On 27 June 2018, the US Treasury Department's Office of Foreign Assets Control (OFAC) amended the Iranian Transactions and Sanctions Regulations (ITSR) to revoke or narrow certain general licenses issued as part of the US sanctions relief implementing the Joint Comprehensive Plan of Action (JCPOA), replacing them with more limited wind-down authorizations. OFAC stated that these actions were in furtherance of President Trump's 8 May 2018 decision to withdraw the United States from the JCPOA. As discussed in our earlier client alert, OFAC had previously announced its intent to replace these general licenses with more limited wind-down authorizations in public guidance issued on 8 May 2018, which OFAC updated in connection with these changes.
- General License H (owned/controlled non-US entities): General License H (GL H) was revoked on 27 June with immediate effect. GL H previously authorized non-US entities owned or controlled by US Persons (i.e., entities organized under US law and their non-US branches; parties physically located in the United States; US citizens and permanent resident aliens wherever located or employed) to engage in Iran-related activities, subject to certain terms and conditions. Under the new general license at ITSR Section 560.537, such owned/controlled non-US entities are now authorized only to engage in transactions and activities through 11:59 pm EST on 4 November 2018 that are ordinarily incident and necessary to the wind-down of transactions and activities previously authorized by GL H.
Owned/controlled non-US entities winding down Iran-related transactions pursuant to ITSR Section 560.537 are subject to restrictions similar to those imposed by GL H. Such restrictions include, among others, no US Person involvement (except as described below); no US-dollar payments; no dealings with Specially Designated Nationals; and no dealings with any military, paramilitary, intelligence, or law enforcement entity of the Government of Iran.
ITSR Section 560.537 authorizes US Persons to engage in activities related to (1) the establishment or alteration of operating policies and procedures related to the winding down of Iran-related transactions and (2) providing owned/controlled non-US entities access to the global IT infrastructure necessary to process documents or information to wind down Iran-related transactions. This general license does not authorize US Persons to otherwise be involved in or facilitate the winding down of Iran-related transactions by owned/controlled non-US entities (e.g., negotiate contract terminations, approve such contractual terminations, process related payments). US Persons may nonetheless provide sanctions compliance advice, per OFAC's public guidance.
- General License I (commercial passenger aircraft/parts/services): General License I (GL I) was also revoked on 27 June with immediate effect. GL I previously authorized certain transactions by US Persons related to the negotiation of, and entry into, contingent contracts for activities eligible for authorization under the revoked Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Service (JCPOA SLP). The JCPOA SLP was rescinded on 8 May 2018. Under the new general license at ITSR Section 560.536, US Persons are now authorized only to engage in transactions and activities through 11:59 pm on 6 August 2018 that are ordinarily incident and necessary to the wind down of transactions previously authorized under GL I.
- ITSR Sections 560.534 and 560.535 (Iranian-origin carpets/foodstuffs): These general licenses at Sections 560.534 and 560.535 of the ITSR previously authorized transactions involving the importation into the United States of, and US Persons dealing in, certain Iranian-origin foodstuffs and carpets and transactions related to letters of credit and brokering services relating to those items. Under the amended versions of these ITSR general licenses, US Persons are authorized as of 27 June only to engage in transactions and activities that are ordinarily incident and necessary to wind down such previously authorized transactions through 11:59 pm on 6 August 2018.
As noted above, the wind-down authorizations related to the now-revoked GL I and ITSR Sections 560.534 and 560.535 apply through 6 August 2018, while the wind-down authorization related to the now-revoked GL H applies through 4 November 2018. Parties that wind down Iran-related transactions to comply with the ITSR should consider whether the European Union's updated Blocking Statute (see our earlier blog post) may affect such activities.
Separately, on 26 June 2018, the State Department announced in a briefing that the Trump Administration was asking US allies (and others) to cut their imports of Iranian oil to “zero” by 4 November 2018, and was predisposed not to grant any waivers to countries that do not sufficiently reduce such imports. However, on 2 July 2018, the State Department’s Director of Policy Planning appeared to soften that position, saying that while the Administration was not looking to grant waivers, “[w]e are prepared to work with countries that are reducing their imports on a case-by-case basis.” Absent such waivers, US secondary sanctions may target non-US central banks (and other foreign financial institutions owned or controlled by foreign governments) that engage in transactions involving Iranian petroleum or petroleum products, potentially resulting in restrictions or prohibitions on such banks from opening or maintaining correspondent banking or payable-through accounts in the United States. As a matter of law, the President may waive these US secondary sanctions if he determines that countries with primary jurisdiction over the relevant foreign banks have significantly reduced their imports of Iranian crude oil. While there is still significant scope for its position to further evolve by 4 November 2018, the Trump Administration has signalled that its policy preference is to convince other countries to reduce or eliminate their imports of Iranian oil by then rather than to consider waivers for significant reductions.