Update on Iran Sanction Relief and What it Really Means

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January 20, 2016

On January 16, 2016, the U.S. government lifted certain nuclear-related secondary sanctions regarding Iran pursuant to the Joint Comprehensive Plan of Action (JCPOA) signed in July 2015, as Iran had met its obligations under that deal. While there has been much written in the press about the lifting of sanctions, the fact is that for U.S. companies, most Iran-related sanctions remain in place. The key sanctions that were lifted on January 16 were secondary nuclear-related sanctions that are imposed upon non-U.S. persons (including foreign companies) relating to Iran’s financial, banking, energy, petrochemical, shipping, shipbuilding, and automotive sectors, its port operators, the provision of insurance and underwriting, trade in gold and other precious metals, trade in graphite and certain other raw or semi-finished metals, trade in certain software, and the provision of associated services for each of these categories. Certain individuals and entities listed in an annex to the JCPOA were also removed from the List of Specially Designated and Blocked Persons (the SDN List) maintained by the Department of the Treasury, Office of Foreign Assets Control (OFAC).

While U.S. individuals and companies continue to be broadly prohibited from having any dealings with Iran or the government of Iran, a few changes directly impacting U.S. companies did come into effect on January 16. The export or sale of commercial passenger aircraft and parts to Iran for commercial aviation use is now permitted but would require case-by-case OFAC licensing.

OFAC further issued a General License (“General License H”) allowing foreign entities that are owned or controlled by U.S. entities to engage in transactions that would otherwise be prohibited under the Iranian Transactions and Sanctions Regulations, i.e. to do business in Iran. However General License H does not authorize these foreign entities to export goods, technology or services from the U.S. without an OFAC license, to transfer any funds via the U.S. financial system for transactions authorized under the General License, to deal with any individual or entity on the SDN List or FSE List, or to do any activity falling under the Export Administrations Regulations without a license from Commerce (or with someone denied export privileges). General License H also does not authorize transactions relating to any military/paramilitary, intelligence or law enforcement entity of the Government of Iran or its officials, agents or affiliates, or other sanctionable activity under certain Executive Orders (relating to Iran’s proliferation of weapons of mass destruction, terrorism, Syria, Yemen and human rights abuses). Finally, General License H does not authorize nuclear activity that has not been approved through the procurement channel process.

U.S. entities are permitted to alter their corporate policies and procedures to allow their foreign owned or controlled entities to engage in activities permitted under General License H. General License H also authorizes U.S. persons to make available “Authorized Business Support Systems” (any automated and globally integrated computer, accounting, email, telecommunications, or other business support system, platform, database, application, or server necessary to store, collect, transmit, generate, or otherwise process documents or information) to foreign entities they own or control for use related to transactions authorized by the General License. OFAC has clarified that this means that the U.S. parent company can make available an Authorized Business Support Systems that are owned and/or operated for the U.S. parent company on a contract basis by one or more third party service providers and the third-party service providers are likewise authorized to make the systems available on a contract basis to the foreign entity.

OFAC has also amended the Iranian Transactions and Sanctions Regulations to allow for importation into the United States of Iranian-origin carpets and other textile floor coverings and carpets used as wall hangings (classifiable under Chapter 57 or heading 9706.00.0060 of the HTSUS), and foodstuffs intended for human consumption (classifiable under chapters 2-23 of the HTSUS) such as pistachios and caviar. U.S. depository institutions are now authorized to process letters of credit for payments for these Iranian carpets and foodstuffs, and U.S. persons may act as brokers for their purchase or sale. This change will be effective upon publication of the change in the Federal Register.