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US imposes further sanctions on Iran – what does this mean for the JCPoA and for global corporations and financial institutions?

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17-01-2020

On 10 January 2020, following the recent military escalation between Iran and the US, the White House issued Executive Order, "Imposing Sanctions With Respect to Additional Sectors of Iran" (“EO 13902”), which expands the already broad US sanctions on Iran. Following the US’s withdrawal from the Joint Comprehensive Plan of Action (“JCPoA”) and the re-imposition of pre-JCPoA sanctions on Iran in November 2018, the US already had an almost total economic embargo on Iran, essentially restricting all business with Iran, including exports and imports, as well as dealings with Iranian financial institutions (please see here for our most recent briefings on Iran).

Concurrently, the Office of Foreign Assets Control of the US Department of Treasury (“OFAC”) designated several Iranian officials and entities on the Specially Designated Nationals (“SDN”) List pursuant to Iran sanctions, including “Iran’s largest metal manufacturers” and “senior Iranian officials for their involvement and complicity in [7 January] ballistic missile strikes.”

The New US Sanctions

EO 13902 places additional sanctions on Iran, making sanctionable dealings in Iran’s construction, mining, manufacturing anfd textiles sectors. OFAC has also designated six Iranian individuals, 20 Iranian and non-Iranian (from China, Oman, and Seychelles) entities, including Iran’s largest steel, aluminium, copper, and iron manufacturers, and one vessel associated with one of the designated Chinese companies. President Donald Trump has stated that EO 13902 will have a major impact on Iran’s economy and such sanctions will remain in place until Iran “changes its behaviour.”

Below is a list of entities designated as SDNs:

  • Non-Iranian Entities:
    • Pamchel Trading Beijing Co. Ltd. (China) - alleged purchaser of steel slabs from Iran
    • Hongyuan Marine Co. Ltd. (China) and its vessel, the Hong Xun - alleged transporter of steel slabs purchased by Pamchel
    • Reputable Trading Source LLC (Oman) - alleged agent for Khouzestan Steel Company (listed below)
    • Power Anchor Limited (Seychelles) - alleged “front company” of Pamchel Trading Beiing Co. Ltd.
  • Iranian Entities:
    • Esfahan’s Mobarakeh Steel Companyve – largest steel producer in the Middle East
    • Saba Steel
    • Hormozgan Steel Company
    • Esfahan Steel Company
    • Oxin Steel Company
    • Khorasan Steel Company
    • South Kaveh Steel Company
    • Iran Alloy Steel Company
    • Golgohar Mining and Industrial Company
    • Chadormalu Mining and Industrial Company
    • Arfa Iron and Steel Company
    • Khouzestan Steel Company
    • Iranian Ghadir Iron and Steel Company
    • Iran Aluminum Company - accounts for approximately 75 percent of Iran’s total aluminium production volume
    • Al Mahdi Aluminum Corporation
    • National Iranian Copper Industries
    • Khalagh Tadbir Pars Co.

US persons had already been generally prohibited from engaging directly or indirectly with any Iranian companies before the new measures. EO 13902 prohibits US persons from engaging in any dealings with the new SDNs (both Iranian and foreign) as well as any entities that are directly or indirectly owned 50% or more by the SDNs without an OFAC license.

In addition, EO 13902 allows OFAC to impose secondary sanctions (SDN designations) on non-US companies and financial institutions determined by OFAC to have:

  • knowingly engaged in a “significant” transaction for the sale, supply or transfer to or from Iran of “significant” goods or services in any of the targeted sectors; or
  • materially assisted, sponsored, or provided financial, material or technological support for, or goods or services to or in support of, any SDNs designated pursuant to EO 13902.

In addition, OFAC can impose secondary sanctions on non-US financial institutions (prohibition on the opening, and prohibition or imposition of strict conditions on the maintaining, in the US of a correspondent account or a payable-through account) who have knowingly conducted or facilitated any significant financial transaction:

  • for the supply to or from Iran of significant goods or services used in the targeted sectors; or
  • for or on behalf of any SDN designated pursuant to EO 13902.

OFAC said Thursday in an FAQ on its website that it would give non-US companies 90 days to wind down their business operations in the newly designated Iranian sectors.

The EU/UK approach

Since the imposition of these new sanctions on Iran by the U.S., Iran announced that it will no longer observe its commitments regarding the production of centrifuges and enrichment of uranium under the JCPoA.

