- OFAC and State Publish Guidance on Temporary Sanctions Relief for Iran
- January 30, 2014 | Authors: Jerome P. Akman; Rebecca S. Hartley; Yoshihide Ito; Carl A. Valenstein
- Law Firm: Bingham McCutchen LLP - Washington Office
The United States government has published limited sanctions relief for Iran covering oil exports, as well as trade in petrochemicals, precious metals, and automotive parts and services. This guidance implements provisions of the Joint Plan of Action between the P5+11 and Iran. However, because this relaxation of sanctions is limited, continued vigilance is necessary to ensure compliance with U.S. sanctions regulations. It is also important to understand that the opportunity to participate in most of the types of sanctions-relief transactions authorized by the Guidance is available only to non-U.S. persons. Parties seeking to avail themselves of this limited relief may also continue to experience difficulties in obtaining payment for exports to Iran, even though such payments are authorized, both because the timeline for permissible transactions (and all related payments) is short, and because of the limited, temporary nature of the relief and the associated risks.
On January 20, the U.S. Departments of the Treasury and State issued joint guidance describing the limited and temporary sanctions relief available under the Joint Plan of Action (the “JPOA”) between the P5+1 and Iran (the “Guidance”).2 Because these exemptions are very subtle, we recommend that clients seeking to avail themselves of these temporary measures contact us for guidance on what activities are permitted under these changes.
The sanctions relief will be available exclusively during the six-month period beginning on January 20, 2014 and ending July 20, 2014 (the “JPOA Period”), and can be revoked by the U.S. government. Any revocation by the government could adversely affect pending transactions. The sanctions relief covers the activities described below as well as “Associated Services,” including “any necessary service - including any insurance, [re-insurance,] transportation or financial service - ordinarily incident to the underlying activity.”3 All other U.S. economic sanctions on Iran, including financial sanctions, sanctions on investment in Iran’s petroleum and petrochemical sectors and sanctions pertaining to the purchase of crude oil remain in effect. The sanctions relief does not authorize transactions or payments related to sanctionable conduct that began prior to January 20, 2014 or that continue after July 20, 2014, (or that continue after the date of any earlier revocation by the U.S. government), even if the underlying conduct would be eligible for temporary sanctions relief under the JPOA. In addition, the U.S. government has noted it “retains the authority to impose sanctions...for activities occurring during the JPOA Period to the extent such activities are materially inconsistent with sanctions relief described in the JPOA and outlined in [the] Guidance.”4
- Timing is Important. The transactions must be initiated and completed entirely within the JPOA Period. Transactions, payments, deliveries or associated services that occur after July 20, 2014 could expose the parties to U.S. sanctions. Transactions initiated prior to January 20, 2014 are ineligible for relief. Transactions or related Associated Services that continue after July 20, 2014 could be subject to sanctions.
- Counterparties are Limited. Transactions and Associated Services may not involve persons who are identified on OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”5) unless they are specifically identified in the Guidance as a permissible counterparty; and
- U.S. Persons are Generally Not Permitted to Engage in These Transactions. With the exception of sanctions relief related to limited civil aviation activities and to actions under a new (non-exclusive) “humanitarian channel”, none of the sanctions relief activities may involve U.S. persons or foreign entities owned or controlled by a U.S. person if their activities are otherwise prohibited under U.S. economic sanctions. In general, U.S. persons and foreign entities that are owned or controlled by U.S. persons are prohibited from engaging in most transactions that are permitted under the JPOA and the Guidance, unless they hold a license from the Office of Foreign Assets Control (“OFAC").
