On July 14, 2015, the United States and its P5+1 negotiating
partners, together with Iran, announced the final terms of the
Joint Comprehensive Plan of Action (JCPOA) concerning Iran's
nuclear program. The JCPOA is designed to impose various
restrictions on Iran's nuclear program, but sanctions relief
will only take effect after the International Atomic Energy Agency
(IAEA) verifies that Iran has implemented key
measures—potentially several months (or longer) from
now.
Once this occurs, the United States and European Union (EU) have
committed to suspend and eventually terminate
"nuclear-related" sanctions against Iran. US and EU
sanctions relating to human rights, terrorism and conventional
weapons proliferation will remain in place. However, the parties
have also made certain commitments to phase out the United Nations
conventional arms embargo against Iran over the next five to eight
years. Clearly, a harmonized US-EU approach to Iran-related
sanctions was a critical factor in bringing about these
negotiations; in the aftermath of the JCPOA, it remains to be seen
whether significant US-EU cleavages will emerge on the terms, scope
and timing of their respective sanctions relief.
In the United States, such relief would come principally in the
form of suspending various "secondary sanctions" that are
applicable only to non-US persons, in addition to the issuance of
new licenses that could provide relief to the foreign subsidiaries
of US firms. Thus, US firms will generally remain prohibited from
engaging in most transactions with Iran, including restrictions on
approving or facilitating dealings with Iran undertaken by their
foreign subsidiaries. By comparison, EU sanctions relief would be
relatively comprehensive.
Until the IAEA verifies Iranian compliance, the P5+1 will simply
extend the sanctions relief that has been in place under the Joint
Plan of Action (JPOA) since January 2014, as we previously
summarized. In the meantime, the US Congress will have at least
a 60-day period to
review—and potentially reject—the JCPOA. As a
practical matter, it is unlikely that major changes in the
international sanctions regime against Iran will occur before the
end of the year or early 2016.
Scope of US Sanctions Relief
Under the terms of the Sanctions Annex, the United States will
cease to apply all "nuclear-related" sanctions against
Iran after Iran meets certain benchmarks related to its nuclear
program (described further below). Nuclear-related sanctions refer
primarily to US secondary sanctions that are directed towards
non-US persons for engaging in certain types of prohibited
conduct.1 US persons and
US-owned or US-controlled foreign entities (such as foreign-based
subsidiaries) will continue to be generally prohibited from
engaging in most Iran-related transactions. As noted, the scope of
sanctions relief does not encompass sanctions imposed against Iran
for other non-nuclear-related reasons, including human rights
abuses and terrorism.
However, the United States has also committed to license non-US
entities that are owned or controlled by a US person to engage in
activities with Iran that are "consistent with the
JCPOA."2 This provision
appears to contemplate an even broader scope of eventual sanctions
relief by licensing the Iran-related activities of foreign
subsidiaries of US firms that are currently prohibited under
Section 218 of the Iran Threat Reduction Act.3 Depending on its implementation, this measure
could effectively place foreign subsidiaries of US firms on roughly
equal footing vis-à-vis Iran with their European
competitors, and US sanctions against Iran would generally apply
only to US firms themselves. However, as noted, US sanctions would
still include the prohibition against approving or facilitating
another person's dealings with Iran, which is likely to present
significant compliance challenges for many US firms that have
foreign subsidiaries seeking to do business with Iran.4
US sanctions relief will cover a wide range of sectors, including
financial services and banking, insurance, energy and
petrochemicals, shipping, metals, aviation, automotive, and others.
The most significant relief will occur in sectors that have been
central to the sanctions regime: financial services and energy.
- Financial Services. US sanctions relief will permit
non-US firms to engage in financial transactions with various
persons listed in attachments to the Sanctions Annex, including the
Central Bank of Iran, other Iranian financial institutions, and the
National Iranian Oil Company.5 It will also include a lifting of
sanctions on the Iranian Rial; the provision of US banknotes to the
Government of Iran; trade in Iranian revenues held overseas;
involvement with Iranian sovereign debt; and SWIFT financial
messaging services to Iranian financial institutions.
- Energy. In addition to the lifting of nuclear-related financial sanctions against Iranian energy firms, US sanctions relief will also ease secondary sanctions on Iran's crude oil sales; investment and the provision of services in Iran's oil, gas and petrochemical sectors; the purchase of Iranian petroleum products and natural gas; involvement with other aspects of the Iranian energy sector; and the provision of associated energy services.