Despite this, The UK, France and Germany, otherwise known as the E3, remain members of the JCPoA along with China, Russia and Iran. The E3 have recently confirmed their commitment to the JCPoA and the EU continues to prohibit compliance by EU operators with any requirement or prohibition imposed by the US in relation to Iran and Cuba pursuant to Council Regulation (EC) No 2271/96 (the “EU Blocking Regulation”). In addition, efforts continue to be made to ensure continued trading with Iran through INSTEX, the special purpose vehicle created in January 2019 to help EU companies do business with Iran and facilitate non-USD transactions in a way that does not technically violate US sanctions.

In response to Iran’s announcement, the E3 have exercised the dispute resolution mechanism under the JCPoA in order to manage the actions being taken by Iran. The E3 issued a statement in conjunction with this action stating that “in addition to the lifting of all sanctions, required by our commitments under the agreement, we have worked tirelessly to support legitimate trade with Iran, including through the Instex special purpose vehicle”.

Since the geo-political tension between Iran and the US has come to a head, President Trump has since called for the JCPoA to be abandoned, stating it is “very defective” and urging the JCPoA members to “break away from the remnants” of this agreement. In addition, Secretary of the Treasury Steven Mnuchin “warned INSTEX and others that they will most likely be subject to secondary sanctions, depending on how they use it [the mechanism].”

What does this mean?

The additional US sanctions imposed put further pressure on US and non-US companies and financial institutions to ensure that adequate processes, procedures and controls are in place to avoid violation of such sanctions. For example, it has already been reported that ship insurers, banks, charter companies, and port owners will have to be able to account for the legitimacy of the cargoes that they carry, and failure to do so may result in a violation of the Iranian sanctions programme.

In addition, on 16 January 2020, OFAC issued a new FAQ 816 confirming that those engaged in the type of activity caught under these new sanctions have until 9 April 2020 to wind-down, and ultimately cease, such activity to avoid exposure to sanctions under EO 13902. All companies with potential exposure are advised to query their third-party databases for these entities or their subsidiaries, particularly the newly-sanctioned non-Iranian entities and the Chinese vessel, and confirm that appropriate systems are in place to prevent future dealings with these entities.

What is going to happen with the situation in Iran and what this means for its relationship with the US and the JCPoA Members, including the UK, remains unclear. Whilst the remaining JCPoA members have so far stood by the JCPoA, it is possible that if Iran chooses to ignore the call for compliance with its commitments under the agreement, the other JCPoA members may also withdraw from the agreement and reimpose the sanctions in place pre-JCPoA in each of those jurisdictions. In light of the warning from the US Secretary of the Treasury with regards to INSTEX it remains to be seen whether the EU will continue its efforts to implement INSTEX, however without this the EU may need to identify other means to incentivise Iran in order to keep the nuclear deal in place.

Regardless of the EU/UK’s stance with respect to the JCPoA, the new US sanctions pose significant challenges for global companies and financial institutions operating in both the US and the EU due to the extraterritorial scope of US sanctions and the perceived conflict with the EU Blocking Regulation.


[1]    Prior to this Executive Order, Iran-backed forces attacked US military bases and the US embassy in Iraq; the US killed Iranian General Qassem Soleimani, leader of the Quds Force, a covert section of the Islamic Revolutionary Guard Corps, in a drone strike in retaliation; and Iran targeted US troops with ballistic missiles.

[2]    Secretary of Treasury Steven T. Mnuchin, “Treasury Targets Iran’s Billion Dollar Metals Industry and Senior Regime Officials,” OFAC (January 10, 2020), https://home.treasury.gov/news/press-releases/sm870.

[3]    (1) Ali Abdollahi (senior Iranian military appointees), (2) Mohammad-Reza Ashtiani (senior Iranian military appointees), (3) Mohsen Qomi (a Deputy Advisor for International Affairs in the Supreme Leader’s Office and an advisor to the Supreme Leader on International Communications), (4) Mohsen Reza’I (longtime member of Iran’s Expediency Council), (5) Ali Shamkhani (the Secretary of Iran’s Supreme National Security Council), and (6) Gholamreza Soleimani (Commander of the Basij Resistance Force).

[4]    Hong Xun (IMO 9588885). 

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