Reports of the Complete Lifting of Sanctions on Iran Have Been Greatly Exaggerated

By Melissa Miller Proctor

Despite the many reports in the media and discussions around the water coolers of many U.S. companies, the complete lifting of U.S. sanctions on Iran has been greatly exaggerated. Rather, only certain secondary, nuclear-related sanctions have been lifted to dated, and that limited sanctions relief primarily impacts non-U.S. companies. U.S. companies and their foreign affiliates are still prohibited from selling and exporting products to Iran without prior authorization from the Treasury Department’s Office of Foreign Assets Control (OFAC).

In 2013, by way of background, the United States, United Kingdom, France, China, Russia, and Germany reached an initial understanding with Iran (i.e., the Joint Plan of Action or “JPOA”) to lift certain nuclear-related sanctions in return for Iran’s commitment to limit its nuclear program. The JPOA lifted restrictions on non-US person transactions with Iran involving petrochemical, automotive, gold and precious metals products, as well as exports of Iranian crude oil to various countries. The term “non-US persons” refers to foreign companies that are not incorporated in the United States, and that are not owned or controlled by U.S. persons. Thus, the JPOA sanctions relief provided little if any benefits to U.S. companies and their foreign affiliates, aside from formal encouragement from the U.S. government to submit applications for OFAC Specific Licenses for the supply of spare parts to Iran in support of civil aircraft safety.

In the summer of 2015, additional economic sanctions relief was promised in exchange for Iran’s agreement to restrict its nuclear program further. This agreement, known as the Joint Comprehensive Plan of Action (“JCPOA”), required Iran to take additional steps that would be independently verified by the International Atomic Energy Agency (“IAEA”).  In early 2016, the IAEA confirmed Iran’s compliance with these obligations, and additional nuclear-related sanctions on Iran were lifted to allow non-U.S. persons to engage in transactions involving, among others: previously blocked Iranian entities; Iranian petroleum, petrochemical products, and natural gas; investments in the Iranian energy sector; certain Iranian energy, shipping and shipbuilding sectors and port operators; goods and services to Iran’s automotive sector; gold, precious metals, graphite, coal, and software for integrating industrial processes. The lifting of these sanctions again chiefly benefited non-U.S. persons; however -

  • U.S. companies may apply for Specific Licenses from OFAC to engage in the same activities that non-U.S. persons are able to perform;
  • Foreign subsidiaries of U.S. companies may engage in “associated services” with Iran (e.g., technical assistance, training, insurance, re-insurance, brokering, transportation or financial services) that are necessary and ordinarily incident to the same kinds of activities authorized for non-U.S. persons;
  • U.S. companies and their foreign affiliates may apply for OFAC Specific Licenses to export, reexport, and transfer commercial passenger aircraft and related parts and services to Iran, import Iranian-origin carpets and foodstuffs (e.g., pistachios and caviar) into the United States; and,
  • OFAC rolled out new General License H that, with certain restrictions, allows foreign subsidiaries of U.S. companies (but not U.S. foreign branches) to engage in transactions involving Iran and the Government of Iran—even where their parents are prohibited from doing so without an OFAC Specific License.       

    Notwithstanding, most of the restrictions prohibiting U.S. persons and U.S. companies from dealing with Iran still remain in effect because they were implemented by Congress in response to Iran’s human rights record, support for international terrorism, and proliferation of weapons of mass destruction—they were not imposed as a result of Iran’s nuclear-related activities. The limited sanctions relief that has been afforded to date relate exclusively to Iran’s nuclear-related activities. Accordingly, Congressional legislation will be required to modify or lift those sanctions. The key take-away is that most commercial opportunities for U.S. companies and their foreign affiliates remain limited. Companies will need to continue depending upon OFAC General Licenses, covering exports of certain medicine and basic medical supplies, certain food items, replacement parts for certain medical devices, internet services and software, and software and hardware incident to personal communications. Where no General Licenses apply, U.S. companies and their foreign affiliates are still required to secure one-year authorizations under the Trade Sanctions Reform Act (TSRA), as applicable, or obtain Specific Licenses from OFAC.