Page 1 of 6 Iran nuclear sanctions update: a step closer to implementation This article highlights some of the key developments since the Joint Comprehensive Plan of Action (JCPOA) was initially agreed. Submitted 19 October 2015 Applicable Law Iran Topic Crime, Fraud & Investigations Sector Focus Asset Management and Investment Funds Energy and Infrastructure Life Sciences Technology Media and Telecommunications Contact Samir Safar-Aly, Adrian Nizzola, Muneer Khan Following our Doing business in Iran webinar on 09 September 2015, there have been a number of developments relating to the Joint Comprehensive Plan of Action on Iran's nuclear programme, entered into between Iran and the E3/EU+3 (China, France, Germany, the Russian Federation, the United Kingdom, the United States, and the European Union) (the JCPOA). Furthermore, 18 October 2015 marked the "Adoption Day" on the JCPOA's timeline - a key milestone in the potential opening up of the Iranian market. This article intends to highlight some of the key developments. We address the following areas below, by way of update: US Developments Legislation Guidance Enforcement Switzerland Sanction Lifting Iran- JCPOA Approval Process Iran - New Integrated Petroleum Contract (IPC) IAEA - Progress JCPOA - Next Steps US developments - legislation
Page 2 of 6 The JCPOA has been the subject of a great amount of debate in the US. The House of Representatives (which has a Republican majority) passed a resolution disapproving the JCPOA (H. Res. 367). However, on 10 September, 42 senators in the Senate successfully blocked a disapproval motion (Section.625) concerning the JCPOA. This marked a significant step towards the implementation of the JCPOA and towards lifting the nuclear-related sanctions on Iran. At the same time, other resolutions have been passed by the House of Representatives on 09 September 2015 that will see their way to the Senate, attempting to (1) prevent the US President from not only implementing the sanctions relief under the JCPOA, but any Iran-related sanctions relief until 21 January 2017 (H.R. 3460), and to (2) declare that the US President had not fully complied with the US Iran Nuclear Agreement Review Act of 2015 (H. Res. 411). Democrat Senators have emphasised that such resolutions will be met with the same level of opposition in the Senate and, even if successful, the resolutions would likely be the subject of a veto from the US President. On 17 September 2015, the 60 day Congressional review period (as provided for under the US Iran Nuclear Agreement Review Act of 2015) came to an end, meaning that the US Administration could proceed with the suspension of its nuclear-related sanctions on Iran in order to implement the JCPOA. However, although the 60 day Congressional review period has ended, it seems that the debate regarding the JCPOA is far from over. In addition to the resolutions passed by the House of Representatives on 09 September 2015 mentioned above, early October 2015 saw a number of new Iran-related bills proposed with the aim of undermining the JCPOA. They include the: Justice for Victims of Iranian Terrorism Bill (H.R. 3457 and Section 2086) which aims to withhold approximately USD 43.5bn, representing compensatory judgements awarded by US Courts against Iran, from frozen Iranian monies that will be released if the JCPOA progresses to "Implementation Day" Iran Policy Oversight Act of 2015 (Section 2119) - introduced by Senator Ben Cardin and now being reviewed by the US Senate's Committee on Foreign Relations, which aims to (1) provide the US Congress with the expedited ability to introduce terrorism-related sanctions on Iran, (2) reaffirm the US Government's non-nuclear sanctions on Iran, and (3) increase funding to the International Atomic Energy Agency (the IAEA), to better fulfill its verification responsibilities under the JCPOA, as well as the US Treasury Department's Office of Foreign Assets Control (OFAC), in order to enhance its ability to ensure the strict enforcement of sanctions related to, amongst other countries, Iran Iran Terror Finance Act (H.R. 3662) which aims to restrict the removal of certain Iranian financial institutions (that are featured in the annexures to the JCPOA) from being removed from OFAC's Specially Designated Nationals and Blocked Persons List (SDN List), unless certain certifications are submitted to and approved by OFAC, and IRGC Terrorist Designation Act (H.R. 3640 and Section 2094) - which aims to designate Iran's Islamic Revolutionary Guard Corps as a foreign terrorist organisation under current US State Department designations. In response to some of the draft laws mentioned above, the White House has issued Statements of Administration Policy voicing its opposition as they could potentially prevent the US from implementing its sanctions relief obligations under the JCPOA. In doing so, the US President has re-emphasised his intention to veto any proposed legislation which would undermine the JCPOA. Despite the conclusion of the JCPOA's Congressional review period, the JCPOA continues to be subject to political initiatives aimed at undermining its successful implementation.
