On October 13, 2017, President Trump announced that he was "decertifying" Iran's compliance with the Joint Comprehensive Plan of Action ("JCPOA"). By itself, this action does not mean that the United States has withdrawn from the JCPOA, nor does it reinstate sanctions that were lifted under the JCPOA. What it does do, however, is to hand the matter over to the US Congress for a 60-day review period in which Congress must decide whether the sanctions relief under the JCPOA will remain in effect. Congress is also reported to be considering new laws that would automatically re-impose US sanctions if Iran violates existing and new restrictions on its nuclear program and President Trump has threatened to use his authority to cancel US participation in the JCPOA if Congress fails to act. Against this uncertain US political backdrop, both Iran and US allies have reaffirmed their clear commitment to Iran's compliance with the JCPOA. In parallel, Iran's Islamic Revolutionary Guard Corps ("IRGC"), which was already designated on the List of Specially Designated Nationals and Blocked Persons ("SDN List"), has been targeted for further sanctions for its support of terrorism, resulting in the loss of certain exemptions under US sanctions.
Why "decertify" the JCPOA now?
The President's announcement was made in anticipation of an October 15 deadline under the Iran Nuclear Agreement Review Act of 2015 ("INARA"). Under the INARA, every 90 days, the President is required to certify to the US Congress that Iran is in compliance with the terms of the JCPOA and that the suspension of sanctions under the JCPOA is appropriate and proportionate to measures taken by Iran to terminate its illicit nuclear program and continues to be vital to the national security interests of the United States. The President has made this certification twice since he was sworn into office in January 2017, although each time reluctantly. The President has also continued to renew the periodic waivers of US sanctions that are required for the United States to remain in compliance with the JCPOA, which is a process separate from the INARA certification process.
What are the implications for companies?
As noted, the President's announcement that he will decertify Iran's compliance with the JCPOA does not terminate the nuclear deal, withdraw the United States from it, or reinstate any sanctions. Rather, the announcement triggers the beginning of a 60-day period in which the US Congress must decide whether to affirmatively introduce legislation to reinstate the statutory sanctions against Iran that have been waived, suspended, or otherwise relieved as part of the United States' JCPOA commitments. These sanctions, often referred to as "secondary sanctions," primarily target non-US companies engaging in business in or with Iran entirely outside US jurisdiction. They are widely viewed as one of the primary drivers in bringing about the JCPOA.
The decertification does not affect the longstanding US primary embargo on Iran, which continues to preclude most US Person dealings with Iran. The decertification also does not affect (for now at least) General License H, which was issued by the former Administration as part of the JCPOA to authorize non-US owned/controlled subsidiaries of US companies to resume business with Iran under certain conditions.
What is Congress likely to do?
In his speech, President Trump said that he would support an effort by the US Congress to amend INARA "to strengthen enforcement, prevent Iran from developing… an intercontinental ballistic missile, and make all restrictions on Iran's nuclear activity permanent under US law." To that end, Senate Foreign Relations Committee Chairman Bob Corker and Armed Services Committee member Tom Cotton are preparing to introduce legislation that would automatically re-impose US sanctions that were suspended or waived under the JCPOA if Iran violates existing restrictions under the JCPOA or new restrictions that are to be enumerated in the bill. In particular, sanctions would be re-imposed if Iran returned to less than a one-year break-out period for developing a nuclear weapon after the "sunset" of certain provisions in the JCPOA.
What happens if no legislative solution is reached?
The President said in his speech that if no solution is reached, the JCPOA will be terminated. He stated that the JCPOA "is under continuous review, and our participation can be cancelled by me, as President, at any time." In addition to potentially withdrawing the US from the JCPOA, President Trump may also choose not to renew the periodic waivers of US sanctions that are required to fulfill US commitments under the JCPOA.
What has the response been from the EU so far?
In response to President Trump's announcement, on October 13, 2017, UK Prime Minister Theresa May, German Chancellor Angela Merkel and French President Emmanuel Macron, issued a joint statement expressing concern for the potential implications of President Trump's decision and encouraging the US Congress to consider the effects on the security of both the US and its allies. While the leaders also acknowledged a shared concern regarding Iran's ballistic missile program and a willingness to take appropriate measures in cooperation with the US and other allies, the statement makes clear that they will look to resolve these concerns through negotiations and constructive dialogue with Iran.
Subsequently, on October 16, 2017, the European Council ("EC") issued a press release declaring the EU's continued commitment to the JCPOA and stressing that the JCPOA is a "key element of the nuclear non-proliferation global architecture and crucial for the security of the region." While the EC views President Trump's announcement as an "internal US process," it encourages the US to maintain its commitment to the JCPOA. The press release notes that since the implementation of the JCPOA, the International Atomic Energy Agency has verified Iran's continued compliance with all of its nuclear-related commitments under the JCPOA eight times. In line with the joint statement above, the EC reiterated that while it remains concerned with Iran's development of its ballistic missile program, it contends that such concerns ought to be addressed outside of the JCPOA.
If the US were to withdraw from the JCPOA and re-impose sanctions against Iran following the 60-day Congressional review period, the EU will need to consider how it reacts. One option that the EU is reportedly considering is to resurrect and expand its blocking regulation (Council Regulation 2271/96, as amended) to "block" the extra-territorial aspects of the US Iranian sanctions as they apply to parties subject to EU jurisdiction. This would be similar to the position the EU has taken in relation to the extra-territorial aspects of the US comprehensive embargo against Cuba. However, as with Cuba, this approach could put EU-incorporated entities with US parent companies in the difficult position of choosing between complying with the US sanctions or complying with the EU blocking regulation.
IRGC Terrorism Designation
President Trump also announced that he was authorizing the US Treasury Department to impose additional sanctions against the IRGC for its support for terrorism. The IRGC was already designated on the SDN List pursuant to a number of other sanctions authorities, including authorities relating to non-proliferation and human rights abuses (denoted with the following tags next to the relevant entry on the SDN List: [NPWMD] [IRGC] [IFSR] [IRAN-HR] [HRIT-IR]).
OFAC implemented these new sanctions by designating the IRGC under Executive Order 13224, attaching an additional [SDGT] tag next to the entry for the IRGC on the SDN List. This designation was made consistent with the requirements of the Countering America's Adversaries Through Sanctions Act ("CAATSA") enacted on August 2, 2017, which required the President to impose sanctions against the IRGC and foreign persons that are officials, agents, or affiliates of the IRGC under EO 13224 within 90 days of the law being enacted, i.e., by October 31, 2017. See our prior blog post on CAATSA here.
Because the IRGC was already an SDN, its property was already subject to blocking, and US Persons were already prohibited from dealing directly or indirectly with the IRGC or entities 50% or more owned by the IRGC. However, designating the IRGC under Executive Order 13224 means that the so-called "Berman exemptions" to the International Emergency Economic Powers Act ("IEEPA") are no longer available when dealing with the IRGC or IRGC-owned entities. Importantly, these include key exemptions covering travel, exchanges of information or informational materials, personal communications and humanitarian donations.
OFAC also concurrently announced the designation of three additional entities in Iran and one additional entity in China under Executive Order 13382 (blocking property of weapons of mass destruction proliferators and their supporters) for providing support to the IRGC or Iran's military. This continues a recent trend of targeting supporters of Iran's non-nuclear activities outside the JCPOA.