Iran and Adoption Day – What We Learned and What We Did Not

On October 18, 2015, both the United States and the European Union took action to prepare for future changes to sanctions policy which will be effective upon IAEA verification of Iran’s commitments under the Joint Comprehensive Plan of Action (JCPOA).  This was a required step under the JCPOA, termed “Adoption Day,” scheduled to occur ninety (90) days after the JCPOA was endorsed by the UN Security Council via resolution 2231.

Importantly, Adoption Day does not bring about any immediate sanctions relief.  OFAC reminded companies again about potential violations related to arranging agreements and contingent contracts with Iranian parties prior to Implementation Day.

Adoption Day Actions

In connection with Adoption Day, President Obama issued a memorandum directing the Secretaries of State, Treasury, Commerce, and Energy to take all appropriate preparatory measures to ensure the prompt and effective implementation of the U.S. commitments set forth in the JCPOA.  This included contingent waivers of the imposition of secondary sanctions applied to non-U.S. persons outside of the United States in the financial and banking, energy/extractive, petroleum/petrochemical, gold and precious metals, raw and semi-finished metals, automotive, shipping and port, insurance and certain other sectors.  These waivers are contingent upon confirmation by the Secretary of State that Iran has implemented the nuclear-related measures specified in the JCPOA, as verified by the IAEA.

The EU took similar action, adopting Council Regulation (EU) 2015/1861, Council Implementing Regulation (EU) 2015/1862 and Council Decision (CFSP) 2015/1863, which establishes the legislative framework necessary for lifting all of its nuclear-related economic and financial sanctions.  These measures provide for the termination of all EU nuclear-related economic and financial restrictive measures once the IAEA verifies implementation by Iran of the agreed nuclear-related measures.

As outlined in the JCPOA, on “Adoption Day” both the U.S. and EU are required to begin consultations as appropriate with Iran regarding relevant guidelines and publicly accessible statements on the details of sanctions or restrictive measures to be lifted under the Agreement.  Currently, U.S. officials have not clarified how they intend to implement several key aspects of the JCPOA obligations while still maintaining other U.S. terrorism, anti-proliferation, missile, and human rights sanctions on Iran.  OFAC officials have stated that they expected to review their draft implementation guidance with Iran, and thus it may be some time before companies will see details on how OFAC will implement the JCPOA.

A Warning on Contracts with Iran

Companies around the world are eyeing market opportunities in Iran and many are taking or considering steps to “lay the groundwork” for Implementation Day.  OFAC took the opportunity in its Adoption Day FAQs to warn companies that agreements and contingent contract arrangements with Iran can give rise to violations of U.S. law.  See Final FAQ at:  www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_adoption_faqs_20151018.pdf.

Non-U.S. companies as well as U.S. persons should be mindful that contracts involving Iran, and even certain exchanges of information and analysis during contract negotiations, may create exposure to U.S. primary or secondary sanctions prior to Implementation Day, depending on the sector and the Iranian entity involved.  EU sanctions measures in force also can prohibit agreements and even certain negotiations.

Companies should be aware of these potential risks as they lay the ground work for future business involving Iran before Implementation Day.