Page 3 of 6 US developments - guidance On 07 August 2015, the US Treasury Department published (1) new guidance on the implementation of the JCPOA, (2) a list of frequently asked questions (FAQ) relating to the JCPOA sanctions relief, and (3) a new licensing policy with regards to OFAC authorising transactions aimed at ensuring the safe operation of Iranian commercial passenger aircraft. The guidance note addresses the issue of sanctions relating to Iran's export of petrochemical products and crude oil, its automobile industry, gold and other precious metals, civil aviation, and humanitarian and certain other transactions. The FAQ document confirms that during the period from 20 January 2014 through to the JCPOA's "Implementation Day" (referred to as the "JPOA Relief Period"), the only sanctions relief available will be the original sanctions easing programme as agreed in the earlier Joint Plan of Action entered into between P5 + 1 and Iran on 24 November 2014 (the JPOA). The US Treasury Department's guidance note confirms that, during the JPOA Relief Period, the US Government will continue to "vigorously enforce" its sanctions against Iran, including taking action against those who seek to evade or circumvent its sanctions. On 18 October 2015 (ie the JCPOA "Adoption Day"), the US President issued a Memorandum directing the Secretary of State, Secretary of the Treasury, Secretary of Commerce and the Secretary of Energy to start taking appropriate measures to ensure the prompt and effective implementation of the JCPOA. On the same day, the US Secretary of State issued waivers of certain nuclear-related Iranian sanctions under various US laws, which will be contingent on Iran fulfilling its nuclear commitments under the JCPOA. Finally, the US Treasury Department issued a further guidance on the impact of "Adoption Day" confirming that the only current sanctions easing is that under the JPOA (mentioned above) as opposed to the JCPOA. Further guidance will be issued by OFAC closer to "Implementation Day". As a reminder, "Implementation Day" will only occur once the IAEA has issued a report verifying that Iran has met certain milestones and is on-course with its nuclear-related commitments as outlined in the JCPOA. US developments - enforcement On 07 August 2015, OFAC issued a Finding of Violation against a British Virgin Islands (BVI) domiciled subsidiary of a major international oilfield services company, for alleged breaches of Iran-related sanctions under the Iranian Transactions and Sanctions Regulations (ITSR). The violation was stated to be with regards to, amongst other things, (1) directing and overseeing the transfer of oilfield equipment from projects in non-sanctioned countries to projects in Iran, and (2) providing certain technical services in order to troubleshoot mechanical failures and to sustain sophisticated oilfield services in Iran. The Finding of Violation stated that there had been similar breaches with regards to Sudan under the Sudanese Sanctions Regulations. According to OFAC's Finding of Violation, the company concerned has entered into a plea agreement with the US Department of Justice agreeing to pay a fine of approximately USD 155m, as well as a forfeiture money judgement of approximately USD 77.5m. Switzerland - sanctions lifting Switzerland has become the first nation to remove Iran-related sanctions following the signing of the JCPOA, after the Swiss Federal Council amended the Swiss Iran Sanctions Regulations (effective from 12
Page 4 of 6 August 2015). The lifting of Iran-related sanctions pertains to precious metals transactions with Iranian state bodies, as well as the requirement to report trade in Iranian petrochemical products. The move also eliminates the obligation in Switzerland to report the transportation of Iranian crude oil and petroleum products and amends the rules on insurance and reinsurance policies linked to such transactions. Threshold levels for reporting and obtaining licences for money transfers to Iran/Iranian nationals have also been increased ten-fold. However, the move is likely to have little practical effect, as the global operations of Swiss-based traders are still bound by US and EU sanctions on, amongst other things, dealing in Iranian crude oil. Iran - JCPOA approval process On 21 June 2015, the Iranian Parliament (also known as the "Majlis") passed legislation authorising the Supreme National Security Council (the SNSC) to supervise the implementation of the JCPOA. On 19 August 2015, the Iranian Parliament then appointed a 15 member Special JCPOA Investigation Committee to review the JCPOA in greater detail and to provide its findings to the Iranian Parliament. It was reported that on 03 October 2015, the SNSC issued its approval of the JCPOA to the Iranian Parliament, despite highlighting several areas of concern. On 04 October 2015, the Iranian Parliament approved the language of a draft bill (referred to as the "Iranian Government's reciprocal and proportional action in implementing the JCPOA" - the "Iranian JCPOA Bill") that outlines how the Iranian Government should implement the JCPOA. As in the US, the JCPOA (referred to in Iran by its Farsi acronym "BARJAM") was the subject of a great amount of heated debate in Iran, relating to both the JCPOA's substance and the domestic procedure needed for either its approval or