US Re-Imposition of Pre-JCPOA Sanctions and EU Actions in Response

When President Trump announced the withdrawal of the United States from the Joint Comprehensive Plan Of Action (JCPOA) on 8 May 2018, he implemented two wind-down periods of 90 and 180 days ending on 6 August and 4 November 2018 respectively, authorising certain otherwise sanctionable activities (performance of which had been contracted before 8 May) to be wound-down by those dates. Details can be found in L.315

On 6 August, being the end of the first of the wind-down periods, President Trump issued an executive order (the New Iran EO) re-imposing and, in some cases, expanding sanctions against Iran that had been lifted under the JCPOA.

OFAC/US State Department has published a number of documents relating to these latest developments:

As of 12.01 am Eastern Daylight Time 7 August, the following activities (including support for and associated services) will attract secondary US sanctions:

i. the purchase or acquisition of US dollar banknotes by the Government of Iran;

ii. Iran’s trade in gold or precious metals;

iii. the direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminium and steel, coal, and software for integrating industrial processes;

iv. significant transactions related to the purchase or sale of Iranian Rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian Rial;

v. the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and

vi. Iran’s automotive sector.

The sanctions measures that will come into effect from 4 November 2018 are:

i. Sanctions on Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, or their affiliates (see, e.g., subsection 1(a)(iv) and section 5 of the New Iran EO and section 1244(c)(1) of IFCA);

ii. Sanctions on petroleum-related transactions with, among others, NIOC, NICO, and the National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran (see, e.g., subsections 1(a)(ii), 1(a)(iv), 2(a)(iii)-(a)(v), and 3(a)(ii)-(a)(iii) and sections 4 and 5 of the New Iran EO);

iii. Sanctions on transactions by foreign financial institutions (FFIs) with the Central Bank of Iran (CBI) and designated Iranian financial institutions under section 1245 of the National Defense Authorisation Act for FY 2012 (NDAA 2012) (see, e.g., section 5 of the New Iran EO, section 1245 of NDAA 2012, and subsection 1247(a) of IFCA);

iv. Sanctions on the provision of specialized financial messaging services to the CBI and Iranian financial institutions described in subsection 104(c)(2)(E)(ii) of CISADA (see, e.g., section 5 of the New Iran EO, section 220 of TRA, and subsection 1244(c)(1) of IFCA);

v. Sanctions on the provision of underwriting services, insurance, or reinsurance (see, e.g., section 5 of the New Iran EO, section 5(a)(7) of ISA, subsections 211(a) and 212(a) of TRA, and subsections 1246(a) and 1247(a) of IFCA); and

vi. Sanctions on Iran’s energy sector (see, e.g., subsection 1(a)(iv) and section 5 of the New Iran EO, subsection 5(a) of ISA, section 212(a) of TRA, and sections 1244(c)(1), (d) and (h)(2), 1246(a), and 1247(a) of IFCA).

The New Iran EO and related FAQs explain that some sanctions will be wider than those that were in place prior to JCPOA Implementation Day (16 January 2016) (see FAQ 601). The new FAQs include updated guidance on the circumstances in which payments from Iranian parties can be received after the end of the wind-down periods for activities fully completed within the wind-down period.

In addition, pursuant to actions already undertaken by OFAC, the following JCPOA-related “wind-down” authorizations will expire as of August 7:

i. activities related to the importation of Iranian-origin carpets and foodstuffs;

ii. activities undertaken pursuant to specific licenses issued in connection with the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (“JCPOA SLP”); and

iii. activities relating to contingent contracts for activities eligible for authorisation under the JCPOA SLP.

The New Iran EO expands US sanctions on Iran by:

i. providing new authority for blocking sanctions on persons that, on or after 5 November 2018, provide material support to or goods and services in support of certain persons, including those involved in the energy, shipping or shipbuilding sectors of Iran;
ii. providing new authority for “correspondent and payable-through account” sanctions on FFIs that are determined to have conducted or facilitated any significant financial transaction with certain persons on or after 5 November 2018;
iii. expanding the menu of sanctions that can be imposed on persons that knowingly engage in certain significant transactions, including those relating to petroleum, petroleum products, or petrochemicals from Iran; and
iv. expanding the scope of transactions by US-owned or controlled companies that are prohibited to include transactions with persons blocked for being part of the energy, shipping or shipbuilding sectors or Iran or a port operator in Iran.

In response to this development, the EU has taken steps to amend the annex to EU Council Regulation No 2271/96, the so-called “Blocking Regulation”. These amendments are designed to counter the US re-imposition of sanctions by protecting EU companies which continue to trade with Iran.

The amendments to the Blocking Regulation are intended to allow EU companies to recover damages arising from US extraterritorial sanctions from the persons causing them and to nullify the effect in the EU of any foreign court rulings based on them. It also forbids EU persons from complying with US extra-territorial sanctions, unless exceptionally authorised to do so by the European Commission in case non-compliance seriously damages their interests or the interests of the EU.

The Blocking Regulation cannot prevent the US from imposing penalties against EU companies continuing to conduct US-sanctionable trade with Iran, which can include blocking of access to the US financial system, designation as an SDN, and imposition of financial penalties.

The Managers are assessing the full implications of these developments, and will publish further guidance shortly.