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OFAC implements changes to Iran sanctions following the end of the wind-down period

OFAC implements changes to Iran sanctions following the end of the wind-down period

  • United Kingdom
  • Fraud and financial crime
  • Litigation - Middle East
  • Litigation and dispute management
  • Sanctions

06-11-2018

Background

The Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has issued an amendment to the Iranian Transactions and Sanctions Regulations, 31 CFR part 560 (“ITSR”) which is now effective following publication in the Federal Register on Monday 5 November 2018.                  

These changes implement the announcement made by President Trump earlier this year regarding the withdrawal of the US from the Iran nuclear deal and the re-imposition of those sanctions which were lifted as part of the Joint Comprehensive Plan of Action (“JCPOA”) (see our 9 May 2018 briefing here).

Following President Trump’s 8 May announcement, OFAC amended certain General Licences relating to Iran and issued “wind-down licences” which authorised the wind-down of certain activities by 6 August and 4 November 2018 (respectively) (see our 27 June 2018 briefing here).

At the end of the first wind-down period on 6 August 2018, President Trump issued E.O 13846, which re-imposed relevant blocking sanctions, correspondent and payable-through account sanctions, and menu-based sanctions effective as at 7 August 2018, with further provisions coming into effect on or after 5 November 2018 (See our 07 August 2018 briefing here).

The U.S. government had also made it clear that they would re-impose sanctions on persons previously removed from OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”) or other sanctions lists, including reintegrating into the SDN List, persons identified as meeting the definition of “Government of Iran” or “Iranian financial institution” and included on OFAC’s List of Persons Blocked Solely Pursuant to E.O. 13599.

These latest changes follow the end of the second wind-down period on 5 November 2018 and reflect the re-imposition of sanctions under E.O 13846, as well as changes to certain OFAC sanctions lists. OFAC is also amending an existing general license in the ITSR to allow US Persons to sell personal property in Iran and to transfer the proceeds to the US.

What is changing?

  • Following the end of this second wind-down period, all of the US sanctions waived or lifted under the JCPOA are re-imposed with full effect;
  • Blocking sanctions can be imposed on any person who, on or after 5 November 2018, has material involvement with certain Iranian entities, including the Central Bank of Iran and persons involved in Iran’s energy or shipbuilding sectors;
  • Of particular note to non-US financial institutions, secondary sanctions can now be imposed on foreign financial institutions who, on or after 5 November 2018, engage in a variety of significant transactions, including those relating to petrochemical products from Iran and any transactions on behalf of an Iranian person on the SDN List.
  • Effective from 5 November 2018, OFAC is removing the E.O 13599 List and relisting on the SDN List, certain individuals and entities that were previously on the 13599 List

OFAC has published Frequently Asked Questions relating to its actions in connection with the full re-imposition of sanctions on Iran.

EU position

We have previously published commentary on the EU’s position on US sanctions on Iran, which is included in our briefings of 9 May and 27 June 2018 (links above).

The EU’s position remains unchanged, and EU persons continue to be prohibited from complying with US sanctions against Iran (including applying to OFAC for a licence –which the EU has determined to be an act which recognises the jurisdiction of the US over EU entities), unless the European Commission provides an exemption.

Our thoughts 

With the full reintroduction of US sanctions against Iran, it will be important for UK and EU companies, and in particular financial institutions, with any Iranian exposure to carefully consider their position with respect to these changes due to the concurrent risk of potentially breaching EU and US sanctions following the end of the second wind-down period.

Companies who use third party risk screening providers to run their automated sanctions screening and sanctions ownership research data should be mindful of the fact that in OFAC’s overnight update of their sanctions list more than 700 new names have been added. These third party providers will need to manually update their lists to ensure that the new SDNs are captured as part of the ongoing screening process which may take some time. To ensure compliance, companies will need to do a manual check on the OFAC feed to confirm data integrity.

It remains to be seen whether the EU Blocking Regulation (see our 20 June 2018 briefing here) will ultimately be of any practical help to UK and EU companies trying to navigate both sets of sanctions, and, with rhetoric from all sides increasing over the last few days and weeks, we are set to enter a period of increased uncertainty for businesses seeking to engage in trade with Iran.

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