ratification. Initially, the Iranian JCPOA Bill was intended to be an "urgent" or "one star" bill under the Iranian legislative process (only requiring approval by the committee concerned - in this case, the SNSC). However, following an announcement on 03 September 2015 by the Supreme Leader, Ayatollah Khamenei, that the Iranian Parliament should decide on the matter, the Iranian JCPOA Bill became a "very urgent" or "two star" bill, requiring a full two-tiered review in the Iranian Parliament (the first to address generalities and the second to address details). On 11 October 2015, the Iranian Parliament approved the general outline of the JCPOA in a first round vote. On 13 October 2015, the Iranian Parliament approved the details of the JCPOA in the required second round vote. Finally, on 14 October, the Iranian JCPOA Bill was passed by a vote of final approval, as constitutionally required, by the Guardian Council (one of the most influential governmental body in Iran). This final step is required to ensure that all bills approved by the Iranian Parliament are consistent with both the Iranian Constitution and Islamic law. The passing of the Iranian JCPOA Bill marks a major milestone towards the success of Iran's JCPOA implementation. Iran - the new Integrated Petroleum Contract (IPC) On 30 September, it was reported that the Iranian Cabinet had approved the Ministry of Petroleum's draft of the IPC - Iran's new oil contract model. The new IPC is intended to be a major improvement not only on the old buyback model previously used, but also on contracts offered by Iraq to investors in the 2000s. Iran is in much need of international
Page 5 of 6 knowhow to develop new oilfields, pipelines and refinery infrastructure. The terms of the new IPC have not been made public. Although it was previously announced that the new IPC would be revealed at a conference later in the year in London, it has been announced that this has now changed to Tehran. The Minister of Petroleum, Bijan Zangeneh, has announced that the conference will be held in the Persian calendar month of Aban this year (approximately 23 October - 21 November 2015). Reportedly, there will be a subsequent London conference in February 2016 for potential investors who are unable to attend the inaugural event in Tehran. IAEA - progress On 15 October 2015, the IAEA issued a statement that the activities set out in its "Road-map for the clarification of past and present outstanding issues regarding Iran's nuclear program" were completed. The statement confirmed that by 15 December 2015, the Director General of the IAEA will provide the final assessment on the resolution of all of Iran's past and present outstanding issues, for IAEA board review. On 18 October 2015, it was announced that the Director General of the IAEA has been informed by Iran that with effect from "Implementation Day", Iran will provisionally apply the Additional Protocol to its Safeguards Agreements (which provides the IAEA with greater verification powers), subject to approval by the Iranian Parliament. The IAEA has made progress on Iran's nuclear issue and this serves as another good indicator of the JCPOA's potential success. JCPOA - next steps 18 October 2015 marked the end of the 90 day period from the adoption of UNSC Resolution 2231 (2015) endorsing the JCPOA, which in the JCPOA's timeline is referred to as "Adoption Day". "Adoption Day" signifies the date when then JCPOA officially comes into effect (since it has been adopted by all signatories). All eyes are now on Iran to start the implementation of its nuclear commitments as outlined in the JCPOA. These commitments include, amongst other things: dismantling and removing centrifuges from the Natanz facility and placing them into IAEA monitored storage reducing its enriched uranium stockpile (from 1200kg to 300kg) working with the IAEA to put in place transparency measures, such as unique real-time online enrichments monitoring (which will require the deployment and testing of new hardware and software) removing two thirds of the centrifuges at the Fordow facility and dismantling certain associated power infrastructure, and filling the Arak reactor's center with concrete. The above measures are only some of the actions that need to occur before the IAEA can issue its verification report (which will mark "Implementation Day" - the day on which the JCPOA's listed nuclearrelated sanctions on Iran will be lifted). As expected, the milestones mentioned above require a great amount of work to be done, some of which is unprecedented. On 18 October 2015, it was reported that Iranian President, Hassan Rouhani, issued an order obliging Iran's Foreign Ministry and the Atomic Energy Organisation of Iran to begin the implementation of the JCPOA. It has also been reported that the first meeting of the JCPOA Implementation Commission to
Page 6 of 6 discuss the next steps took place in Vienna on 19 October 2015. As a result and as mentioned in our previous note, it is likely that the process will take several months to implement and is not likely to occur before Q1/Q2 2016. This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document. Simmons & Simmons LLP 2015. All rights reserved. Registered in England & Wales Registered Number OC352713 elexica Limited, CityPoint, One Ropemaker Street, London EC2Y 9SS T: +44 20 7628 2020