On February 18, 2021, the Biden Administration rescinded the United States’ re-imposition of United Nations sanctions against Iran, which were lifted as part of the Iran nuclear deal known as the Joint Comprehensive Plan of Action (“JCPOA”). The rescission is another step in the Biden Administration’s continuing efforts to have the United States re-join the JCPOA, from which the United States withdrew in 2018.

The JCPOA, which was approved by UN Security Council Resolution in 2015, provides for the relaxation of international economic sanctions against Iran, in exchange for the gradual wind-down of Iran’s nuclear enrichment program.

Paragraphs 36 and 37 of the JCPOA also include a dispute resolution mechanism designed to address potential breaches of Iran’s commitments under the agreement. Under this mechanism, any participant in the JCPOA—China, France, Germany, the Russian Federation, the United Kingdom, the European Union, and the United States—can submit a notice of non-performance by Iran. If the non-performance is not resolved after negotiations, the participant country can give further notice to the UN Security Council that it is treating Iran’s breach as “significant non-performance,” and unilaterally cease performing its commitments under the JCPOA. For example, the participant country could discontinue relaxing sanctions against Iran. The UN Security Council then has 30 days to vote on a resolution to continue lifting sanctions against Iran. If no such resolution is passed, UN sanctions are automatically re-imposed.

When the United States withdrew from the JCPOA in 2018, the UN stated that Iran was in compliance with the agreement. And the Trump Administration did not explicitly invoke the JCPOA’s dispute resolution mechanism, but rather chose to withdraw from the agreement entirely. Following the United States’ withdrawal, however, Iran reduced its compliance with the JCPOA in several respects. As a result, in August 2020, the United States submitted a letter to the Security Council stating that Iran was in significant non-compliance with its obligations under the agreement, which the United States maintained would lead to the automatic re-imposition of UN sanctions under the dispute resolution mechanism. Following the expiration of the 30 day period, former Secretary of State Michael Pompeo announced that the United States had re-imposed UN sanctions, effective September 19, 2020.

Thirteen of the fifteen Security Council members rejected the United States’ position, on the grounds that the United States was no longer a member of the JCPOA, and these countries have not followed the United States in re-imposing UN sanctions against Iran.

President Biden has repeatedly stated his intention that the United States re-enter the JCPOA, and the US Department of State has indicated that it would accept an invitation to negotiate the terms of the deal with Iran.

However, it is unclear at this stage whether and when the United States might re-enter the JCPOA, and on what terms Iran would agree to renew its previous commitments under the agreement. Prior to the United States’ withdrawal from the JCPOA, it had relaxed numerous economic sanctions against Iran, such as secondary sanctions on Iran’s financial sector and other sanctions restrictions imposed on the basis of Iran’s nuclear program.

Given the extensive US sanctions restrictions against Iran, which go beyond the UN sanctions at issue, the Biden Administration’s action is likely to have little immediate practical impact from a US sanctions compliance perspective, but the actions signal a goal to move towards restoration of US participation in the JCPOA.

We will continue to monitor developments in this area. Please contact the authors, or your usual Herbert Smith Freehills contacts, for more information.

Jonathan Cross
Jonathan Cross
Counsel, New York
+1 917 542 7824
Christopher Boyd
Christopher Boyd
Associate, New York
+1 917 542 7821
Brittany Crosby-Banyai
Brittany Crosby-Banyai
Associate, New York
+1 917 542 7837
Christopher Milazzo
Christopher Milazzo
Associate, New York
+1 917 542 7807