On 14 January 2020, the Foreign Ministers of France, Germany and the United Kingdom released a joint statement that they were referring Iran's failure to meet its commitments under the Joint Comprehensive Plan of Action ("JCPOA") to the Joint Commission, therefore commencing the dispute resolution mechanism that the JCPOA provides.

This move follows Iran's announcement on 5 January 2020 that it would no longer adhere to certain limits agreed under the JCPOA and will therefore no longer observe limitations on uranium enrichment, stockpiles of enriched uranium or nuclear research and development.

The triggering of the dispute resolution mechanism could ultimately lead to the re-imposition of the former UN (and EU) sanctions against Iran, particularly if Iran continues to breach its commitments under the JCPOA. However, the move is stated as being "in good faith with the overarching objective of preserving the JCPOA", therefore there remains a possibility of the deal being preserved (whether in its current or amended form).

This alert will focus on the dispute resolution mechanism, the process by which UN and EU sanctions could be re-imposed, and the scope and effect of these sanctions.

Dispute resolution mechanism

Iran's breach of its commitments does not automatically result in the re-imposition of UN and EU sanctions. The JCPOA - endorsed by UN Security Council Resolution 2231 (UNSCR 2231) - provides a dispute resolution mechanism if one of the parties in the JCPOA believes that the agreed commitments have not been met. Accordingly, if one of the JCPOA participants believe that another participant - in this case Iran - is not meeting its commitments under the JCPOA, it can refer its actions to the Joint Commission (as France, Germany and the United Kingdom have done).

Following such a referral, the Joint Commission has 15 days to resolve the issue (this time period can be extended by consensus). Following consideration by the Joint Commission, any party (i.e. the complaining party or Iran) can refer the issue to the Ministers of Foreign Affairs if they believe that the issue has not been resolved. Ministers then have 15 days to resolve the issue (this time period can also be extended by consensus).

After Joint Commission consideration – in parallel with (or in lieu of) review at Ministerial level - either the complaining party or Iran may request that the issue be considered by an Advisory Board. The Advisory Board consists of three members (one appointed by each of the participants in the dispute and a third independent member). The Advisory Board should provide a non-binding opinion within 15 days.

If, after this process, the issue is not resolved, the Joint Commission will consider the opinion of the Advisory Board for no more than 5 days. If, after this consideration, the issue is still not resolved to the satisfaction of the complaining party, that party may treat the unresolved issue as grounds to cease performing its commitments under the JCPOA (in whole or in part) and/or notify the UN Security Council that it believes the issue constitutes "significant non-performance".

Significant non-performance

Once the UN Security Council receives a "significant non-performance" notification (along with a description of good-faith efforts used to exhaust the dispute resolution process), it will vote on a resolution to continue sanctions relief under the JCPOA. If a resolution is not adopted within 30 days of receipt of a notification, the former UN sanctions which had been lifted under the JCPOA will automatically "snapback". A UN Security Council resolution is adopted if: (i) 9 of the 15 Security Council members vote for the resolution; and (ii) no veto is received from any of the five permanent members (United States, United Kingdom, France, Russia, and China).

This snapback is effective midnight (GMT) after the 30th day following notification to the UN Security Council has passed.

As such, if Iran's non-performance is referred to the UN Security Council, the chances of a resolution being passed is very small (particularly given the role of the US as a permanent member).

It remains to be seen whether the dispute resolution mechanism process will reach this stage, leading to UN "snapback", or whether the issue can be resolved to the satisfaction of the complaining participants. A further possibility going forwards, in line with recent statements from Foreign Ministers, is that the deal could be re-negotiated.

Re-imposition of EU sanctions

Currently France, Germany and the United Kingdom adopt EU-wide sanctions through the EU. The snapback of UN sanctions would require the EU to impose the UN sanctions targeting Iran, but would not automatically result in the re-imposition of EU sanctions.

The EU sanctions that were lifted in January 2016 under the JCPOA go significantly beyond UN sanctions targeting Iran (including broad sanctions measures impacting the banking, insurance, energy, and shipping sectors amongst others). The EU could decide to re-impose the additional unilateral EU sanctions at any time, but it is likely that the any decision would follow a UN snapback. The statement released by the Foreign Ministers of France, Germany and the United Kingdom also suggests this, noting their "regret and concern at the decision by the United States to withdraw from the JCPOA and to re-impose sanctions on Iran".

No specific or automatic EU ‘snapback’ mechanism was provided for in the relevant EU legislation issued on Adoption Day on 18 October 2015. Re-imposition of sanctions would need to follow the standard legislative process; in short, any snapback of EU sanctions will be decided on by the Council of the European Union, based on a recommendation by the High Representative of the European Union for Foreign Affairs and Security Policy of France, Germany and the United Kingdom, and requiring all 28 current EU Member States to vote unanimously; any variation to the EU sanctions targeting Iran would also have to be voted upon unanimously.

