Jan. 16 marked one of the most significant shifts on Iran sanctions in recent years, with the implementation of the much-anticipated Joint Comprehensive Plan of Action (JCPOA). The excitement over the lifting of some sanctions could lead one to believe it is time to book a flight to Tehran and wander the carpet bazaars with a Starbucks in hand. The reforms are nowhere near that dramatic, though they do offer some important opportunities for U.S. companies with foreign subsidiaries.
While a significant political development, most barriers to direct U.S. involvement with Iran remain in place. U.S. sanctions date back to the hostage crisis in 1979, and only nuclear-related sanctions dating back approximately 10 years have been lifted.
The simplest way to explain the Jan. 16 changes is that U.S. persons and companies still can do very little in Iran without a special license, while foreign subsidiaries of U.S. companies can now do a lot. The domestic trade embargo remains in place — U.S. persons cannot engage in any transactions with Iran or Iranian entities, other than some long-standing exceptions for items such as agricultural commodities, medicine and medical supplies.
The scintillatingly-named General License H issued by the Office of Foreign Assets Control (OFAC) removes sanctions on Iran transactions for foreign entities owned or controlled by U.S. persons. That general license means that the wholly-owned Turkish subsidiary of a U.S. company, for example, can now conduct trade with Iranian entities as long as they are not on a specific list of blocked entities. OFAC simultaneously removed approximately 400 Iranian entities from the list of blocked entities. European Union nuclear-related sanctions were similarly revised so as to permit activities by EU entities.
With core Iran sanctions still in place (and unlikely to be removed soon), this does not mean that doing business with Iran is easy. Any Iran transactions still cannot have a substantial U.S. nexus. For example, products with 10% or more U.S. content still cannot be exported to Iran. U.S. financial institutions still cannot be involved. U.S. persons still may not be directly involved in day-to-day roles, such as approving, financing, facilitating or guaranteeing Iran-related transactions. However, U.S. persons may be involved in crafting operating policies and procedures for engaging in permitted transactions.
In practice, this means that U.S. board members and senior management may be involved in policy decisions to pursue Iran business, but they cannot be involved in the actual transactions. On a technical level, General License H specifically addresses that automated company business software (such as email or software to generate a purchase order) can be used to facilitate an Iran transaction, but you cannot use such a system if it requires the active participation of someone in the U.S.
Some clients have asked whether they can now set up a new foreign subsidiary and instantly begin Iran business. It is doubtful that a company could do so without involving U.S. persons in impermissible ways. In essence, U.S. companies who want to take advantage of the Iran market need a foreign subsidiary that can operate autonomously to make it work.
On the import side, OFAC has published regulations that as of Jan. 21 provide a general license authorizing the import of Iranian carpets and foodstuffs to the United States. So, pistachio and caviar aficionados should see increased options on store shelves in the near future.
Within the above briefly-outlined sanctions reforms are of course a myriad of exceptions and complications. Therefore, any U.S. person or company contemplating Iran transactions should consult with legal counsel prior to conducting such transactions. While we will not see American tourists on the streets of Tehran any time soon, JCPOA marks one of the biggest shifts in Iran-related sanctions in the last 10 years. Most importantly, it is a significant political development that hopefully will lead to an increased likelihood of regional stability in an area of the world still fraught with tensions.