Effective yesterday, as part of the President’s decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA), the Office of Foreign Assets Control (OFAC) revoked several general authorizations that had been issued as part of the JCPOA, and amended the Iranian Transactions and Sanctions Regulations (ITSR) to implement “wind down” periods for persons who had previously relied on these authorizations. In addition, OFAC updated its Frequently Asked Questions (FAQs) providing guidance on the JCPOA withdrawal, although these minor updates do not add much insight.
Yesterday’s action primarily impacts certain US companies, as well as non-US companies owned or controlled by US persons. The most significant change is the revocation of OFAC’s General License H, which had provided sanctions relief pursuant to the JCPOA for foreign subsidiaries of US companies conducting business with Iran. In its place, OFAC has issued a new general license authorizing the wind down of business with Iran by foreign subsidiaries until November 5, 2018. Yesterday’s action also revokes OFAC’s general licenses authorizing imports into the United States of Iranian-origin carpets and foodstuffs and the entry into contingent contracts related to sales of commercial passenger aircraft and related goods and services, which have been replaced with similar wind down provisions requiring that all such activity cease by August 7, 2018.
General License H
OFAC’s General License H was issued on January 16, 2016 (JCPOA “Implementation Day,” on which we previously advised) to authorize certain business with Iran by non-US entities owned or controlled by US persons, as well as limited support by the US owner/parent. General License H was aimed in particular at foreign subsidiaries of US companies, which in 2012 had been made subject to the ITSR’s prohibitions on business with Iran that otherwise apply only to “US persons.” Part of the deal struck in the JCPOA was that the United States would relieve foreign subsidiaries from some of the sanctions constraints they had faced in Iran. While General License H turned out to be much less useful than many had hoped due to the complexities and limitations it contained, it did provide an important general authorization for certain types of offshore business with Iran with only limited connections to the United States or US persons.
General License H is no longer in effect as a result of OFAC’s action yesterday and has been replaced by a wind down provision. Specifically, § 560.537 of the ITSR now authorizes through 11:59 p.m. eastern standard time on November 4, 2018 “all transactions and activities that are ordinarily incident and necessary to the wind down” of (1) activity with Iran by non-US entities owned or controlled by US persons that previously had been authorized under General License H, and (2) related support by the US owner/parent that previously had been authorized under General License H. In other words, this activity by foreign subsidiaries and their US owners/parents must end completely by November 5, 2018.
Companies should not expect OFAC to grant exceptions to this wind down and termination requirement, unless there are extraordinary circumstances involved. Companies should expect aggressive enforcement of this rule. For example, any spikes in activity between yesterday and November 5, and any spill-over of payments, deliveries, etc. after that deadline, would risk penalties. Compliance with OFAC’s wind down provisions can be a complex matter that should be approached with caution.
If a non-US subsidiary of a US parent company has been operating under General License H and faces circumstances that might require it to continue business with Iran after November 4, it should quickly take stock of the situation and consider preparing an application to submit to OFAC for a specific license to conduct otherwise prohibited activity. But companies should be realistic and understand that OFAC is highly unlikely to grant most such applications, so termination of and disruption in business should be expected and managed. OFAC is unlikely to grant a license unless a compelling case can be made that the activity is critical to the applicant, and does not undermine US foreign policy interests, including as reflected in US “secondary sanctions” on Iran.
General License I
Along with General License H, on January 16, 2016, OFAC issued a Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (SLP) allowing companies to apply for specific licenses to supply commercial passenger aircraft or related goods or services to Iran. On March 24, 2016, OFAC issued General License I, authorizing companies to enter into contracts for such deals, contingent on obtaining the required authorization from OFAC. OFAC had already rescinded the SLP on May 8, 2018, and also stated at that time that specific licenses issued under the SLP would be revoked. Yesterday, OFAC revoked General License I and replaced it with a wind down provision at § 560.536 of the ITSR, which is valid through 11:59 p.m. eastern daylight time on August 6, 2018. If companies have not yet received notice that their specific licenses under the SLP have been revoked, they should expect that soon or else contact OFAC.
The commercial passenger aircraft sector is now essentially closed to Iran, including for many non-US suppliers providing goods or services with significant US-origin content or where US persons are otherwise involved. One noteworthy exception is the safety of flight licensing policy at § 560.528 of the ITSR, which remains in place. Companies can still submit specific license applications to OFAC for safety of flight purposes, but should expect OFAC to scrutinize such applications closely.
Iranian-origin carpets and foodstuffs
On January 21, 2016, also as part of the US commitments under the JCPOA, OFAC issued a general license at § 560.534 of the ITSR authorizing imports into the United States of Iranian-origin carpets and foodstuffs, including pistachios and caviar (along with a general license at § 560.535 of the ITSR authorizing letters of credit and brokering services related to purchases of the authorized Iranian-origin carpets and foodstuffs). These general licenses have similarly been revoked and replaced by wind down provisions valid through 11:59 p.m. eastern daylight time on August 6, 2018. As with the previously-authorized imports, the wind down transactions may not involve the provision of any goods, services or technology, directly or indirectly, to Iran, the Government of Iran, an Iranian financial institution, or other restricted parties.