President Donald J. Trump declared that the U.S. would end its involvement in the Joint Comprehensive Plan of Action ("JCPOA") and ordered the reinstitution of U.S. sanctions against Iran.

The President ordered the Secretary of State and the Secretary of the Treasury to "re-impose all United States sanctions lifted or waived in connection with the JCPOA." The Department of the Treasury Office of Foreign Assets Control ("OFAC") will (i) "revoke, or amend, as appropriate" all general and specific licenses that were issued in connection with the JCPOA, (ii) issue new authorizations to ensure the wind-down of transactions and activities that relate to the removed or amended general and specific licenses, and (iii) institute pre-JCPOA sanctions at the end of the 90-day and 180-day wind-down periods. OFAC provided additional FAQs to provide guidance on the re-imposition of sanctions.

Commentary / James Treanor

When the JCPOA was implemented in early 2016, U.S. and foreign companies, financial institutions, and others – not least of all, legal counsel – spent months digesting its provisions and understanding the contours of related U.S. sanctions relief. Now that the United States is pulling out of the deal, a similar protracted process will likely play out, this time in reverse. At this early stage, a few points appear clear:

  • As with the sanctions relief provided by the JCPOA, the re-imposition of sanctions will most directly impact non-U.S. businesses – U.S. persons have been, and will remain, broadly prohibited from directly or indirectly engaging in dealings with Iran.
  • The re-imposition of pre-JCPOA sanctions will not take immediate effect; rather, sanctions generally will be re-imposed following a 90- or 180-day "wind-down" period (depending on the sanctions measure involved). In addition, even after expiration of the applicable wind-down period, OFAC generally will not treat payments to non-U.S., non-Iranian persons made by an Iranian counterparty as sanctionable – as long as such payments are supported by a written agreement entered into prior to May 8, 2018, and as long as the non-U.S., non-Iranian party's performance was completed before expiration of the wind-down period.
  • OFAC's FAQs strongly encourage firms not to interpret the term "wind-down" broadly. While the guidance does not explicitly prohibit the initiation of new business activities prior to the expiration of the wind-down periods on August 6 and November 4, 2018, it reiterates at every opportunity that companies "should take steps necessary to wind down operations" by the applicable deadline. The guidance also warns that when considering a potential enforcement or sanctions action, "OFAC will evaluate efforts and steps taken to wind down activities and will assess whether any new business was entered into involving Iran during the applicable wind-down period."
  • General License H, which had permitted U.S.-owned or -controlled foreign entities to engage in certain activities in Iran – and which was the subject of intense analysis and debate following JCPOA implementation – will not be spared. Instead, the authorization is to be revoked "as soon as is administratively feasible," likely to be replaced by a "revised authorization for the wind down of [previously permitted] activities."

As always, U.S. sanctions are likely to prove more challenging to apply in practice than in theory, and firms with direct or indirect exposure to Iran are advised to carefully consider their actions in response to President Trump's announcement.

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