On June 8th 2016, US Treasury released an update on frequently asked questions regarding the lifting of certain sanctions under the JCPOA in Iran on Implementation Day. These updates clarify uncertainties amongst entities interested in doing business with Iran.
On Implementation Day, the United States lifted the nuclear-related secondary sanctions, generally directed towards non-US persons. The secondary sanctions lifted are as follows:
- Financial and banking-related sanctions;
- Sanctions on the provisions of underwriting services, insurance and re-insurance;
- Sanctions on Iran’s energy and petrochemical sectors;
- Sanctions on transactions with Iran’s shipping and shipbuilding sectors and port operators;
- Sanctions on Iran’s trade in gold and other precious metals;
- Sanctions on the sale, supply, or transfer of goods and services used in connection with Iran’s automotive sector; and
- Sanctions on associated services for each of the categories mentioned above.
Post-Implementation Day, transactions with Iran-related persons who remain on the SDN List is sanctionable and subject to severe penalties. While over 400 individuals and entities were removed from the SDN list, secondary sanctions continue to apply to non-US persons who “knowingly” facilitate “significant” financial transactions with or provide material or certain other support to those Iranian or Iran-related persons that remain or are placed on the SDN list. It is therefore crucial to conduct thorough due diligence on individuals or entities when conducting Iran-related business transactions. It is always good practice to seek legal help and to have a Due Diligence Report on file when doing business with Iranian or Iran-related entities.
Financial Institution and Banking – As set out in the JCPOA foreign financial institutions are able to conduct to facilitate financial transactions with persons who have been removed from the SDN List, FSE List, and NS-ISA List, provided that such transactions do not involve persons on the SDN List. This include transactions by foreign financial institutions that have branches in the United States, provided that the branches in the United States are not directly or indirectly involved in the transactions and that such transactions are not transited through the US financial system. The latter statement is important as there has been immense confusion on who can be a part of Iran-related financial transactions.
Furthermore, it is important to note that foreign financial institutions will not be subject to secondary sanctions for opening or maintaining correspondent bank accounts for Iranian financial institutions that have been removed from the SDN List, FSE List and NS_ISA List, provided that the foreign financial institution does not conduct or facilitate, and is not otherwise involved in, specific transactions or banking relationships with Iranian Individuals and entities on the SDN List. However, foreign financial institutions need to continue to ensure they do not clear US dollar-denominated transactions involving Iran through US financial institutions, given that US persons continue to be prohibited from exporting goods, services, or technology directly or indirectly to Iran, including financial services, with the exception of transactions that are exempt or authorized by a general or specific license issued pursuant to the ITSR.
A non-US entity that are owned or controlled by a US person can engage in activities with Iran as long as the entity obtains a license through OFAC. The license is called General License H which authorizes certain transactions relating to foreign entities owned or controlled by a US Person. If a non-US entity:
- Has a US Person holding a 50% or greater equity interest by vote or value;
- Has a US Person holding a majority of seats on the board of directors; or
- Has a US Person controlling the actions, policies, or personnel decisions
then the entity must obtain the General License H in order to be eligible to conduct business with an Iranian or Iran-related entity.
In order to obtain the full OFAC update or to find out the eligibility of a specific case, please request a consultation.
Author: Atoussa Mahmoudpour