The United States will also terminate various Executive
Orders.6 Notable exclusions
from the list of Executive Orders to be terminated are Executive
Order 13599, which blocks all Iranian government property under US
jurisdiction; Executive Order 13224, which blocks the property of
certain Iranian persons who commit or support terrorism; and
Executive Order 13553, which blocks the property of certain
Iranians for human rights abuses.7
The United States will also remove from its Specially Designated
Nationals (SDN), Foreign Sanctions Evaders, and Non-SDN Iran
Sanctions Act lists numerous Iranian persons and entities set forth
in attachments to the Sanctions Annex. Although the list is lengthy
and includes much of Iran's military establishment, including
the Islamic Revolutionary Guard Corps (IRGC) and the Qods Force,
the Sanctions Annex includes a footnote that the list is
"without prejudice" to sanctions that may apply under
other legal provisions, suggesting that certain of the entities
subject to nuclear-related delisting may remain sanctioned under
other authorities.8
Scope of EU Sanctions Relief
EU sanctions relief towards Iran will be more comprehensive than US
relief given that the EU has maintained relatively few
non-nuclear-related sanctions against Iran and has never imposed
secondary sanctions against non-EU persons operating in Iran.
The EU has agreed to terminate all nuclear-related sanctions
contained in Council Regulation 267/2012, as amended, and Council
Decision 2010/413/CFSP, in addition to national implementing
legislation. The nuclear-related sanctions that will be lifted
apply to the following sectors: financial services, banking,
insurance, oil, gas, petrochemical, shipping, shipbuilding,
transport, gold, precious metals, banknotes, coinage, software and
armaments, as well as nuclear proliferation sensitive activities.
The EU sanctions relief will result in key changes for the
financial services and energy sectors:
- Financial Services. The EU measures will permit
transfers of funds between EU persons and Iranian persons; the
opening of new branches, subsidiaries or representative offices of
Iranian banks in the EU; the establishment of new joint ventures
and correspondent banking relationships by Iranian banks with EU
banks; the opening by EU persons of representative offices,
subsidiaries, joint ventures or bank accounts in Iran; the supply
of specialized SWIFT financial messaging services to Iranian
persons; and the entering into commitments by EU Member States to
provide financial support for trade with Iran, including the
granting of export credits.
- Energy. The EU measures will also permit dealings in
Iranian crude oil and petroleum products, natural gas or
petrochemical products and related financing; the export of
equipment, technology, or services for use in the Iranian energy
sector; and the granting of any financial loans or credit to any
Iranian person that is engaged in the oil, gas and petrochemical
sectors.
The EU will also lift asset freeze and travel ban sanctions against various persons included in an attachment to the Sanctions Annex.
Scope of UN Sanctions Relief
As described in further detail below, the UN Security Council
(UNSC) will adopt a Resolution as soon as next week that would
endorse the deal and apparently set the terms for lifting all UN
sanctions relating to the Iranian nuclear program. The parties have
also made certain commitments to phase out the United Nations
conventional arms embargo against Iran over the next five to eight
years.
Sanctions Snapback
The sanctions are designed to "snap back" into place in
the event of Iranian non-compliance. For example, the
Implementation Annex provides that the UNSC Resolution endorsing
the JCPOA and terminating UN sanctions will be "subject to
re-imposition in the event of significant nonperformance by Iran of
JCPOA commitments."9 The
JCPOA also creates a Joint Commission for the settlement of
disputes and appears to outline a mechanism by which UN sanctions
would be re-imposed.10
Furthermore, as described below, the agreement envisions that US
statutory sanctions provisions and Council Regulation (EU) No
267/2012 would not be formally terminated until up to eight years
into the JCPOA, allowing for the possibility of re-imposing
sanctions.
Sanctions Sequencing
The JCPOA also contains a detailed Implementation Annex that
establishes a roadmap for UNSC action, verification and sanctions
relief.
- Finalization Day. Promptly after Finalization Day
(July 14, 2015), the parties will submit to the UNSC a Resolution
that would endorse the deal and potentially lift all UN sanctions
against Iran, although US officials have stated that the Resolution
would simply "incorporate old sanctions resolutions and the
conditions for lifting them."11 It could be adopted as soon as next
week.
