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  May 17th, 2018 | Written by

A Hard Exit From the Iran Deal

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  • Anyone with Iran-related business must promptly assess their risk and develop a plan to wind down operations.
  • The decision by Trump is not a snapback under JCPOA, but a unilateral withdrawal from the pact.
  • It remains to be seen how the other parties to the JCPOA will react.

In a sweeping action with immediate consequences for both US and non-US persons, President Trump announced the withdrawal of the US from the Joint Comprehensive Plan of Action (JCPOA) on May 8, 2018. Following this announcement, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued new frequently asked questions (FAQs) that detail which sanctions will be re-imposed, the timeline for a full reinstatement of sanctions and how parties will be permitted to wind down existing operations inconsistent with the reinstated sanctions.

The process initiated on May 8, once fully implemented, will essentially amount to a complete return to pre-JCPOA US Iran sanctions. The move can best be described as a hard exit from the Iran deal, requiring anyone with Iran-related business and operations to promptly assess their risk and develop a plan to wind down operations as needed. The decision by the president is in fact not a snapback mechanism under the JCPOA, but rather a unilateral withdrawal from the pact and a reinstatement of US sanctions against Iran. Accordingly, it remains to be seen how the other parties to the JCPOA will react, especially given the intentionally global applications and impacts of the secondary sanctions.

Iran sanctions under the JCPOA

The JCPOA is an agreement reached in 2015 between Iran and the P5+1 — consisting of the five permanent members of the United Nations Security Council (China, France, Russia, the United States, and the United Kingdom) plus Germany.

The US sanctions relief under the JCPOA consisted primarily of the US:

  • Waiving or suspending the imposition of most of the secondary sanctions imposed on non-US Persons for conduct occurring entirely outside the United States;
  • Issuing certain general licenses, including General License H, which permitted non-US entities owned or controlled by US Persons to engage in transactions involving Iran;
  • Adopting a favorable licensing policy concerning commercial aviation exports to Iran and related transactions; and
  • Removing approximately 400 Iranian individuals and entities from the List of Specially Designated

Nationals and Blocked Persons (the SDN List), with the primary effect being that non-US Persons were no longer subject to secondary sanctions for engaging in significant transactions with such SDNs.

Every aspect of this relief will now terminate. While the Department of State will continue to waive, for the next 90 to 180 days, certain statutory secondary sanctions, those sanctions will be re-imposed according to the timeframe set out in OFAC’s FAQ. Parties engaging in transactions subject to sanctions must wind them down or face sanctions risk following the end of the wind-down periods. New transactions are, in general, not authorized, and OFAC will be individually reviewing and rescinding specific licenses issued during the period that the US was engaged in the JCPOA. Persons and entities that had been removed from the SDN List will now be added back to that list.

Below, we summarize the timing for the re-imposition of sanctions and relevant wind-down periods.

Reinstatement of sanctions following 90-day and 180-day wind down periods

To alleviate the impact of sanctions on activities authorized under the JCPOA prior to May 8, 2018, OFAC will delay re-imposition of sanctions and provide 90-day and 180-day wind-down periods for different categories of activity involving Iran that had been consistent with the sanctions relief afforded under the JCPOA. OFAC has made clear that these are truly wind-down periods, not grace periods under which Iran-related business may continue as usual. OFAC has advised that this should be viewed as reinstatement of sanctions immediately, though subject to waivers, rather than a continuation of the JCPOA for either 90- or 180-day periods.

The 90-day wind-down period ends on August 6, 2018, and the 180-day period ends on November 4, 2018. On those dates, waivers from enforcement will terminate, and virtually all transactions will be subject to enforcement, other than certain wind-down payments authorized by OFAC. By November 4, virtually all authorizations established under the JCPOA with respect to US sanctions will have been terminated.

90-day waiver of sanctions

The US may penalize transactions relating to the following activities after a 90-day wind-down period ending on August 6, 2018:

  • The purchase or acquisition of US dollar banknotes by the government of Iran
  • 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
  • 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
  • The purchase, subscription to or facilitation of the issuance of Iranian sovereign debt
  • Transactions involving Iran’s trade in gold or precious metals
  • Transactions involving Iran’s automotive sector

The re-imposition of dollar banknote sanctions on Iran is intended to further isolate Iran and put economic pressure on its government. Whether this will change anything in practice is subject to debate. This is because dollar-denominated transactions involving Iran were not per se prohibited under the JCPOA sanctions relief; however, USD-denominated transactions involving Iran remained effectively prohibited because US financial institutions remained prohibited from clearing them. In addition, Iran has taken steps to reduce its dependence on the dollar.

The restoration of sanctions on Iran’s automotive sector is also presumably aimed at deterring investment in one of Iran’s most active industries. Consistent with the JCPOA, a number of European automotive companies have sought to enter the Iranian market or have been reported to be in the process of doing so. However, these companies may now be subject to US sanctions for transacting in Iran’s automotive sector.

