day” (defined below). It is important to note that the pre-existing JCPOA sanctions relief (not applicable to U.S. persons) currently is the only sanctions relief in place. U.S. market participants are cautioned not to take any action with regard to Iran until the U.S. government publishes detailed guidance related to the JCPOA (expected prior to Implementation Day), and until broad sanctions relief actually takes effect later this year.
A law passed earlier this year, the Iran Nuclear Agreement Review Act of 2015, provides the U.S. Congress a 60-day period during which it may vote to disapprove the JCPOA and thereby block the United States from meeting its obligations under the JCPOA. In order for a resolution of disapproval to pass and withstand a Presidential veto, a two-thirds majority of the U.S. Senate and House of Representatives would need to vote to disapprove the JCPOA. Current indications are that Congressional opponents are unlikely to be successful and that the implementation of the JCPOA is likely to proceed according to its terms and the timeline set forth below.
The discussion that follows describes the sanctions relief to be provided by the United States, the obligations of the JCPOA parties, an implementation timeline, limitations placed on Iran’s nuclear program, and IAEA monitoring and verification measures.
U.S. Sanctions Relief
In exchange for Iran scaling back its nuclear program and simultaneous to the IAEA-verified implementation of agreed nuclear-related measures by Iran, the United States will (i) suspend enforcement of all nuclear-related sanctions, (ii) seek legislative action as required to terminate all nuclear-related sanctions, and (iii) terminate Executive Orders 13574, 13590, 13622 and 13645, and Sections 5-7 and 15 of Executive Order 13628. Non-nuclear-related sanctions, including those that were implemented in response to Iran’s human rights violations and support for international terrorism, will not be lifted and are not addressed in the JCPOA.
The U.S. has agreed to lift all nuclear-related sanctions, each of which is set forth below by sector or category, including sanctions against services associated with the listed activities. In most cases, the relief applies to both U.S. and non-U.S. persons (i.e., secondary sanctions are being lifted as well). The areas and activities for which the United States has agreed to provide sanctions relief are as follows:
The sale, supply or transfer of goods and services used in connection with Iran’s automotive sector
Designations and Other Sanctions Listing
Removal of individuals and entities described in the JCPOA from the SDN List, the Foreign Sanctions Evaders List and the Non-SDN Iran Sanctions Act List
Energy and Petrochemical Sectors
Efforts to reduce Iran’s crude oil sales, including limitations on the quantities of Iranian crude oil sold and the nations permitted to purchase Iranian crude oil
Investment, including participation in joint ventures, goods, services, information, technology and technical expertise and support for Iran’s oil, gas and petrochemical sectors
The purchase, acquisition, sale, transportation or marketing of petroleum, petrochemical products and natural gas from Iran
The export, sale or provision of refined petroleum products and petrochemical products to Iran
Transactions with Iran’s energy sector, including with the National Iranian Oil Company, Naftiran Intertrade Company and National Iranian Tank Company
Financial and Banking Measures
Financial and banking transactions with certain individuals and entities set forth in the JCPOA, including the Central Bank of Iran and other Iranian banks, the National Iranian Oil Company, Naftiran Intertrade Company, National Iranian Tank Company, and other specified individuals and entities identified as Government of Iran by the Office of Foreign Assets Control (OFAC), in addition to certain individuals and entities on OFAC’s Specially Designated Nationals (SDN) List.
Transactions in the Iranian Rial
The provision of U.S. banknotes to the Government of Iran
Bilateral trade limitations on Iranian revenues held abroad, including limitations on transfers
The purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt, including government bonds
Financial messaging services to the Central Bank of Iran and other Iranian banks listed in the JCPOA
Gold and Other Precious Metals
Trade in gold and other precious metals
The provision of underwriting services, insurance or reinsurance in connection with activities consistent with the JCPOA (e.g., activities with Iranian individuals and entities for whom sanctions are being lifted under the JCPOA)
Nuclear Proliferation-Related Measures
Sanctions under the Iran, North Korea and Syria Nonproliferation Act on the acquisition of nuclear-related commodities and services for nuclear activities contemplated in the JCPOA, to be consistent with the U.S. approach to other non-nuclear-weapon states under the Non-Proliferation of Nuclear Weapons Treaty
Shipping, Shipbuilding and Port Measures
- Transactions with Iran’s shipping and shipbuilding sectors and port operators, including IRISL, South Shipping Line and National Iranian Tank Company, and the port operators of Bandar Abbas
Software and Metals
- Trade with Iran in graphite, raw or semi-finished metals (such as aluminum and steel), coal and software for integrating industrial processes, in connection with activities consistent with the JCPOA, including trade with individuals and entities described in the JCPOA
In addition to the categories of sanctions relief described above, the U.S. government also committed to allow sales of commercial passenger aircraft and related parts and services to Iran and has agreed to license exports, re-exports and the provision of associated services. OFAC also will issue specific licenses for the import of Iranian-origin carpets and foods, including pistachios and caviar (which the U.S. government previously had permitted prior to the strengthening of sanctions). Foreign subsidiaries owned and controlled by U.S. persons will be permitted to engage in activities with Iran that are consistent with the JCPOA.
Sanctions “Snap-Back” and Dispute Resolution Mechanism
Under the JCPOA, a Joint Commission comprising representatives of the P5+1 and Iran will be established to monitor the implementation of the Plan of Action and to ensure compliance. In the event of non-compliance by Iran (or any party to the JCPOA), the Joint Commission will have 35 days, in aggregate, to resolve a participant complaint. If the Joint Commission fails to resolve an issue (requiring a majority vote) and the complaining participant deems the issue a “significant non-performance,” then the complainant could treat the unresolved issue as grounds to cease performing its obligations under the JCPOA or notify the U.N. Security Council or both.
