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U.S. Economic Sanctions Update: Iran Nuclear Sanctions Re-Imposed; Russia Chemical Weapons Sanctions Timeline Unclear

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November 2018 is a critical month for U.S. economic sanctions programs targeting both Iran and Russia. The U.S. Treasury Department's Office of Foreign Assets Control (OFAC) formally implemented and re-imposed its Iran nuclear sanctions program, and the U.S. State Department is required to certify to Congress whether Russia has met certain conditions required by law under an August 2018 determination that the Russian Federation was behind the use of a nerve agent targeting two United Kingdom citizens earlier this year.

Iran Nuclear Sanctions Re-Imposed

As of November 5, 2018, all U.S. nuclear-related sanctions that were lifted or waived to effectuate the Iran nuclear deal are back in full effect. In January 2016, U.S. sanctions on Iran's civilian sector were significantly eased in exchange for commitments by Iran to decommission its nuclear program under the Joint Comprehensive Plan of Action (JCPOA). In addition, OFAC issued General License H, which authorized non-U.S. entities owned or controlled by U.S. persons to engage in most Iran-related business and activities. However, in May 2018, President Trump announced plans to withdraw from the Iran nuclear agreement and to re-impose the strict economic sanctions program that was in place prior to the landmark 2015 agreement.

First, on August 7, 2018, sanctions were re-imposed on the following:

  • The purchase or acquisition of U.S. dollar banknotes by the government of Iran;
  • The direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes;
  • Iran's trade in gold or precious metals;
  • Significant transactions related to the purchase or sale of Iranian rials, or maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial; and
  • Activities in Iran's automotive sector.

Then, on November 5, 2018, sanctions were re-imposed on the following:

  • Iran's port operators and shipping sectors, including the Islamic Republic of Iran Shipping Lines (IRISL), the National Iranian Tanker Company (NITC), and affiliates;
  • Petroleum-related transactions and Iranian petrochemical products;
  • Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions;
  • The provision of underwriting services, insurance, or re-insurance relating to Iran; and
  • Activities in Iran's energy sector.

OFAC General License H expired on November 4, 2018. In addition, on November 5, 2018, Treasury designated more than 700 individuals, entities, aircraft, and vessels to the Specially Designated Nationals and Blocked Persons List (SDN List). Many of these designations were re-listings of parties that were on the SDN List prior to the lifting/waiver of certain nuclear-related sanctions under the JCPOA, and include more than 70 financial institutions linked to Iran, more than 200 IRISL or NITC vessels and related subsidiaries/individuals, and 67 aircraft operated by Iran's national airline, Iran Air.

The Trump Administration announced that the U.S. has awarded temporary waivers to China, India, Greece, Italy, Taiwan, Japan, Turkey, and South Korea allowing them to purchase and import Iranian crude oil without the risk of U.S. secondary sanctions enforcement. Notwithstanding the re-imposition of its nuclear-related sanctions against Iran, the U.S. government continues to emphasize that such economic sanctions target the current Iranian regime – not the people of Iran. To that end, OFAC will continue to administer humanitarian-based exceptions to the broad prohibitions in the U.S. Iran sanctions, including exceptions relating to the sale to Iran of agricultural commodities, food, medicine, and medical devices.

The Chemical and Biological Weapons Act and Ukraine-Related/Russia Sanctions

In August 2018, the U.S. Department of State announced that it intends to impose sanctions on Russia under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act), in response to a determination that the Russian Federation was behind the use of a Novichok nerve agent in the United Kingdom against two UK citizens in March 2018. The first set of these sanctions resulted in the denial of export licenses to Russia for the purchase of many items with national security implications. The current prohibitions were extended to goods such as gas turbine engines, electronics, and calibration equipment that were previously allowed on a case-by-case basis. 

Under the CBW Act, the State Department is mandated to certify to the Congress whether Russia has met conditions required by the law, including providing certain assurances, three months from the initial determination. If Russia does not respond to the sanctions by providing such assurances, President Trump will be required to impose a second set of sanctions that could result in opposing multilateral bank assistance to Russia, broad restrictions on exports and imports, downgrading diplomatic relations, prohibiting air carrier landing rights, and barring U.S. banks from making loans to the Russian government.

Practical Effects and Next Steps

Iran: The U.S. government's message is clear – it intends to exert unprecedented economic pressure on the government of Iran through both the re-imposition of nuclear-related sanctions and the continuation of existing U.S. economic sanctions programs targeting the Iranian regime. Persons choosing to engage in (or facilitate) transactions with parties on the SDN List are subject to OFAC enforcement action and face potential designation themselves. Non-U.S. entities must quickly evaluate all current and future business and investments relating to Iran in order to determine their lawful courses of action under the threat of U.S. secondary sanctions. U.S. entities must simultaneously evaluate their relationships with parties doing business in Iran. Pragmatically, non-U.S. entities will have to decide if they want to do business with the U.S. or with Iran, as they will not be able to do business in Iranian rials and also do business through the U.S. banking system. 

Russia: U.S. businesses that maintain a Russian presence may be affected by the next tranche of sanctions under the CBW Act, and both U.S. and non-U.S. entities must continue to follow any updates to the OFAC primary, secondary, and sectoral sanctions programs targeting Russia.

For more information about U.S. economic sanctions programs, please contact Alan Enslen, Julius Bodie, or any member of Baker Donelson's Global Business Team.

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