In addition, the US will revoke the following authorizations after a 90-day wind down period, which ends on August 6, 2018:

  • The importation of Iranian-origin carpets and foodstuffs and related financial transactions, which had been authorized pursuant to 31 C.F.R. §§ 560.534 and 560.535
  • Activities authorized under any specific license issued under the favorable licensing policy concerning the export or re-export of commercial passenger aircraft to Iran
  • Activities under General License I, which authorized entry into contracts related to the export or re-export of commercial passenger aircraft to Iran, contingent upon the granting of licenses under the favorable licensing policy regarding commercial aviation

180-day waiver authority

The following activity will again be subject to sanctions after a 180-day wind-down period ending on November 4, 2018:

  • Transactions with port operators, and shipping and shipbuilding sectors, including the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, and their affiliates
  • Petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO) and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products or petrochemical products from Iran
  • Transactions by foreign financial institutions with the Central Bank of Iran (CBI) and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act (NDAA)
  • Provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions
  • Provision of underwriting services, insurance or reinsurance
  • Certain transactions involving Iran’s energy sector

All of these sanctions, when re-imposed, will have significant impacts—both on Iran and on any non-Iranian parties engaged in activity targeted by the sanctions. Particularly noteworthy are the sanctions targeting Iran’s financial backbone—in this case, the threat of sanctions on foreign financial institutions dealing with the CBI and other Iranian banks, and measures designed to ensure that Iran is severed from a connection with non-Iranian banks and the global financial system via SWIFT.

Activity pursuant to General License H must wind down prior to November 5, 2018. Following that date, non-US Persons that are owned or controlled by US Persons will be prohibited from engaging in transactions involving Iran pursuant to 31 CFR § 560.215.

At some point prior to November 4, 2018, the US will re-designate persons it had removed from the SDN List pursuant to the JCPOA. Most of these persons had been removed from the SDN List and identified on the List of Persons Blocked Solely Pursuant to Executive Order 13599 (the EO 13599 List) because they are part of the government of Iran or an Iranian financial institution. US Persons have always been required to block the property of these persons and are generally prohibited from dealing with them, but under the JCPOA relief, non-US Persons would not be subject to secondary sanctions for engaging in transactions with persons on the EO 13599 List. Pursuant to the JCPOA withdrawal, however, by November 5, 2018, OFAC will re-impose, as appropriate, the sanctions that applied to these persons.

Depending on the basis on which these re-designations are made, there may be secondary sanctions exposure for parties that engage in certain activities with these persons after their re-listing.

Specific guidance concerning payments connected with wind-down activities

If a non-US, non-Iranian person is owed payment after the conclusion of the applicable wind-down period, for goods or services fully provided or delivered to an Iranian counterparty prior to the applicable wind-down period, pursuant to a written agreement entered into prior to May 8, 2018, and such activities were consistent with US sanctions in effect at the time of delivery or provision, the non-US, non-Iranian person will be permitted to receive payment for those goods or services under the pre-May 8 agreement. This would also be the case in circumstances where a non-US, non-Iranian person is owed repayment by an Iranian counterparty.

These allowances are designed for non-US, non-Iranian parties to be fully compensated for debts and obligations owed to them for goods or services provided or loans or credit extended to an Iranian party prior to the end of the applicable wind-down period.

Any such payments would need to be consistent with US sanctions, including not involving US Persons or the US financial system, unless the transactions are exempt from regulation or authorized by OFAC.

Relationship of withdrawal to United Nations snapback process

United Nations Security Council Resolution (UNSCR) 2231 of July 20, 2015 terminated provisions of the resolutions comprising the UN sanctions regime against Iran. It provides for a “snapback” mechanism, which can be triggered by a JCPOA participant alleging significant nonperformance by Iran. Under that process, the United Nations Security Council must vote on whether to continue the terminations of the above-listed resolutions. The United States has veto power over UNSC resolutions.

The unilateral withdrawal by the US from the JCPOA is not a “snapback.” There is little clarity concerning what impact, if any, the US withdrawal may have on the snapback process.  At present, the JCPOA remains in force among the other signatories to the agreement, and UN sanctions against Iran remain suspended.


By effectively reversing course from US sanctions policy direction of the past three years, the Trump administration’s withdrawal from the JCPOA and re-imposition of sanctions fundamentally changes the landscape under which a number of US and non-US firms have been operating with regard to Iran. Because most of the JCPOA relief pertained to secondary sanctions, the most significant impact is likely to be felt by non-US Persons, including foreign entities owned or controlled by US Persons, which conducted business with Iran under the JCPOA. US Persons conducting business pursuant to General License H, licenses issued in connection with commercial aviation or the general license for importation of certain foods and carpets will also be affected.

In short, OFAC has clearly stated its intention to enforce pre-JCPOA sanctions, and that persons engaged in activity involving Iran other than winding down JCPOA-authorized activity do so at their own peril.

Thus, any person, including non-US Persons, who may have business activity—or customers or counterparts who have business activity—involving Iran should promptly conduct a risk assessment and, where wind-down of such activity is warranted, begin that process. The move can best be described as a hard exit from the Iran deal, requiring anyone with Iran-related business and operations to promptly assess their risk and develop a plan to wind down operations as needed. The decision by the president is in fact not a “snapback” mechanism under the JCPOA, but rather a unilateral withdrawal from the pact and a reinstatement of US sanctions against Iran. Accordingly, it remains to be seen how the other parties to the JCPOA will react, especially given the intentionally global applications and impacts of the secondary sanctions.

The authors are attorneys at the global law firm DentonsPeter Feldman is a partner in the firm’s London office. Partners Jason Silverman and Michael Zolandz, and associates Vedia Biton Eidelman and Nimrah Najeeb are based in the firm’s Washington, DC office.