Considerations for Norwegian Companies after the US Withdrawal from the Iran Nuclear Deal
On May 8, President Donald Trump announced that the United States would withdraw from the Iran nuclear deal, otherwise known as the Joint Comprehensive Plan of Action ("JCPOA"), and re-impose the sanctions that the US had lifted under the deal. This will have important ramifications for Norwegian companies as the United States will quickly revert to the sanctions regime that existed before the JCPOA.
What guidance is available?
Following President Trump's announcement, the US Treasury Department published guidance indicating that it will reinstate secondary sanctions. Secondary sanctions have extraterritorial effect and are directed at non-US persons and entities conducting business with Iran wholly outside of U.S. jurisdiction. For example, secondary sanctions would apply to a Norwegian entity conducting business with an Iranian party, even though no US persons or entities are involved in the transaction. For a further discussion of secondary sanctions, see our previous article: What Do President Trump's Iran Threats Mean for Norwegian Companies?
Some secondary sanctions will be re-imposed 90 days after President Trump's announcement, while others will be re-imposed 180 days after. These 90- and 180-day periods are designed to give entities doing business in Iran an opportunity to wind down operations that would otherwise violate the secondary sanctions. During these periods, the entities may conduct transactions and receive payments under agreements entered into before May 8, but should not enter into any new transactions. Entities that fail to comply may face penalties from the US government.
Which sanctions will be re-imposed?
The first set of sanctions that will be re-imposed after the 90-day wind-down period, which ends on 6 August 2018, include sanctions on the direct or indirect sale, supply, or transfer to or from Iran of industrial materials such as aluminium, steel and coal, as well as software for integrating industrial processes.
The second set of sanctions, which will be re-imposed after the 180-day period ending on 4 November 2018, target sectors that are particularly important for Norwegian exporters. They prohibit transactions with Iran's port operators and shipping industry, and prohibit certain petroleum-, energy- and insurance-related transactions. Transactions between foreign financial institutions and the Central Bank of Iran will also be barred after the 180-day period.
Before 5 November 2018, the U.S. will also re‑designate all parties that it had removed from the List of Specially Designated Nationals and Blocked Persons ("SDN List") pursuant to the JCPOA (for example, parties falling within the definition of “Government of Iran” or “Iranian financial institution)”. Non-US persons will be exposed to secondary sanctions for engaging in certain transactions with parties on the SDN List. Norwegian companies should therefore conduct updated due diligence of their Iranian business partners to ensure that they are not engaging in transactions with an SDN.
Furthermore, OFAC intends to revoke General License H ("GL H"), which authorized U.S.-owned or -controlled foreign entities to engage in certain activities involving Iran. Revised licenses that allow for the wind-down of activities previously authorized under GL H will be available and valid until 4 November 2018, after which these activities will be prohibited.
Reactions and Practical Implications
It remains to be seen whether the other parties to the JCPOA—the EU, France, Germany, UK, China and Russia—will continue to uphold their commitments with Iran. Shortly after President Trump's announcement, France, Germany and the United Kingdom released a joint statement reiterating their commitments to uphold the JCPOA.
By November, it is likely that non-U.S. banks will have returned to the pre‑JCPOA way of dealing with Iran-related transactions. This will make it extremely difficult, costly and time-consuming for Norwegian companies to conduct business with Iran. Companies should take into consideration that they may not be able to receive payments from Iran due to restricted access to international payment systems. Norwegian companies should therefore plan well ahead to ensure compliance and develop banking strategies for Iran-related transactions.
Wikborg Rein will continue to monitor US sanctions developments and their effects on Norwegian companies.