Iran nuclear sanctions update: a step closer to implementation
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Iran nuclear sanctions update: a step closer to
implementation
This article highlights some of the key developments since the Joint Comprehensive Plan
of Action (JCPOA) was initially agreed.
Submitted
Applicable Law
Topic
Sector Focus
Contact
19 October 2015
Iran
Crime, Fraud & Investigations
Asset Management and Investment Funds
Energy and Infrastructure
Life Sciences
Technology Media and Telecommunications
Samir Safar-Aly, Adrian
Nizzola, Muneer Khan
Following our Doing business in Iran webinar on 09 September 2015, there have been a number of
developments relating to the Joint Comprehensive Plan of Action on Iran's nuclear programme, entered
into between Iran and the E3/EU+3 (China, France, Germany, the Russian Federation, the United
Kingdom, the United States, and the European Union) (the JCPOA). Furthermore, 18 October 2015
marked the "Adoption Day" on the JCPOA's timeline - a key milestone in the potential opening up of the
Iranian market.
This article intends to highlight some of the key developments. We address the following areas below, by
way of update:
• US Developments
◦ Legislation
◦ Guidance
◦ Enforcement
•
•
•
•
•
Switzerland – Sanction Lifting
Iran- JCPOA Approval Process
Iran - New Integrated Petroleum Contract (IPC)
IAEA - Progress
JCPOA - Next Steps
US developments - legislation
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The JCPOA has been the subject of a great amount of debate in the US. The House of Representatives
(which has a Republican majority) passed a resolution disapproving the JCPOA (H. Res. 367). However,
on 10 September, 42 senators in the Senate successfully blocked a disapproval motion (Section.625)
concerning the JCPOA. This marked a significant step towards the implementation of the JCPOA
and towards lifting the nuclear-related sanctions on Iran.
At the same time, other resolutions have been passed by the House of Representatives on 09 September
2015 that will see their way to the Senate, attempting to (1) prevent the US President from not only
implementing the sanctions relief under the JCPOA, but any Iran-related sanctions relief until 21 January
2017 (H.R. 3460), and to (2) declare that the US President had not fully complied with the US Iran Nuclear
Agreement Review Act of 2015 (H. Res. 411). Democrat Senators have emphasised that such resolutions
will be met with the same level of opposition in the Senate and, even if successful, the resolutions would
likely be the subject of a veto from the US President.
On 17 September 2015, the 60 day Congressional review period (as provided for under the US Iran
Nuclear Agreement Review Act of 2015) came to an end, meaning that the US Administration could
proceed with the suspension of its nuclear-related sanctions on Iran in order to implement the JCPOA.
However, although the 60 day Congressional review period has ended, it seems that the debate regarding
the JCPOA is far from over. In addition to the resolutions passed by the House of Representatives on 09
September 2015 mentioned above, early October 2015 saw a number of new Iran-related bills proposed
with the aim of undermining the JCPOA. They include the:
• Justice for Victims of Iranian Terrorism Bill (H.R. 3457 and Section 2086) – which aims to withhold
approximately USD 43.5bn, representing compensatory judgements awarded by US Courts against
Iran, from frozen Iranian monies that will be released if the JCPOA progresses to "Implementation
Day"
• Iran Policy Oversight Act of 2015 (Section 2119) - introduced by Senator Ben Cardin and now being
reviewed by the US Senate's Committee on Foreign Relations, which aims to (1) provide the US
Congress with the expedited ability to introduce terrorism-related sanctions on Iran, (2) reaffirm the
US Government's non-nuclear sanctions on Iran, and (3) increase funding to the International Atomic
Energy Agency (the IAEA), to better fulfill its verification responsibilities under the JCPOA, as well as
the US Treasury Department's Office of Foreign Assets Control (OFAC), in order to enhance its ability
to ensure the strict enforcement of sanctions related to, amongst other countries, Iran
• Iran Terror Finance Act (H.R. 3662) which aims to restrict the removal of certain Iranian financial
institutions (that are featured in the annexures to the JCPOA) from being removed from OFAC's
Specially Designated Nationals and Blocked Persons List (SDN List), unless certain certifications are
submitted to and approved by OFAC, and
• IRGC Terrorist Designation Act (H.R. 3640 and Section 2094) - which aims to designate Iran's Islamic
Revolutionary Guard Corps as a foreign terrorist organisation under current US State Department
designations.
In response to some of the draft laws mentioned above, the White House has issued Statements of
Administration Policy voicing its opposition as they could potentially prevent the US from implementing its
sanctions relief obligations under the JCPOA. In doing so, the US President has re-emphasised his
intention to veto any proposed legislation which would undermine the JCPOA. Despite the conclusion of
the JCPOA's Congressional review period, the JCPOA continues to be subject to political initiatives aimed
at undermining its successful implementation.