While the re-imposition of EU sanctions would require unanimity, the EU has stated in both legislation and guidance that the former EU sanctions would be re-imposed if the JCPOA fails. For example:

  • Recital 6 of Regulation 2015/1861 states as follows: "The commitment to lift all Union nuclear-related sanctions in accordance with the JCPOA is without prejudice to the dispute-resolution mechanism specified in the JCPOA and to the reintroduction of Union sanctions in the event of significant non-performance by Iran of its commitments under the JCPOA."
  • EU guidance on the JCPOA issued on 23 January 2016 states as follows: "In the event of a significant non-performance by Iran of its commitments under the JCPOA and after having exhausted all recourse possibilities under the Dispute Resolution Mechanism, the European Union will reintroduce the lifted EU sanctions ("EU snapback")."

It remains to be seen whether the United Kingdom position could vary from that of the EU over time, post-Brexit. This will depend on the arrangements agreed between the EU and the United Kingdom, and the position the United Kingdom adopts under its independent sanctions regime.

Impact on businesses trading in Iran in the event both UN and EU sanctions are re-imposed

EU snapback would see the re-introduction of broad sanctions measures impacting many sectors, with only limited protections, in addition to the existing EU sanctions measures currently in place against Iran. These could have a significant additional impact on EU business with Iran.

In terms of the jurisdiction of any re-imposed EU sanctions against Iran, they would have jurisdiction over the following (consistent with the current EU sanctions relating to Iran):

i. EU entities (and their non-EU branches);
ii. non-EU entities doing business in whole or in part in the EU (e.g., using an EU account or shipping items from the EU);
iii. anyone based in the EU (whatever nationality);
iv. EU Member State nationals (wherever located or operating); and
v. any conduct in the EU.

Controlled transactions

In short summary, with respect to the types of Iran-related transactions that would be caught by such EU sanctions against Iran, controls would apply to:

  • dealings with "Iranian Persons" (includes non-Iranian companies that are "owned or controlled directly or indirectly" by Iranian parties)
  • dealings with Designated Persons (DP);
  • exports/imports relating to Iran (together "Controlled Transactions").

In terms of designated person controls, the re-imposition of UN and EU sanctions against Iran would likely result in the re-designation of all Iranian parties who were removed from the EU DP list as a result of the JCPOA. If so, most Iranian banks would be re-designated.

In addition to the broader list of DPs, there are also extensive product controls, financial controls and circumvention controls which would come back into force, including the following:

Product controls and restrictions impacting certain sectors, including:

  • controls on dual-use, oil and gas-related, internal-repression related, and proliferation-sensitive items and related service
  • restrictions relating to the shipping and transport sectors
  • heightened customs controls
  • heightened WMD end-use controls

Financial controls

  • controls on the transfers of funds between Iranian and EU persons and banks, requiring notifications and authorisations above certain thresholds
  • restrictions on relationships between EU and Iranian banks
  • investment-related
  • controls controls relating to insurance & financial services

However, certain limited protections are likely to be afforded in respect of existing contracts and business. In particular, relevant EU legislation suspending/lifting these EU sanctions measures under the JCPOA stated that "In case of reintroduction of Union sanctions, adequate protection for the execution of contracts concluded in accordance with the JCPOA while sanctions relief was in force will be provided consistent with previous provisions when sanctions were originally imposed." This could include certain grandfathering, exceptions, and authorisation carve-outs, some of which will be time-limited. Businesses may review the former EU sanctions legislation in order to assess whether similar protections may assist their transactions in the event of EU snapback.

EU Blocking Regulation

The EU Blocking Regulation (EUBR) is designed to deal with the extraterritorial application of US laws; its purpose is to protect individuals and entities within the EU from carrying out lawful activities with Iran outside US territory. Following the US withdrawal from the JCPOA in 2018, the EU added certain US-Iran related measures to the EUBR. However, in the event of a snapback of EU sanctions, it is possible that the EU will remove these US sanctions from the EUBR. This remains to be seen depending on negotiations and developments with respect to the JCPOA and more broadly regarding Iran.


Josep Borrell, The High Representative of the EU for Foreign Affairs and Security Policy, will oversee the dispute resolution mechanism. In his statement he said that the mechanism aimed "to resolve issues relating to the implementation" of the JCPOA. It remains to be seen whether such an aim is possible and clients should be aware that re-imposed UN and EU sanctions would require careful consideration and management moving forward. Finally, we note that the situation with respect to Iran is volatile, with the almost daily announcements from Iran, the US and the EU regarding the situation adding to the uncertainty.

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