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Iran Sanctions – Where are We and What We should Expect Next?

Guiding Principle

In 2013, the P5+1 (the United States, Germany, France, the UK, Russia, and China), coordinated by the European Union’s High Representative, and Iran entered into negotiations over Iran’s nuclear program, and reached an agreement, the so-called Joint Comprehensive Plan of Action (the “JCPOA”), over limited sanctions relief in November 24, 2014. By April 2, 2015, the P5+1 and Iran, following extensive negotiations, had agreed parameters (the “Parameters”) for the JCPOA. Whilst the final provisions of the JCPOA have yet to be agreed, the Parameters set out the framework outlining the roadmap for a future agreement surrounding Iran’s nuclear program that would include suspension of UN, U.S. and EU nuclear-related sanctions imposed on Iran. The key Parameters, which form the basis of the JCPOA, shall be drafted between now and June 30, 2015. This announcement comes after years of tense and at times hostile relations between the United States and Iran.

A. Introduction

On April 2, 2015, representatives from the United States, the United Kingdom, China, France, the Russian Federation, Germany (collectively, the P5+1), the European Union (EU) and Iran announced the key parameters (the “Parameters”) of the Joint Comprehensive Plan of Action (JCPOA) regarding Iran’s nuclear program. Accordingly, EU High Representative Federica Mogherini and Iran’s Foreign Minister Javad Zarif issued a joint statement, which was short on detail, but identified the key parameters for the negotiations of the full agreement based on the JCPOA. The key parameters are:

“The EU will terminate the implementation of all nuclear-related economic and financial sanctions and the US will cease the application of all nuclear-related secondary economic and financial sanctions. Simultaneously with the IAEA [International Atomic Energy Agency] they will verified Iran’s implementation of its key nuclear commitments.”

Currently, the JCPOA lists the basic principles of a deal, and the parties are committed to proceed by keeping these principals in mind. The JCPOA is skeletal and preliminary, and key details regarding the timing and scope of sanctions relief are already in dispute between Iran and the United States. Therefore, the deal is not yet final, and work still remains for its implementation.. Further details are likely to emerge in the coming weeks as the parties aim to negotiate the full JCPOA and its technical annexes by June 30, 2015.

The tentative deal could collapse if the P5+1 and Iran are unable to agree on the final details listed in the JCPOA. Once finalized and implemented, the final agreement based on the JCPOA would lead to the lifting of nuclear-related sanctions by the U.S. and the EU against Iran. However, if at any time Iran fails to fulfill its commitments, these sanctions will snap back into place.

With regard to timing, there is no clear indication within the Parameters when a relief from the sanctions shall happen; it is simply stated that relief will be introduced “after the IAEA has verified that Iran has taken all of its key nuclear-related steps”. The worldwide echo is mostly positive. Most sources hope and belief, something will happen.

For the moment, the sanctions regime is unchanged and the JCPOA’s does not directly grant any reliefs. Under the 2014 JCPOA, sanctions relief targeted the petrochemical, automotive, precious metals, civil aviation, crude oil export and humanitarian sectors. These could potentially be sectors for further reliefs. Although the United States will maintain several categories of sanctions tied to other non-nuclear foreign policy concerns, EU sanctions against Iran are linked principally to its nuclear program and could therefore be more comprehensively lifted.

B. The Key Parameters

1. Iran’s Commitments under Announced JCPOA

Under the JCPOA, Iran has agreed – always provided that a final agreement is reached – to reduce, suspend, and/or cease certain uranium enrichment and nuclear-capability development activities and has agreed to certain international monitoring procedures. Key elements, Iran has agreed, are as follows:

  • Iran has agreed to reduce its installed centrifuges capable of enriching uranium by approximately two-thirds. Any future enrichment research and development will be subject to an agreed-upon development plan submitted to the IAEA.
  • Iran will reduce its stockpile of low-enriched uranium to 300 kilograms for the next 15 years.
  • An international joint venture will assist Iran in redesigning and rebuilding a modernized heavy water research reactor in Arak, which will support peaceful nuclear research and radioisotope production. No other heavy-water reactor will be built in Iran for a period of 15 years.
  • Iran will give the IAEA regular access to all sites and to Iran’s nuclear supply chain, and it will allow the use of advanced monitoring techniques.
  • A dedicated procurement channel will be established to monitor and approve the supply, sale, or transfer to Iran of nuclear-related and dual-use materials and technologies.

