As we discussed in a previous post, it is difficult to predict how the Iran sanctions program will change if the United States rejoins the JCPOA. Nevertheless, the history of the Iran sanctions program under the JCPOA, and the mechanisms by which sanctions were re-imposed when the US left the agreement, may offer some insight.
The Biden Administration’s Efforts to Restore the JCPOA
The Iran nuclear deal, formally known as the JCPOA, is an agreement reached on July 14, 2015, between Iran, the US, China, France, Germany, Russia, the United Kingdom, and the European Union. Pursuant to the JCPOA, Iran agreed to certain concessions with respect to its nuclear program in exchange for sanctions relief. However, the Trump Administration withdrew from the agreement on May 8, 2018.
The Biden Administration has repeatedly indicated that the United States intends to re-enter the JCPOA. For example, on February 18, 2021, the Biden Administration rescinded the re-imposition of United Nations sanctions against Iran, which were previously lifted as part of the JCPOA. Similarly, the Secretary of State, Anthony Blinken, issued a joint statement with the Foreign Ministers of France, Germany, and the United Kingdom on (“Joint Statement”). In the Joint Statement, the United States declared that “if Iran comes back into strict compliance with its commitments under the JCPOA, the United States will do the same and is prepared to engage in discussions with Iran toward that end.” On the same day, a senior State Department official stated that the State Department did not “have an indication of whether Iran will agree to a meeting.”
On February 28, Iran rejected the invitation to attend an informal meeting, unless the United States agreed to rescind sanctions against Iran first. In a Tweet, the spokesperson for the Iranian Foreign Ministry, Saeed Khatibzadeh, stated that the “time isn’t ripe for the proposed informal meeting.” Khatibzadeh further stated “[t]he road ahead is very clear: the United States must end its illegal and unilateral sanctions and return to its commitments.”
The White House Press Secretary indicated that the Biden Administration was “disappointed in Iran’s response.” The White House further indicated that it “remain[s] ready to re-engage in meaningful diplomacy to achieve a mutual return to compliance with JCPOA commitments.”
The Sanctions That Could Be Rescinded by the Restoration of the JCPOA
As we previously discussed, the Trump Administration’s “maximum pressure” campaign resulted in significant primary and secondary sanctions, including expansive sanctions related to the Iranian financial sector. To date, these sanctions, which go significantly beyond those in effect prior to the JCPOA, are still in effect, and it is not entirely clear how a restoration of US participation in the JCPOA would affect these “new” measures.
This is in stark contrast to US sanctions under the JCPOA. Generally, the United States agreed to lift secondary sanctions related to Iran’s nuclear program; under the agreement, a wide range of US sanctions against Iran, not related to the nuclear program, remained in effect. The “nuclear-related” sanctions relief under the JCPOA included:
- Financial and Banking-Related Sanctions: Section 4.1 of Annex II and section 17.1 of Annex V of the JCPOA provided for the lifting of secondary sanctions that applied to non-US persons who engaged in certain financial and banking activities related to Iran.
- Sanctions Related to Insurance: Section 4.2 of Annex II and section 17.1 of Annex V of the JCPOA provided for the lifting of secondary sanctions that applied to non-US persons who provided underwriting services, insurance, or re-insurance in connection with activities consistent with the JCPOA.
- Sanctions Related to Iran’s Energy and Petrochemical Sectors: Section 4.3 of Annex II and section 17.1 of Annex V of the JCPOA provided for the lifting of secondary sanctions that applied to non-US persons who engaged in certain activities related to the energy sector of Iran.
- Sanctions Related to Iran’s Shipping and Shipbuilding Sectors and Port Operators: Section 4.4 of Annex II and section 17.1 of Annex V of the JCPOA provided for the lifting of secondary sanctions that applied to non-US persons with respect to Iran’s shipping and shipbuilding sectors and port operators.
- Sanctions Related to Gold and Other Precious Metals: Section 4.5 of Annex II and section 17.1 of Annex V of the JCPOA provided for the lifting of secondary sanctions that applied to non-US persons with respect to Iran’s trade in gold and other precious metals and the provision of associated services for such trade.
- Sanctions Related to Software and Metals: Section 4.6 of Annex II and section 17.2 of Annex V of the JCPOA provided for the lifting of secondary sanctions that applied to non-US persons with respect to trade with Iran in graphite, raw or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes, in connection with activities consistent with the JCPOA.
- Sanctions Related to the Automotive Sector: Section 4.7 of Annex II and section 17.1 of Annex V of the JCPOA provided for the lifting of secondary sanctions that applied to non-US persons with respect to the sale, supply, or transfer of goods or services used in connection with Iran’s automotive sector and the provision of associated services for such activity.
Nevertheless, certain categories of sanctions against Iran were outside the scope of the agreement, including:
- Trade Embargo: Pursuant to the International Traffic in Arms Regulations (“ITAR”), and with limited exceptions, US persons continued to be broadly prohibited from engaging in transactions or dealings directly or indirectly with Iran or its government. In addition, non-US persons continued to be prohibited from knowingly engaging in conduct that sought to evade US restrictions on transactions or dealings with Iran or that caused the export of goods or services from the US to Iran.
- Export Controls: Pursuant to ITAR and the Export Administration Regulations, unless exempt from regulation or authorized under the relevant regulations, the exportation or reexportation by a US person or from the US to Iran or the Government of Iran, as well as the reexportation by non-US persons of items that contained 10% or more US-controlled content with knowledge or reason to know that the reexportation is intended specifically to Iran or the Government of Iran, generally required a license.
- Designation Authorities and Blocking Sanctions: The US retained authority to impose blocking sanctions on persons meeting certain criteria or engaging in specified conduct, as well as their support networks.
- Correspondent and Payable-through Account Sanctions: Foreign financial institutions could still be subject to correspondent or payable-through account secondary sanctions for knowingly facilitating certain transactions.
- Menu-Based Sanctions: Menu-based secondary sanctions continued to attach to non-US persons who engaged in certain transactions, or persons who materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of certain individuals or entities designated on OFAC’s List of Specially Designated Nationals and Blocked Persons.
- Non-Proliferation Sanctions: The JCPOA did not address the application of a number of generally applicable non-proliferation statutes related to transfers of proliferation-sensitive equipment and technology, or statutes that provided for sanctions for activities that would be outside the scope of the JCPOA.
- Terrorism List Sanctions: The JCPOA did not alter Iran’s designation as a state sponsor of terrorism pursuant to section 6(j) of the Export Administration Act, section 40 of the Arms Export Control Act, and section 620A of the Foreign Assistance Act.
Indeed, even after the JCPOA became effective, the Obama Administration imposed additional sanctions against Iran, which were permitted by the terms of the agreement. Similarly, prior to withdrawing from the JCPOA, the Trump Administration also imposed additional sanctions against Iran, consistent with the terms of the agreement. Accordingly, even if the United States re-entered the JCPOA, it is unlikely that it would rescind any sanctions that are consistent with the terms of the JCPOA itself (absent an agreement going beyond the 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.