What Do President Trump's Iran Threats Mean for Norwegian Companies?
At last month's State of the Union address, President Trump called on Congress to "address the fundamental flaws in the terrible Iran nuclear deal". Trump has been attacking the deal, formally known as the Joint Comprehensive Plan of Action (the "JCPOA"), since he began campaigning for the presidency. But this latest statement, made at one of Washington's most important political events and coming on the heels of Trump's January 12 threat to withdraw from the JCPOA, suggests that the president may be closer to taking action. If Trump does decide to end US participation in the JCPOA, how will he do it? And what will this mean for Norwegian companies considering business in Iran?
How can President Trump end US participation in the JCPOA?
One way in which President Trump can trigger an end to US participation in the JCPOA is by creating an opening for Congress to pass legislation reinstating some or all of the sanctions that the JCPOA lifted. Under the US law that governs the nation's participation in the JCPOA, the president is required to certify every three months that Iran is fulfilling its JCPOA obligations. If the president does not issue this certification, then Congress has a 60-day right—although not an obligation—to re-impose sanctions on Iran. President Trump refused to issue a certification in October 2017 and again in January 2018. While these decisions have not yet spurred Congress to action, it seems likely that Trump will continue to refuse to issue certifications in the hope that he can nudge Congress to act.
Another option for President Trump is to unilaterally re-impose sanctions on Iran, thereby ending US participation in the JCPOA without having to go through a congressional process. Implementation of the JCPOA is achieved by the president waiving certain sanctions that would otherwise apply to Iran. However, these presidential waivers are not permanent. They must be regularly renewed—some as frequently as every 120 days. If President Trump refuses to renew the waivers, these sanctions will come back into force. This will not only put the US in material breach of the JCPOA, it will also significantly reduce non-US companies' opportunities for business and trade with Iran. The next set of waivers is due to expire on 12 May 2018.
What would happen to Norwegian companies if the US reinstates secondary sanctions previously lifted by the JCPOA?
The JCPOA brought an end to the majority of the US's secondary sanctions against Iran. Secondary sanctions have extraterritorial effect, which means that they apply to all non-US companies for activities occurring entirely outside of the US, even if no US persons are involved. US authorities can retaliate against non‑US companies that violate secondary sanctions against Iran by blocking their access to the US market and financial system.
Although the majority of US secondary sanctions were waived as part of the JCPOA, there are still secondary sanctions in place that Norwegian companies must be aware of when doing business with Iran. These sanctions prohibit Norwegian companies from knowingly engaging in significant transactions on behalf of, or for the benefit of, any person on the US Specially Designated Nationals and Blocked Persons List, or any company which is owned more than 50% in the aggregate by such persons. They also prohibit Norwegian companies from transacting with Iran's Revolutionary Guard Corps ("IRGC") or any of its officials, agents, or affiliates. Norwegian companies doing business in Iran should be particularly aware of this last prohibition since the IRGC exercises control over much of the shipping and transport infrastructure in Iran.
Furthermore, Norwegian companies continue to be prohibited from knowingly engaging in conduct that seeks to evade US restrictions on transactions or dealings with Iran or that causes the export of goods or services from the US to Iran. A Norwegian company could also potentially become subject to penalties for causing a US person to violate Iranian sanctions.
But if the US were to end its participation in the JCPOA, the scope of the secondary sanctions applicable to Norwegian companies would expand vastly, returning to the level seen before implementation of the JCPOA and covering a wide range of oil, energy, and shipping transactions with Iran. Norwegian companies engaging in these transactions would then risk being frozen out of the US market and financial system. Perhaps more problematic, the re-imposition of these sanctions would likely deter banks in Norway and elsewhere from dealing with Norwegian companies operating in Iran for fear that the banks would lose access to the US financial systems critical for their business.