2. Proposed Relaxation of UN Sanctions

In return for Iran’s commitments under the JCPOA, all nuclear-related UN Security Council Resolutions are to be lifted, simultaneously with Iran’s completion of certain (non-specified) actions addressing the key concerns covered by the JCPOA.

Core provisions in United Nations Security Council resolutions dealing with the transfer of sensitive technologies and activities to Iran will be reestablished by a new resolution that will endorse the JCPOA and urge its implementation and incorporate the agreed restrictive measures on Iran for a mutually agreed period of time. Restrictions on conventional arms and ballistic missiles, as well as provisions that allow for related cargo inspections and freezing assets, will be incorporated into the final agreement.

In addition, based on the agreed Parameters, a dispute-resolution process will be specified, which enables any JCPOA-participant to seek to resolve disagreements about the performance of JCPOA commitments. If an issue of significant non-performance cannot be resolved through that process, then all previous UN sanctions could be re-imposed.

3. Proposed Relaxation of EU Sanctions

As mentioned earlier, the joint statement issued by the EU High Representative and the Iranian Foreign Minister says that the EU “will terminate the implementation of all nuclear-related economic and financial sanctions”.

This may therefore involve the suspension of the majority of the restrictions set out in EU Regulation 267/2012 (as amended) (although this Regulation includes certain restrictions on military goods which may remain in force as they are human right/ballistic missile-related). EU Regulation 359/2011 (which relates to human rights) appears more likely to remain in place. We expect further information on which EU restrictions are to be lifted to become available as and when the detailed provisions of the JCPOA are agreed.

4. Proposed Relaxation of U.S. Sanctions

The Parameters state that U.S. “nuclear-related” sanctions will be suspended after the IAEA has verified that Iran has taken all of its key nuclear related steps as specified in the JCPOA. It confirms that U.S. sanctions against Iran regarding terrorism, human rights abuses and ballistic missiles will remain in place. It is less easy to readily divide all U.S. sanctions currently in place between nuclear- and terrorism/human rights/ballistic missile-related measures so as to predict which will be lifted. We expect that further information on this will become available as and when additional details of the JCPOA are agreed between all parties.

On April 3, the Office of Foreign Assets Control (OFAC) issued guidance relating to the announcement of the Parameters. This confirms that the Parameters do not immediately relieve, suspend or terminate any sanctions on Iran and that all US sanctions (other than the relief agreed to in November 2013) remain in place and will continue to be vigorously enforced.

The broad outline of the deal appears to be suspension of most U.S. secondary sanctions (sanctions programs aimed at transactions by non-U.S. persons conducted outside U.S. jurisdiction), though the basic prohibition on transactions with Iran within U.S. jurisdiction will remain. Please note that is not entirely clear whether and which secondary sanctions are “nuclear-related”, but it is anticipate that secondary sanctions against major economic sectors such as energy, shipping, automobiles, and banking would be lifted. Moreover, it is anticipated that transactions within U.S. jurisdiction, including U.S. dollar transactions, involving an Iranian interest will remain prohibited, as they were imposed long before nuclear-related sanctions were implemented.

C. Considerations for International Business Transactions

The April 2, 2015 JCPOA  reflects a major step towards into a new era of trade and business with Iran. This deal has raised, for the first time in many years, the real prospect of Iran opening up to the West, with plenty of potential to whet the appetite of foreign investors. Newspapers are reporting a flood of business executives rushing to Tehran in the quest for early-mover advantage.

Nevertheless, companies that are subject to US and/or EU sanctions should ensure that they continue to comply with all restrictions currently in force in relation to Iran. The temporary sanction relief reached on November 24, 2013 being part of the JCPOA continues until June 30, 2015. Foreign investors and business men should make sure that all aspects of any potentially sanctionable transaction are avoided before June 30, 2015, including financial transactions.

It is time to get ready!

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