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US developments - guidance
On 07 August 2015, the US Treasury Department published (1) new guidance on the implementation of the
JCPOA, (2) a list of frequently asked questions (FAQ) relating to the JCPOA sanctions relief, and (3) a new
licensing policy with regards to OFAC authorising transactions aimed at ensuring the safe operation of
Iranian commercial passenger aircraft. The guidance note addresses the issue of sanctions relating to
Iran's export of petrochemical products and crude oil, its automobile industry, gold and other precious
metals, civil aviation, and humanitarian and certain other transactions.
The FAQ document confirms that during the period from 20 January 2014 through to the JCPOA's
"Implementation Day" (referred to as the "JPOA Relief Period"), the only sanctions relief available will be
the original sanctions easing programme as agreed in the earlier Joint Plan of Action entered into between
P5 + 1 and Iran on 24 November 2014 (the JPOA).
The US Treasury Department's guidance note confirms that, during the JPOA Relief Period, the US
Government will continue to "vigorously enforce" its sanctions against Iran, including taking action against
those who seek to evade or circumvent its sanctions.
On 18 October 2015 (ie the JCPOA "Adoption Day"), the US President issued a Memorandum directing the
Secretary of State, Secretary of the Treasury, Secretary of Commerce and the Secretary of Energy to start
taking appropriate measures to ensure the prompt and effective implementation of the JCPOA. On the
same day, the US Secretary of State issued waivers of certain nuclear-related Iranian sanctions under
various US laws, which will be contingent on Iran fulfilling its nuclear commitments under the JCPOA.
Finally, the US Treasury Department issued a further guidance on the impact of "Adoption Day" confirming
that the only current sanctions easing is that under the JPOA (mentioned above) as opposed to the
JCPOA. Further guidance will be issued by OFAC closer to "Implementation Day".
As a reminder, "Implementation Day" will only occur once the IAEA has issued a report verifying that Iran
has met certain milestones and is on-course with its nuclear-related commitments as outlined in the
JCPOA.
US developments - enforcement
On 07 August 2015, OFAC issued a Finding of Violation against a British Virgin Islands (BVI) domiciled
subsidiary of a major international oilfield services company, for alleged breaches of Iran-related sanctions
under the Iranian Transactions and Sanctions Regulations (ITSR). The violation was stated to be with
regards to, amongst other things, (1) directing and overseeing the transfer of oilfield equipment from
projects in non-sanctioned countries to projects in Iran, and (2) providing certain technical services in order
to troubleshoot mechanical failures and to sustain sophisticated oilfield services in Iran. The Finding of
Violation stated that there had been similar breaches with regards to Sudan under the Sudanese Sanctions
Regulations. According to OFAC's Finding of Violation, the company concerned has entered into a plea
agreement with the US Department of Justice agreeing to pay a fine of approximately USD 155m, as well
as a forfeiture money judgement of approximately USD 77.5m.
Switzerland - sanctions lifting
Switzerland has become the first nation to remove Iran-related sanctions following the signing of the
JCPOA, after the Swiss Federal Council amended the Swiss Iran Sanctions Regulations (effective from 12
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August 2015). The lifting of Iran-related sanctions pertains to precious metals transactions with Iranian
state bodies, as well as the requirement to report trade in Iranian petrochemical products. The move also
eliminates the obligation in Switzerland to report the transportation of Iranian crude oil and petroleum
products and amends the rules on insurance and reinsurance policies linked to such transactions.
Threshold levels for reporting and obtaining licences for money transfers to Iran/Iranian nationals have also
been increased ten-fold.
However, the move is likely to have little practical effect, as the global operations of Swiss-based traders
are still bound by US and EU sanctions on, amongst other things, dealing in Iranian crude oil.
Iran - JCPOA approval process
On 21 June 2015, the Iranian Parliament (also known as the "Majlis") passed legislation authorising the
Supreme National Security Council (the SNSC) to supervise the implementation of the JCPOA. On 19
August 2015, the Iranian Parliament then appointed a 15 member Special JCPOA Investigation Committee
to review the JCPOA in greater detail and to provide its findings to the Iranian Parliament. It was reported
that on 03 October 2015, the SNSC issued its approval of the JCPOA to the Iranian Parliament, despite
highlighting several areas of concern. On 04 October 2015, the Iranian Parliament approved the language
of a draft bill (referred to as the "Iranian Government's reciprocal and proportional action in implementing
the JCPOA" - the "Iranian JCPOA Bill") that outlines how the Iranian Government should implement the
JCPOA.
