The Cipher Brief spoke with Adam Smith, Of Counsel at Gibson, Dunn & Crutcher, about how the lifting of nuclear related sanctions against Iran will impact U.S. businesses. He explained that for most U.S. entities, current restrictions on their dealings with Iran will continue despite the nuclear agreement.
The Cipher Brief: According to the Joint Comprehensive Plan of Action (JCPOA), what steps must be taken in order for Iran to be granted sanctions relief?
Adam Smith: Initial, substantial sanctions relief will come about on what the JCPOA deems “Implementation Day.” The agreement sets out the detailed nuclear steps that Iran must take in order for Implementation Day to be declared. In short, the day only occurs when the International Atomic Energy Agency (IAEA) has verified that Iran has implemented the specific nuclear-related measures set out in Annex I to the JCPOA. These include various steps with respect to the Arak Heavy Water Research Reactor, Heavy Water Production Plant, Enrichment Capacity, Centrifuges Research and Development, the Fordow Fuel Enrichment Plan, Uranium Stocks and Fuels, and various other aspects of enrichment. Though it remains uncertain when Implementation Day will arrive – as it is based on Iran successfully completing several complex steps and the IAEA verifying their completion – many experts are expecting it to arrive by the end of Q1 2016.
TCB: How will the lifting of sanctions related to Iran’s nuclear program affect U.S.-Iranian economic ties? Which U.S. industrial sectors will be able to conduct business with Iran that were prohibited from doing so prior to the agreement?
AS: The vast majority of U.S. sanctions will actually remain in place, even upon Implementation Day. As the JCPOA makes clear, almost all of the sanctions that the United States will relieve in the context of the JCPOA are those presently directed towards non-U.S. persons. These include “secondary sanctions” – a set of measures that effectively asked non-U.S. entities to choose between working with Iran and working with the United States, and present limitations on non-U.S.-based subsidiaries of U.S. companies. In most other sanctions programs, these companies – which are not deemed under U.S. jurisdiction –are not subject to U.S. sanctions law. In the Iran case, the statute changed that and they were essentially brought under U.S. sanctions jurisdiction. Both secondary sanctions and restrictions on non-U.S. subsidiaries of U.S. parents will be broadly relieved.
This means that for almost all U.S. entities, the restrictions currently in place regarding their dealings with the Iran shall remain.
There are, however, two primary exceptions to this non-U.S.-centered relief that will provide some benefits to certain U.S. actors. First, the U.S. will allow for the sale of U.S. commercial passenger aircraft and related parts and services. Second, the U.S. will license the importation into the United States of Iranian-origin carpets and foodstuffs.
A final point is that for several years there have been numerous exemptions to sanctions laws for U.S. persons (“general licenses”) that have allowed certain transactions with respect to products, including food, medicine, and even some forms of technology. These licenses will remain after Implementation Day. Notably, these licenses have been largely under-subscribed by U.S. persons in part due to the real and perceived risks of dealing with Iran and in part due to an inability to find appropriate transaction counter-parties and intermediaries. The JCPOA sanctions relief – by relieving some of the sanctions pressure on various Iranian actors, including large financial institutions – may make it easier for U.S. parties to take full advantage of these existing exemptions. Thus, there will be potentially new commercial opportunities for companies operating under existing (i.e. not JCPOA) sanctions provision.
TCB: How will business opportunities for American companies in Iran compare to opportunities for European companies?
AS: Night and day. As discussed above, with few exceptions, the sanctions reality for most U.S. players will remain unchanged as per the JCPOA. On Implementation Day, however, European sanctions are in large-measure lifted (in some cases suspended, in other cases terminated). These include measures concerning finance, banking, and insurance; oil, gas, and petrochemical; shipping and transport; gold and banknotes; metals; and software. We have already seen many European enterprises visit Iran and begin the process of negotiating (and in some cases finalizing) contracts for business post sanctions relief.
TCB: What advice would you give American companies to help make sense of impending changes in the sanctions regime?
AS: It is important not to overstate what is changing and when it is changing. First, nothing has changed yet – the same modest sanctions relief that had been in place under the Joint Plan of Action (JPOA) remains through Implementation Day. And, second, most companies will not see a difference between pre- and post-Implementation Day with respect to their ability to deal with Iran. Depending upon the political temperature and perceived compliance by Iran, there could be potential for further licenses and other relief that could open the Iranian market to other U.S. players. But that is far from guaranteed.