Activities eligible for sanctions relief include:
- Petrochemical Exports: Export of Iranian Petrochemical Products from Iran involving non-U.S. persons not otherwise subject to the Iranian Transactions and Sanctions Regulations (the “ITSR”).6 The Guidance includes a list of fourteen petrochemical companies and with which such transactions may be conducted.7 Iranian depository institutions that are listed solely pursuant to Executive Order 135998 may be involved in such export transactions. The FAQs issued in connection with the Guidance (the “FAQs”) describe the petrochemicals that are covered by this relief provision.9
- Automotive Sector Exports: Sale, supply and transfer of significant goods or services used in connection with the automotive sector of Iran by non-U.S. persons not otherwise subject to the ITSR. Iranian parties to such transactions may not be identified on the SDN list except for Iranian depository institutions listed solely pursuant to Executive Order 13599. In addition, suppliers should check potential exports to determine that only de minimis amounts of U.S. -origin parts, components and technology are included in any exports to Iran, since the Guidance does not relax existing regulations covering re-exports of items containing U.S. content.
- Sale of Gold and Precious Metals: Sale of gold or other precious metals to or from Iran may be made by non-U.S. persons not otherwise subject to the ITSR. Iranian parties to such transactions may not be identified on the SDN list except if they are listed solely pursuant to Executive Order 13599. Restricted Funds10 may not be used to purchase gold or other precious metals. The FAQs include a list of the precious metals eligible for such sales.11
- Civil Aircraft Safety-Related Transactions: Transactions for the supply and installation of spare parts to ensure the safe operation of Iranian commercial passenger aircraft, including transactions involving Iran Air will be subject to a “favorable licensing policy” rather than a suspension of sanctions. U.S. persons, U.S.-owned or -controlled foreign entities, and
non-U.S. persons can request specific authorization from OFAC to engage in such transactions.
Crude Oil Exports and Restricted Funds
The United States has also paused its efforts to reduce Iran’s crude oil exports and has granted Iran phased-in access to $4.2 billion in currently-blocked Restricted Funds. During the JPOA Period, China, India, Japan, the Republic of Korea, Taiwan and Turkey may maintain (but may not increase) their current average level of Iranian crude oil imports without incurring penalties under U.S. economic sanctions.
Additional Financial Channels for Humanitarian Relief
The temporary sanctions relief also includes the establishment of financial channels to facilitate Iran’s import of humanitarian goods, payment of medical expenses by Iranian citizens abroad, payment of Iran’s United Nations obligations, and payment of up to $400 million in Iranian government tuition assistance to Iranian students studying abroad. These channels are in addition to the current permissible payment channels for sales of humanitarian items, and their use is not mandatory.
1 The five permanent members of the UN Security Council (United States, Russia, China, United Kingdom, and France) plus Germany are the P5+1.
2 “Guidance Relating to the Provision of Certain Temporary Sanctions Relief in Order to Implement the Joint Plan of Action Reached on November 24, 2013, between the P5+1 and the Islamic Republic of Iran,” U.S. Department of the Treasury and U.S. Department of State. January 20, 2014, page 1. Available at: http://www.treasury.gov/resource-center/sanctions/Programs/Documents/jpoa&under;guidance.pdf
3 Id., page 1.
5 In addition, all transactions with Tidewater Middle East Co. remain sanctionable, even if they are related to activities that are permissible during the JPOA Period. Frequently Asked Questions Relating to the Temporary Sanctions Relief to Implement the Joint Plan of Action between the P5+1 and the Islamic Republic of Iran,” January 20, 2014, page 7. Available at:http://www.treasury.gov/resource-center/sanctions/Programs/Documents/jpoa&under;faqs.pdf.
6 31 CFR part 560.215 provides that non-U.S. entities that are owned or controlled by U.S. persons are subject to the ITSR.
7 Guidance “Annex”, page 9.
9 FAQs, number 4, page 2-3.
10 The term Restricted Funds refers to “(i) any existing and future revenues from the sale of Iranian petroleum or petroleum products, wherever they may be held, and (ii) any Central Bank of Iran (“CBI”) funds, with certain exceptions for non-petroleum CBI funds held at a foreign country’s central bank.” Guidance, page 4.
11 FAQs, page 4.