As in the US, the JCPOA (referred to in Iran by its Farsi acronym "BARJAM") was the subject of a great
amount of heated debate in Iran, relating to both the JCPOA's substance and the domestic procedure
needed for either its approval or ratification. Initially, the Iranian JCPOA Bill was intended to be an "urgent"
or "one star" bill under the Iranian legislative process (only requiring approval by the committee concerned in this case, the SNSC). However, following an announcement on 03 September 2015 by the Supreme
Leader, Ayatollah Khamenei, that the Iranian Parliament should decide on the matter, the Iranian JCPOA
Bill became a "very urgent" or "two star" bill, requiring a full two-tiered review in the Iranian Parliament (the
first to address generalities and the second to address details).
On 11 October 2015, the Iranian Parliament approved the general outline of the JCPOA in a first round
vote. On 13 October 2015, the Iranian Parliament approved the details of the JCPOA in the required
second round vote. Finally, on 14 October, the Iranian JCPOA Bill was passed by a vote of final approval,
as constitutionally required, by the Guardian Council (one of the most influential governmental body in
Iran). This final step is required to ensure that all bills approved by the Iranian Parliament are consistent
with both the Iranian Constitution and Islamic law.
The passing of the Iranian JCPOA Bill marks a major milestone towards the success of Iran's JCPOA
implementation.
Iran - the new Integrated Petroleum Contract (IPC)
On 30 September, it was reported that the Iranian Cabinet had approved the Ministry of Petroleum's draft
of the IPC - Iran's new oil contract model.
The new IPC is intended to be a major improvement not only on the old buyback model previously used,
but also on contracts offered by Iraq to investors in the 2000s. Iran is in much need of international
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knowhow to develop new oilfields, pipelines and refinery infrastructure. The terms of the new IPC have not
been made public. Although it was previously announced that the new IPC would be revealed at a
conference later in the year in London, it has been announced that this has now changed to Tehran. The
Minister of Petroleum, Bijan Zangeneh, has announced that the conference will be held in the Persian
calendar month of Aban this year (approximately 23 October - 21 November 2015). Reportedly, there will
be a subsequent London conference in February 2016 for potential investors who are unable to attend the
inaugural event in Tehran.
IAEA - progress
On 15 October 2015, the IAEA issued a statement that the activities set out in its "Road-map for the
clarification of past and present outstanding issues regarding Iran's nuclear program" were completed. The
statement confirmed that by 15 December 2015, the Director General of the IAEA will provide the final
assessment on the resolution of all of Iran's past and present outstanding issues, for IAEA board review.
On 18 October 2015, it was announced that the Director General of the IAEA has been informed by Iran
that with effect from "Implementation Day", Iran will provisionally apply the Additional Protocol to its
Safeguards Agreements (which provides the IAEA with greater verification powers), subject to approval by
the Iranian Parliament.
The IAEA has made progress on Iran's nuclear issue and this serves as another good indicator of the
JCPOA's potential success.
JCPOA - next steps
18 October 2015 marked the end of the 90 day period from the adoption of UNSC Resolution 2231 (2015)
endorsing the JCPOA, which in the JCPOA's timeline is referred to as "Adoption Day". "Adoption Day"
signifies the date when then JCPOA officially comes into effect (since it has been adopted by all
signatories). All eyes are now on Iran to start the implementation of its nuclear commitments as outlined in
the JCPOA. These commitments include, amongst other things:
• dismantling and removing centrifuges from the Natanz facility and placing them into IAEA monitored
storage
• reducing its enriched uranium stockpile (from 1200kg to 300kg)
• working with the IAEA to put in place transparency measures, such as unique real-time online
enrichments monitoring (which will require the deployment and testing of new hardware and software)
• removing two thirds of the centrifuges at the Fordow facility and dismantling certain associated power
infrastructure, and
• filling the Arak reactor's center with concrete.
The above measures are only some of the actions that need to occur before the IAEA can issue its
verification report (which will mark "Implementation Day" - the day on which the JCPOA's listed nuclearrelated sanctions on Iran will be lifted). As expected, the milestones mentioned above require a great
amount of work to be done, some of which is unprecedented.
On 18 October 2015, it was reported that Iranian President, Hassan Rouhani, issued an order obliging
Iran's Foreign Ministry and the Atomic Energy Organisation of Iran to begin the implementation of the
JCPOA. It has also been reported that the first meeting of the JCPOA Implementation Commission to
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discuss the next steps took place in Vienna on 19 October 2015. As a result and as mentioned in our
previous note, it is likely that the process will take several months to implement and is not likely to occur
before Q1/Q2 2016.
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