Smoke with No Fire: Despite Agreement in Geneva, U.S. Sanctions Continue To Prohibit Most Iran Transactions
On November 23, 2013, the White House issued a Press Release (“the Announcement”) outlining the first of a two-step negotiation process between Iran and the United States, the United Kingdom, Germany, France, Russia, and China (the “P5+1”). The Announcement calls for the P5+1 countries to provide limited sanctions relief to Iran in exchange for Iran’s commitment to reduce its enriched uranium efforts. Persons and entities subject to the jurisdiction of the United States will experience very little impact from the limited sanction relief offered in the Agreement. The U.S.’s comprehensive sanctions program remains in full force and the U.S. government is committed to enforcing sanctions violations.
The Announcement establishes a six-month time frame during which the P5+1 countries and Iran will continue to negotiate in order to establish a comprehensive solution to address Iran’s nuclear development. During these six months, the U.S.’s comprehensive sanctions regime will remain in place, with the exception of a few elements carved out as described in the Announcement. Each government of the P5+1 will be responsible for promulgating country-specific regulations or rules adopting the policies outlined in the Announcement, and persons subject to the jurisdiction of the U.S. would be wise to wait for clarifying guidance in the form of Executive Orders or General Licenses before engaging in otherwise prohibited conduct.
The P5+1 have agreed to exempt the following activities from sanctions during the six-month period in order to keep Iran an active participant in the negotiations:
- No New Sanctions for Six Months. Provided Iran meets its obligations during the six-month period, the P5+1 will not impose additional nuclear sanctions on Iran, if permissible. This clause is subject to challenge by the United States as Congress contains the authority to issue legislation directly sanctioning Iran.
- Suspension of Targeted Sanctions. The Agreement calls for a suspension of recently enacted U.S. sanctions targeting the following sectors of Iran economy: gold and precious metals, automotive, and Iran’s petrochemical exports. Persons will need to wait for specific guidance from the U.S. government prior to engaging in any transaction with these otherwise blocked sectors of Iran’s economy.
- Safety of Iranian Aircraft. Grant licenses for transactions related to the inspection and repair within Iran of designated Iranian airlines. U.S. persons will need to wait for specific authorization from the U.S. government prior to engaging in transactions in Iran related to Iranian airlines.
- International Purchases of Iranian Oil. The P5+1 countries will allow the international community to continue purchasing Iranian oil at its current level without requiring a further global reduction in Iranian oil. This authorization will have no impact on U.S. persons as they remain prohibited from dealing in Iranian oil.
- Unblocking of Iranian Assets for Educational Purposes. The P5+1 countries will authorize the unblocking of $400 million of Iranian assets so the funds can be transferred to recognized educational institutions in third countries to offset the educational costs of Iranian students.
- Humanitarian Activities. The Agreement calls for the P5+1 countries to facilitate humanitarian activities with Iran. This element of the Agreement is likely to have little impact on U.S. persons as the U.S. government authorizes exports of medicine, medical devices, food and agricultural products to Iran. However, the Agreement does reference the authorization to make payments for medical expenses incurred by Iranians abroad. Such authorization could substantially impact insurance companies or other service providers that extend insurance services to Iranian nationals.
In order to earn the reductions in sanctions cited above, Iran has committed to substantially modify its uranium enrichment and to make available for inspection its uranium enrichment. Iran’s commitments include:
- Stop all uranium enrichment above 5 percent
- Dilute or convert uranium enriched above 5 percent
- Stop future enrichment activities by:
- Not installing new centrifuges
- Leaving inoperable certain centrifuges at Natanz and Fordow
- Limiting centrifuge production to replacement of damaged machines
- Not constructing new enrichment facilities
- Not increasing its stockpile of 3.5 percent enriched uranium
- Authorize access by IAEA:
- Natanz and Fordow
- Centrifuge facilities
- Centrifuge component production and storage facilities
- Uranium mines and mills
- Ceasing activities at Arak reactor and Halting progress on plutonium
- Provide design information about the Arak reactor
- Provide inspector access to Arak
- Provide Arak safeguard protocol
Reed Smith is continuing to monitor this situation closely.