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16 November 2018
In May 2018 President Trump announced the United States' intention to withdraw from the Joint Comprehensive Plan of Action (JCPOA) and re-impose secondary sanctions on Iran.
The announcement was accompanied by 90 and 180-day wind-down periods during which non-US persons could wrap up transactions entered into prior to 8 May 2018 and that were otherwise consistent with the terms of the JCPOA. On 5 November 2018 the final wind-down period expired and secondary sanctions were re-imposed on a broad swathe of Iranian persons and sectors of Iran's economy.
According to Treasury Secretary Mnuchin more than 700 individuals, entities, aircraft and vessels were sanctioned and over 300 of these designations were new targets.
Nearly 250 entities were moved from the Executive Order (EO) 13599 (Government of Iran) list to the Iran and the Specially Designated Nationals (SDN) lists. Some of these were also designated on the SDN list for other reasons or have additional associated secondary sanctions. Watch out for the phrase "Additional Sanctions Information – Subject to Secondary Sanctions" as that is the key flag for secondary sanctions.
There are two types of designation, which mean different things to non-US companies that are not US-owned or controlled:
The provision or delivery of goods or services (including the extension of additional loans or credits) to an Iranian entity or person after 4 November 2018, may subject a non-US person to secondary sanctions, even if done pursuant to a contract entered into prior to 8 May 2018, if the transaction is in a sector or with an SDN triggering secondary sanctions.
However, non-US persons who are not US-owned or controlled can still receive payment for contracts entered into prior to 8 May 2018, provided the goods or services were fully provided or delivered to Iran prior to the applicable wind-down date. (Any payments must be consistent with US sanctions and not include US persons or the US financial system nor involve any of the new SDNs).
Non-US persons, including foreign financial institutions, may be subject to secondary sanctions for receiving payment for transactions undertaken during the wind-down period if the payment involves a person that has been added to the SDN list (see above), regardless of whether it was previously on the EO 13599 list to which secondary sanctions did not apply.
The re-imposition of secondary sanctions also prompted amendments to the Iranian Transactions and Sanctions Regulations (ITSR) to include blocking sanctions relating to support for the government of Iran's purchase or acquisition of US bank notes or precious metals, certain Iranian persons and Iran's energy, shipping and shipbuilding sectors and port operators.
The re-imposition of sanctions has had an immediate impact on the provision of specialised financial messaging services to certain Iranian banks, including the Central Bank of Iran and Iranian banks designated in connection with Iran's support for international terrorism or WMD proliferation. SWIFT, the world's leading provider of secure financial messaging services, announced that it is suspending certain Iranian banks from access to its services.
Non-US persons who are US-owned or controlled cannot receive payment for contracts entered into prior to 8 May 2018. Such persons will need to apply to OFAC for a specific licence.
Non-US persons who are US-owned or controlled are required to block property of the government of Iran and entities designated as Iran in the same way as their US parent persons. This requirement applies to both a person whose property is blocked solely pursuant to the ITSR (eg, SDN tag for Iran) as well as other sanctions programmes (ie, SDN tags for counterterrorism or for nuclear proliferation).
The United States granted temporary strategic reduction exceptions (SREs) to eight countries to continue to purchase Iranian oil: China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey.
If a foreign financial institution in a country that was not granted an SRE holds funds belonging to the Central Bank of Iran (or a non-designated Iranian bank), those funds may be used to facilitate humanitarian trade with Iran, including transactions for the sale of agricultural commodities, food, medicine and medical devices, as well as bilateral trade between the foreign financial institution's home country and Iran (provided that trade is not subject to additional secondary sanctions).
The provision of certain services relating to the import of Iranian petroleum by an SRE country is not sanctionable to the extent the purchase meets the requirements of the National Defence Authorisation Act 2012 Section 1245(d)(4)(D), and may include services provided in certain sanctioned sectors (eg, Iran's shipping and port operation sectors) as long as no entities involved are SDNs in connection with international terrorism or WMD proliferation.
In a somewhat confusing move, prior to the JCPOA wind-down expiration, on 16 October 2018 the OFAC announced the removal of several entities, including several major Iranian banks, from the EO 13599 list and their transfer to the SDN list. This sent foreign entities scrambling to figure out how and whether to deal with pending transactions involving the recently designated Iranian banks. At first glance, this move appeared to stem from the United States' JCPOA withdrawal, as a result of which, many entities that appeared on the EO 13599 list of entities owned or controlled by the government of Iran and Iranian financial institutions would be transferred back to the SDN list, no later than 5 November.
However, with further clarification it became evident that the 16 October designations were made independently of any JCPOA considerations and, as such, went into effect immediately rather than on 5 November. By making no mention of the JCPOA, the press release suggested that the designations were not related to JCPOA actions on or before 5 November.
The OFAC designated several Iranian financial institutions and other entities as Specially Designated Global Terrorists (SDGTs) pursuant to Executive Order 13224, for their support to designated global terrorist organisations. For example, Bank Mellat, Sina Bank and Parsian Bank, all of which appeared on the EO 13599 list, were moved to the SDN list as SDGTs.
Further, in anticipation of deceptive measures Iran may employ with the JCPOA wind-down, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) published an advisory on 11 October 2018. The aim of the advisory is to assist financial institutions in understanding their legal obligations under US sanctions and authorities, as well as the red flags potentially indicative of Iranian entities' attempts to manipulate the global financial system. The deceptive measures are not limited to the financial sector, but may also involve shipping companies, the trade in precious metals and virtual currency, to name a few.
In announcing the recent designations and publishing its advisory, the US Treasury Department is calling on international companies to further "sophisticate their compliance programs in anticipation of [Iran's] continued attempts to circumvent sanctions".
For further information on this topic please contact Kay C Georgi, Regan K Alberda or Lamine Hardaway at Arent Fox LLP's Washington DC office by telephone (+1 202 857 6000) or email (email@example.com, firstname.lastname@example.org or email@example.com). Alternatively, contact Marwa M Hassoun at Arent Fox LLP's Los Angeles office by telephone (+1 213 629 7400) or email (firstname.lastname@example.org). The Arent Fox LLP website can be accessed at www.arentfox.com.
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