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Iran Sanctions Update: January 2015

Guiding Principle

As previously advised, in January 2014, Iran and the group of nations known as the P5+1 (United States, U.K., France, Russia, China and Germany) implemented a Joint Plan of Action (JPOA) whereby Iran agreed to accept limits on its nuclear program in exchange the EU and U.S. brought into force measures which temporarily suspended and relaxed (for an initial period of six months) some of the sanctions in place against Iran. At the end of that initial six month period, when no agreement between Iran and the P5+1 could be reached, all measures were extended for a further six months, to November 24, 2014. On November 24, 2014, Iran and the P5+1 countries extended the JPOA for a second time until June 30, 2015 during which time the parties would seek to negotiate a comprehensive agreement regarding Iran’s nuclear program.

I. The Latest Status of the Joint Plan of Action

On November 24, 2014, it was announced that ongoing negotiations with Iran regarding its nuclear enrichment and development activities, along with sanctions relief agreed to by the United States and European Union, have been extended for up to an additional seven months. The P5+1 and Iran have reaffirmed they will continue to implement their commitments under the Joint Plan of Action (JPOA). The parties have agreed to extend the negotiations until June 30, 2015, with the expectation that a consensus on terms should be reached by March 01, 2015.

The suspension and relaxation of sanctions remains in place in identical form, except that Iran will be able to access an additional $700 million worth of assets each month that had previously been frozen. No additional sanctions have been suspended.

Currently, the United States and European Union have, to varying degrees, suspended sanctions measures for certain activities, including those related to (i) crude oil exports; (ii) petrochemical exports; (iii) gold and precious metals; (iv) the automotive industry; and (v) civil aviation.

There are, however, several key limitations on this temporary sanctions relief. First, this sanctions relief applies only to conduct or transactions that occur while JPOA is in force. Any contracts or transactions, even if permitted, must therefore be initiated and completed during the limited period specified under the extended JPOA and should not rely on the presumption of any further extensions. Second, this sanctions relief may be revoked by the United States or European Union at any time if either determines that Iran has not fulfilled its obligations under the JPOA. In that regard, the International Atomic Energy Agency has being asked to continue monitoring the voluntary measures under the JPOA.

II. Extension of EU Sanctions Relief

The European Union, pursuant to the JPOA, suspended the prohibitions of: (i) the provision of insurance, reinsurance, and transport of Iranian crude oil; (ii) the import, purchase, or transport of Iranian petrochemical products and the provision of related services; and (iii) the trade in gold and precious metals. The European Union also increased the authorization thresholds in relation to the transfers of funds to and from Iran.

On November 25, 2014, the European Union extended the suspension of prohibitions through June 30, 2015 by adopting Council Decision 2014/829/CFSP[1]. The European Union extended the suspension of prohibitions without any change so that the same activities or transactions would continue to be authorized as long as they are “executed” (i.e., initiated and completed) between January 20, 2014 and June 30, 2015.

III. Extension of US Sanctions Relief

Pursuant to the JPOA, the United States relaxed certain economic sanctions against Iran related to Iran’s export of petrochemical products; Iran’s auto industry; Iran’s purchase and sale of gold and other precious metals; the supply to Iran of spare parts in support of the safe operation of Iran’s civil aircraft; Iran’s export of crude oil to certain countries; and import of humanitarian goods into Iran as well as payment of medical expenses incurred by Iranians abroad. The United States also authorized “associated services,” including any insurance, transportation, or financial services typically incident to the underlying activity that was authorized.

The relief was limited to these activities, and, with the exception of aviation safety provisions, did not apply to US persons or US-owned or -controlled companies located abroad.

With regard to Iran’s aviation sector, extension of the JPOA also extends the P5+1 commitment to license the supply and installation of spare parts for safety of flight for Iranian civil aviation and the provision of associated services. From a U.S. perspective, this includes Office of Foreign Assets Control (OFAC)’s favorable licensing policy under which U.S. persons, U.S.-owned or -controlled foreign entities, and non-U.S. persons involved in the export of US-origin goods can apply to OFAC for a license to engage in transactions “to ensure the safe operation of Iranian commercial passenger aircraft, including transactions involving Iran Air.” Such transactions must be initiated and completed entirely within the JPOA Relief Period (January 20, 2014 through June 30, 2015). In general, sanctions relief for aviation-related activities includes the following:

  • Allows the supply and installation in Iran or a third country of spare parts for safety of flight for Iranian commercial aircraft;
  • Allows the provision of associated services such as safety of flight inspections, repairs, and the provision of aircraft servicing in Iran or a third country;
  • Suspends the imposition of correspondent or payable through account sanctions on foreign financial institutions that conduct or facilitate financial transactions relating to the type of activities covered under OFAC licensing that are conducted on behalf of non-U.S. persons not otherwise subject to the Iranian Transactions and Sanctions Regulations, provided that the transactions do not involve persons on the SDN list other than Iran Air or any Iranian depository institutions listed solely pursuant to Executive Order 13599; and
  • Suspends the imposition of blocking sanctions with respect to persons that provide goods, services or support to Iran Air in connection with activities intended to ensure the safe operation of Iranian commercial passenger aircraft, as long as such activities are outlined in the JPOA and do not involve persons on the SDN list other than Iran Air or any Iranian depository institutions listed solely pursuant to Executive Order 13599.

In connection with the announcement of this extension, the U.S. Department of the Treasury and the U.S. Department of State issued revised guidance[2] relating to the sanctions relief agreed to under the JPOA.

IV. Conclusion

The relaxation of sanctions pursuant to the JPOA is likely to remain in effect through June 30, 2015, although the United States maintains that such relief can be reversed if Iran does not abide by the terms of the JPOA.

The United States will continue to temporarily suspend the application of certain extraterritorial sanctions that authorize imposition of penalties against non-US entities engaging in certain activities involving Iran’s automotive, petrochemical and crude oil industries. At the same time, the majority of US sanctions against Iran have been and remain in effect, and US persons remain broadly prohibited from engaging in most transactions involving Iran without prior authorization.

The EU will also continue to temporarily suspend certain oil and petrochemical related sanctions, as well as maintaining an increase in the notification/authorization thresholds for financial transfers to and from Iran. The suspension, as extended, continues to cover the provision of insurance and transport in relation to Iranian crude oil sales to current customers, the import, purchase or transport of Iranian petrochemical products and the trade in gold and precious metals with the Iranian government and its public bodies. For EU companies considering doing business with Iran, it is critical to note that all other EU restrictions in relation to Iran, including an extensive asset freeze, remain in full force and effect.

Neither the United States nor the European Union has provided any firm indication as to the extent of sanctions relief that would be provided in a final agreement. Overall, the situation remains difficult to predict.

January, 2015 Zahra Tahsili
Meyer-Reumann & Partners, Tehran Office

[1]        For more information please visit: http://eur-lex.europa.eu/legal-content/EN/TXT/;ELX_SESSIONID=tsb1J1KJGh7B1f46Y5ZFFNNb0h2wcQ0PXVL2fHSjvTY3fv8nJv4Q!-282167693?uri=uriserv:OJ.L_.2014.338.01.0001.01.ENG

[2]        For more information please visit: http://www.treasury.gov/resource-center/sanctions/Programs/Documents/guidance_ext_11252004.pdf

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