Once the U.N. Security Council is notified, including a description of the good faith efforts by the complaining participant to exhaust the dispute resolution mechanisms under the JCPOA, the U.N. Security Council will be required to vote on a resolution to continue the lifting of sanctions. If this resolution is not adopted within 30 days, then the prior U.N. Security Council sanctions would “snap back” into place. The failure to adopt a resolution would not directly impact U.S. sanctions relief.
The JCPOA sets forth the following timeline for Iran and the P5+1 to carry out their obligations under the Plan of Action:
Finalization Day. Upon conclusion of the negotiations of the JCPOA (likely in the next few days):
- The P5+1 will endorse the Plan of Action.
- A resolution (the UNSC Resolution) contemplated under the JCPOA will be submitted to the U.N. Security Council for adoption, and the EU will endorse the UNSC Resolution.
- Iran and the IAEA will begin developing necessary arrangements to implement all transparency measures provided for in the JCPOA.
Adoption Day. Ninety days after endorsement of the JCPOA via the UNSC Resolution referenced above (likely mid-October), or at an earlier date by mutual consent of Iran and the P5+1:
- The JCPOA will take effect.
- Iran and the P5+1 will make necessary arrangements for the implementation of their JCPOA commitments.
- The EU and EU member states will adopt an EU Regulation, to take effect on
- Implementation Day, terminating nuclear-related economic and financial sanctions specified in the JCPOA.
- President Obama will issue waivers and will take other necessary actions to cease the application of statutory nuclear-related sanctions specified in the JCPOA, to take effect on Implementation Day.
- The U.S., EU and EU member states will begin consultation with Iran regarding guidelines and public statements on the details of the sanctions relief under the JCPOA.
Implementation Day. Simultaneously, once the IAEA verifies that Iran has complied with the nuclear-related measures specified in the JCPOA (which may occur as early as December 2015 when the IAEA is scheduled to issue a report):
- The EU will suspend, amend and terminate certain nuclear-related economic and financial sanctions as set forth in the JCPOA, and EU member states will terminate or amend implementing legislation, as needed
- The U.S. will cease the application of sanctions specified in the JCPOA, remove certain individuals and entities from the SDN List, terminate certain executive orders, and license certain activities set forth in the JCPOA.
- The U.N. Security Council will terminate the relevant sanctions provisions in certain U.N. resolutions, all of which are subject to re-imposition in the event of significant non-performance by Iran, and the P5+1 will take appropriate measures to implement the new UNSC Resolution.
Transition Day: Eight years from Adoption Day or upon a report from the Director General of the IAEA stating that the IAEA has reached the “broader conclusion” that all nuclear material in Iran remains in peaceful activities, whichever is earlier:
- The EU will terminate and suspend further nuclear-related economic and financial sanctions specified in the JCPOA.
- The U.S. will remove additional individuals and entities from the SDN List and seek such legislative action as may be appropriate to terminate the statutory sanctions set forth in the JCPOA.
- Iran will seek to have the Iranian Parliament ratify the Additional Protocol (an IAEA undeclared nuclear activity detection program).
UNSC Resolution Termination Day: Ten years from Adoption Day, in accordance with the terms of the UNSC Resolution and assuming no significant non-performance by Iran:
- The provisions and measures of the UNSC Resolution will terminate, and the U.N. Security Council will no longer be “seized of the Iran nuclear issue.”
- The EU will terminate all remaining nuclear-related economic and financial sanctions specified in the JCPOA.
- Other JCPOA commitments, including IAEA monitoring of Iran’s nuclear program, would continue in effect until otherwise specified in the JCPOA.
Iran’s Obligations Under the JCPOA
- Reduce the uranium stockpile by 98%
- Maintain a level of uranium enrichment at 3.67% (below the requisite level to create a nuclear bomb) for 15 years
- Reduce the number of centrifuges at the Natanz and Fordow facilities to 6,104 (from almost 20,000) for the next 10 years, including only the oldest and least efficient models
- Redesign the Arak heavy-water nuclear reactor so it cannot produce any weapons-grade plutonium, and send all spent fuel rods out of the country so long as the reactor exists
- Refrain from building any new heavy-water reactors for at least 15 years
IAEA Monitoring and Verification of Compliance
In order to ensure that Iran’s nuclear program is exclusively for peaceful purposes, and that Iran is upholding its side of the agreement, Iran will also be subject to robust verifications, including:
- A long-term IAEA presence in Iran
- IAEA monitoring of uranium ore concentrate produced by Iran from all uranium ore concentrate plants for 25 years
- Containment and surveillance of centrifuge rotors and bellows for 20 years
- Use of IAEA-approved and -certified modern technologies, including online enrichment measurement and electronic seals
- A reliable mechanism to ensure speedy resolution of IAEA access concerns for 15 years
This landmark agreement sets the stage for a potential significant shift in economic relations between the United States and Iran. However, the process and conditions for relaxing sanctions during the implementation phase are complex and lengthy, and the timing and permissible scope for U.S. companies to enter the Iranian markets are uncertain. Companies should be cautioned that many sanctions applicable to U.S. persons will remain, including sanctions related to Iran’s human rights abuses and to its support of terrorist groups and Syria.