Trade Blog

President Trump Announces Withdrawal from Iran Nuclear Deal

By Jeffrey Rinde and Frank Tang

On May 8, 2018, President Trump terminated the U.S.’s participation in the Joint Comprehensive Plan of Action (“JCPOA”) with Iran and will begin re-imposing, following a wind-down period, the U.S. nuclear-related sanctions lifted under the JCPOA. In conjunction with the announcement, President Trump issued a national Security Presidential Memorandum (“NSPM”) directing the Secretary of State and the Secretary of the Treasury to prepare immediately for the re-imposition of all of the U.S. sanctions lifted or waived in connection with the JCPOA, which is to be accomplished as expeditiously as possible and under no circumstances later than 180 days from the date of the NSPM. The re-imposed sanctions will target critical sections of Iran’s economy, such as its energy, petrochemical, and financial sectors. Those doing business in Iran will be provided a period of time to allow them to wind down operations in or business involving Iran. Those who fail to wind down such activities with Iran by the end of the period will risk severe consequences.

To implement the President’s order, the Department of State and of the Treasury will take steps necessary to establish a 90-day and a 180-day wind-down period for activities involving Iran that were consistent with the U.S. sanctions relief provided for under the JCPOA and entered into prior to May 8, 2018. With the exception of goods or services necessary to wind down operations in or business involving Iran entered into prior to May 8, 2018, during the 90/180 day wind-down period, the provision or delivery of additional goods or services and/or the extension of additional loans or credits to an Iranian counterparty after the wind-down period, including pursuant to contracts entered into prior to May 8, 2018, may result in the imposition of U.S. sanctions.

Re-imposed secondary sanctions involving non-US Persons after the 90-day wind-down period on August 6, 2018:

  • Sanctions on the purchase or acquisition of U.S. dollar banknotes by the Government of Iran;
  • Sanctions on Iran’s trade in gold or precious metals;
  • Sanctions on the direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes;
  • Sanctions on 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;
  • Sanctions on the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
  • Sanctions on Iran’s automotive sector.

Additionally, the U.S. will also re-impose primary sanctions involving U.S. persons on the importation of Iranian-origin carpets and foodstuffs and activities authorized under commercial aviation specific licenses.

Re-imposed Secondary Sanctions involving non-U.S. persons after the 180-day wind-down period on November 6, 2018:

  • 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;
  • Sanctions on petroleum-related transaction with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tank Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
  • Sanctions on transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA);
  • Sanctions on the provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010 (CISADA);
  • Sanctions on the provision of underwriting services, insurance, or reinsurance; and
  • Sanctions on Iran’s energy sector.

Moreover, activities under General License H, which allowed foreign subsidiaries of U.S. companies to conduct certain transactions with Iran, must also be completed by November 4. Certain payments by Iranian companies may be permitted after November 4 in order to avoid windfalls for Iranian companies.

Additionally, no later than November 5, 2018, the U.S. government will re-impose, as appropriate, sanctions on persons removed from OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”) as a part of the Iran deal. This will include reintegrating into the SDN List persons identified as meeting the definition of “Government of Iran” or “Iranian financial institution” that are currently included on OFAC’s List of Persons Blocked Solely Pursuant to Executive Order 13599. Significant transactions with Iranian persons on the SDN list, including persons that are re-listed pursuant to these efforts, are sanctionable.

In response to the U.S. terminating its participation in the JCPOA, leaders of the UK, France and Germany have issued a joint statement expressing regret and concern over the U.S.’s withdrawal and called on Iran to remain in compliance with its commitments under the agreement. Consequently, Iran’s foreign minister, Javid Zarif has indicated that Iran’s response will be determined after engaging in diplomatic efforts to examine whether the remaining JCPOA participants can ensure its full benefits to Iran.

Ultimately, the risks facing non-U.S. companies considering whether to continue to do business with Iran under the JCPOA will depend on how aggressively the U.S. is willing to enforce the secondary sanctions it is re-imposing, but initial signs point to aggressive enforcement by the U.S. as President Trump himself stated that the U.S. “will be instituting the highest level of economic sanction” and that “any nation that helps Iran in its quest for nuclear weapons could also be strongly sanctioned.”

U.S. and non-U.S. companies should immediately begin crafting exit strategies to wind down deals related to Iran that may be subject to U.S. law or face secondary sanctions penalties. This will likely be a complex ordeal for many global companies, and they should review and evaluate all pending and prior agreements and orders with Iran, with special attention paid to how the new rules will apply to these agreements and if needed, how such agreements should be wound down and exited in compliance with applicable law.