- Adoption Day. Adoption Day will occur 90 days after
approval of the UNSC Resolution (or at an earlier date if agreed by
the parties), at which time the EU and the United States will adopt
a "regulation" and issue "waivers,"
respectively, that would provide for sanctions relief, effective
upon Implementation Day.
- Implementation Day. After the IAEA verifies
implementation by Iran of certain measures related to its nuclear
program, the United States and EU will implement the sanctions
relief on Implementation Day. Moreover, the UN will terminate
various UNSC Resolutions relating to the Iranian nuclear program,
including sanctions provisions.
- Transition Day. Eight years after Adoption Day (or
upon a report from the IAEA), the EU will terminate Council
Regulation (EU) No 267/2012. The United States will seek "such
legislative action as may be appropriate" to terminate, or
modify to effectuate the termination of, certain statutory
sanctions, including removal of various Iranian persons from its
sanctions lists. Such measures are presumably intended to result in
the permanent repeal of statutory sanctions, rather than temporary
waivers or licenses relating to the sanctions statutes.
- UNSCR Termination Day. Ten years after Adoption Day, the UNSC Resolution will be terminated, and "the UN Security Council would no longer be seized of the Iran nuclear issue."
Congressional Review
In the meantime, the Iran Nuclear Agreement Review Act of 2015
provides Congress with a 60-day period to review—and
potentially reject—the JCPOA.12 Within five days of completion of the
JCPOA, the President must submit the agreement to Congress and may
not "waive, suspend, reduce, provide relief from, or otherwise
limit the application of statutory sanctions with respect to
Iran."13
Congress will have the opportunity to pass a Joint Resolution of
Disapproval, which would require approval by both chambers of
Congress, including presumably at least 60 Members of the US Senate
(several Democratic Senators would have to oppose the deal). This
would extend the review period for 12 additional days. The Chairman
of the Senate Foreign Relations Committee, Senator Bob Corker
(R-TN), has indicated that such a vote would not occur until
September 2015.14 In the
event of a Joint Resolution of Disapproval, the President has
committed to veto the Resolution.15 A veto would extend the review period
for 10 additional days, during which period Congress could attempt
to override his veto by a two-thirds majority vote.
1 JCPOA, Annex II,
n. 6. The term "non-US person" means any individual or
entity, excluding (i) any United States citizen, permanent resident
alien, entity organised under the laws of the United States or any
jurisdiction within the United States (including foreign branches),
or any person in the United States, and (ii) any entity owned or
controlled by a US person.
2 JCPOA, Annex II,
Section 5.1.2.
3 P.L. 112-158, Section
218 (prohibiting "an entity owned or controlled by a United
States person and established or maintained outside the United
States from knowingly engaging in any transaction directly or
indirectly with the Government of Iran or any person subject to the
jurisdiction of the Government of Iran.")
4 A notable exception under the JCPOA is certain trade in civilian aircraft, parts and services. See JCPOA, Annex II, Section 5.1.1.
5 Such financial services include including the provision of loans, transfers, accounts (including the opening and maintenance of correspondent and payable through accounts at non-US financial institutions), investments, securities, guarantees, foreign exchange (including Rial related transactions), letters of credit and commodity futures or options, the provision of specialised financial messaging services and facilitation of direct or indirect access thereto, the purchase or acquisition by the Government of Iran of US bank notes, and the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt. JCPOA, Annex II, Section 7.2.
6 See JCPOA, Annex II, Section 4.
7 Executive Order 13599, 77 Fed. Reg. 26 (Feb. 8 2012); Executive Order 13224, 66 Fed. Reg. 186 (Sept. 23, 2001); Executive Order 13553, 75 Fed. Reg. 190 (Oct. 1, 2010).
8 JCPOA, Annex II, n. 14.
9 JCPOA, Annex V, Section 18.1.
10 JCPOA, Sections 36-37.
11 Carol Morello and Karen De Young, Historic deal reached with Iran to limit nuclear program, THE WASHINGTON POST, July 14, 2015.
12 P.L. 114-17.
13Id. Sec. 135(b)(3)
14 Burgess Everett, Corker: Iran vote not likely until September, POLITICO, July 14, 2015.
15 Clifford Kraus, To Tap Iran's Oil, Companies Face Many Hurdles but an Eventual Boon, N.Y. TIMES, July 14, 2015.
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