Update: Iran Sanctions
Jun. 2016

Trade with Iran remains a veritable minefield for US companies. Implementation of the Joint Comprehensive Plan of Action (JCPOA), or “Iran Deal,” resulted in the withdrawal of sanctions applying to non-US entities, yet left most primary sanctions affecting US business in place. According to State Dept. guidance documents, the United States has only lifted “nuclear-related secondary sanctions” on Iran. These benefit exporters outside U.S. jurisdiction, meaning foreign entities can no longer be prosecuted under U.S. law for trading with Iran. The United States also removed a number of Specially Designated Nationals (SDNs), Foreign Sanctions Evaders (FSEs), and Non-SDN sanctioned persons from their blacklists, which can be found on the Office of Foreign Assets Control (OFAC) website. Finally, the USG now permits trade in commercial airliners, rugs, and specified foodstuffs.

However, numerous U.S. sanctions on Iran remain in force. Many U.S. sanctions predate Iran’s nuclear ambitions, and the current web of sanctions reflect this history of compounding penalties to trade. Critically, while the JCPOA lifted sanctions related to the existence of Iran’s peaceful nuclear program, other unrelated U.S. nonproliferation sanctions continue to prohibit dangerous technology from being exported to Iran.

Iran XO Overview

What’s Changed?

For the United States: very little, as Europe was the primary beneficiary of JCPOA-related sanctions relief. The secondary sanctions removed in accordance with the agreement affected foreign, primarily European, companies with Iranian business ties. The sanctions regime’s goal was to deprive Iran of business, both U.S. and global, and pressure them into negotiations. As secondary sanctions lifted, in combination with the removal of sanctions by the other P5+1 members, most countries can now conduct business with Iran.

However, U.S. companies still face obstacles from persistent U.S. sanctions, other than the limited carve-outs highlighted earlier (foodstuffs, rugs, and commercial airline parts). The reasons are twofold. First, US exports are still largely banned under the terrorist and human rights sanctions, preventing large-scale economic engagement between U.S. and Iranian companies. Second, and perhaps most importantly, no payments from Iran can go through the U.S. financial system without risking reprisal from the USG. This devastating financial blockade prevents any financial exchanges thereby halting all Iranian investment opportunities.

However, U.S. companies have seen some positive developments. Since secondary sanctions have been lifted, subsidiaries of U.S. companies operating outside the overseas can now do business with Iran. Subsidiaries can apply for General License H to engage in transactions. Yet as no Iranian funds can pass through U.S. banks, revenue from any financial dealings must be kept in offshore accounts.

Patience Is a Virtue for U.S. Companies

The JCPOA represents a major first step for repairing U.S.-Iran business ties. However, due to remaining non-nuclear sanctions on Iran, domestic U.S. companies have little short-term recourse regarding Iran. While overseas subsidiaries of U.S. companies can engage with Iran, considerable concerns endure for parent companies, aside from inherent legal ambiguity. First, a real stigma persists against doing business with Iran as the domestic trade embargo continues. While not illegal, parent companies may advise their subsidiaries against conducting business with Iran to avoid unwanted attention from the U.S. government. Second, the United States will closely scrutinize any Iranian trade deals with the potential of export violations. U.S. trade with Iran may be opening, but it is certainly not yet free.

U.S. trade with Iran will continue to carry caveats. In particular, companies should anticipate and prepare for high legal costs in case of U.S. government action over alleged violations. Short term, most U.S. Iran trade will likely occur through subsidiaries. Overall, while the JCPOA loosens legal restrictions for foreign companies., U.S. companies must tread lightly and be patient as avenues for Iranian business slowly open.

Note: Exporters interested in Iranian business must remain vigilant of more than just the U.S. federal sanctions regime. See TradeSecure’s upcoming Critical Data piece on state-level Iran sanctions to learn more.

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