President Trump withdrew U.S. participation in the 2015 Iran nuclear deal’s so-called Joint Comprehensive Plan of Action (JCPOA) on May 8. The deal was established by the U.N. Security Council and endorsed by the Obama administration as a means to shift Iran away from its nuclear weapons development program.
Under the JCPOA, the European Union lifted nearly all its economic and financial sanctions against Iran on Jan. 16, 2016, while the U.S. kept its long-standing “primary” sanctions in place, but agreed to suspend secondary sanctions on parties doing business with Iran.
Secondary sanctions are restrictions on foreign companies controlled by U.S. firms, such as foreign subsidiaries and branches as well as those foreign-made products that exceed de minimis with incorporated or embedded U.S. content of greater than 10 percent (purchase price vs. selling price of the end product).
Since 1995, however, the U.S. has maintained a set of primary sanctions against Iran, as part of the Iranian Transactions and Sanctions Regulations. These regulations have been rigorously enforced by the Treasury Department’s Office of Foreign Assets Control (OFAC) for the past 20 years. The Commerce Department’s Bureau of Industry and Security (BIS) also plays a significant role in implementing and enforcing export and re-export controls on the movement of U.S.-origin goods to Iran.
In 2010, Congress stepped up the trade embargo on Iran by passing a number of laws imposing secondary sanctions on Iran. These laws were intended to deny non-U.S. entities access to U.S. financial and commercial markets if they engaged in certain activities in Iran, most notably energy, transportation and financial services transactions.
While licenses continued to be available for U.S. exports to Iran of food, agricultural products, medicine and medical devices, Treasury established two new general licenses under JCPOA to overcome the primary or secondary sanctions or both and allowed shipments to Iran and payment from Iran initially into a European bank and other non-U.S. bank.
The JCPOA provided limited relief from U.S. sanctions, particularly those of the secondary category. U.S. exporters to benefit from the JCPOA’s provisions were mainly involved in aviation and the oil and gas sectors. With continued enforcement and oversight of exports related to Iran by OFAC and BIS, most companies stayed away from the Iranian market. But export compliance, especially involving Iran, has placed many companies on high alert with their overseas transactions.
“It is critical that U.S. companies establish a comprehensive set of compliance guidelines not only for their subsidiaries and branches but also for their overseas distributors,” said Paul DiVecchio, head of Boston-based export consultancy DiVecchio & Associates. “U.S. companies must insist that any inquires related to Iranian transactions come through the corporate compliance organization.”
Law firm Morrison & Foerster said in a statement that the snapback will have “an immediate impact on global companies that engage with or involving Iran. And this is just the beginning: The sweeping sanctions on Russia, for example, are expected to evolve and perhaps intensify in the coming months, affecting companies in the U.S. and around the globe.”
In addition to missed business opportunities and deteriorating relations with Iran, the Washington-based National Iranian American Council warned “Trump’s snapback of nuclear-related sanctions has eviscerated Iran’s benefit for complying with the JCPOA, increasing the risk of Iran halting its compliance with the accord and moving closer to a nuclear weapon.”
In September, foreign ministers from France, Germany and the United Kingdom, along with China and Russia, affirmed their commitment to carrying out the trade tenants of the 2015 Iran nuclear deal.