Iran has reached an agreement with the international community that would require Iran to restrict aspects of its nuclear program in return for the eventual lifting of certain U.S. and international sanctions against it.  The agreement is called the Joint Comprehensive Plan of Action (JCPOA).  For U.S. companies interested in doing business in or with Iran, there are two key takeaways:

• The United States will not lift its sanctions immediately or entirely.
• Even after the United States eases its sanctions, American companies will have less access to Iranian markets than their European counterparts and other non-U.S. companies.

As described below, the United States has committed to a limited lifting of sanctions—limited almost entirely to sanctions against non-U.S. persons and non-U.S. entities (i.e., secondary sanctions).  This limited sanctions relief will generally not apply to U.S. companies.  As John Kerry stated in response to questions regarding the agreement, “[w]ith respect to companies that want to rush to do business in Iran, it is absolutely true that because of the embargo by the United States, American companies will not be part of that rush – unless specifically exempted, and very few are.”

The United States will not lift any sanctions until Iran has implemented certain nuclear commitments, which may take a considerable period of time.  In addition, U.S. congressional consideration of the agreement may undermine the ability of the United States to lift sanctions against Iran.  If the sanctions are lifted, the United States and other countries will preserve the legal “architecture” of the sanctions so they can quickly be reimposed (i.e., “snapped back”) in the event that Iran is deemed not to have complied with the agreement.

Summary of Iran’s Nuclear Commitments Under the JCPOA

On July 14, 2015, Iran and the United States, China, France, Germany, Russia and the United Kingdom, with the participation of the European Union, concluded the JCPOA.  The JCPOA calls for Iran to limit certain nuclear activities and permit international inspections of Iran’s nuclear activities in exchange for phased sanctions relief.  Most sanctions relief will occur only upon confirmation by International Atomic Energy Agency (IAEA) inspectors that Iran has met its obligations under the agreement.  Under the JCPOA, Iran has agreed to:

• limit its enrichment of uranium, including limiting uranium enrichment to only one facility (Natanz);
• stop the production of weapons-grade plutonium, remove from Iran spent fuel rods and heavy water used in the production of weapons-grade plutonium and halt the construction of any additional heavy-water reactors for 15 years; and
• permit IAEA access to all of Iran’s nuclear facilities as well as the supply chain supporting Iran’s nuclear program and allow the IAEA to verify the dismantling of certain nuclear-related facilities and equipment.

Sanctions Relief Will Not Be Implemented for Months, at the Earliest

The timing of sanctions relief is uncertain.  According to U.S. officials, the United States will not lift its sanctions until the JCPOA objectives are achieved and verified.  Specifically, the JCPOA calls for the United States to adopt measures to lift sanctions within 90 days after the approval by the United Nations Security Council (UNSC) of a resolution endorsing the JCPOA.  Approval by the UNSC occurred on July 20, 2015.  These adopted measures, however, would not have any immediate legal effect.  Only following IAEA verification of Iran’s implementation of nuclear obligations would the United States and EU implement the measures to lift sanctions.  The JCPOA does not establish a strict deadline for IAEA verification of Iran’s nuclear obligations.  U.S. administration officials have estimated it will take up to a year before Iran can meet the nuclear objectives under the JCPOA, delaying implementation of sanctions relief until then.

Significant Sanctions Relief for Non-U.S. Companies But Limited Relief for U.S. Companies

The scope of sanctions relief under U.S. law appears largely limited to sanctions that apply only to non-U.S. persons.  The agreement obligates the United States to lift sanctions that apply to non-U.S. persons operating in finance and banking, insurance, energy and petrochemicals, shipping, shipbuilding and ports, gold and precious metals, software, metals and the automobile industry.  In addition, after implementation of sanctions relief, the United States would no longer impose penalties against non-U.S. persons for having significant transactions with certain Iran nationals and entities.  Non-U.S. entities that are owned or controlled by a U.S. person, however, will need to obtain a license from the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) to engage in such activities provided that they are “consistent with the JCPOA.” 

Thus, a foreign subsidiary of a U.S. company may be able to conduct business with Iran to a limited degree but still must comply with the remaining U.S. sanctions, including those related to anti-terrorism, human rights abuses and the Iranian ballistic missile program.  Further, until implementation of a license regime begins or is clarified by OFAC, the scope of permitted transactions by foreign subsidiaries of U.S. companies is unclear.    

As noted, the United States did not commit to significant sanctions relief for U.S. persons.  Current U.S. sanctions against Iran generally prohibit U.S. persons and businesses from providing goods and services to Iran or investing in Iran, importing Iranian goods or services or sharing certain information or technology with Iranian persons or entities.  These prohibitions will remain in place under the JCPOA, except that the JCPOA does obligate the United States to permit sales by U.S. persons of commercial aircraft and aircraft parts and associated services to Iran as well as to permit imports of Iranian carpets and foodstuffs (e.g., pistachios and caviar).  Even these activities, however, will be subject to OFAC licensing and cannot be done with blacklisted Iranians.

As a result, U.S. sanctions generally will remain in effect against Iran, even assuming Iran is deemed to be in full compliance with the JCPOA.

Congress Could Prevent U.S. Implementation of Sanctions Relief

The U.S. Congress may prevent the United States from implementing sanctions relief.  Pursuant to the Iran Nuclear Agreement Review Act of 2015 (Act), on July 20, 2015, the Obama Administration submitted the JCPOA to Congress for its review and consideration.  Congress will have until September 18, 2015, to review the JCPOA.  Congress can pass a joint resolution approving or disapproving the agreement, or Congress can take no action.  If Congress passes a joint resolution of disapproval of the agreement, the Act prohibits the President from implementing sanctions relief with respect to any statutory sanctions in place against Iran.  Many of the U.S. sanctions against Iran are pursuant to statutory measures, while others have been put in place by presidential action.  President Obama can veto the joint resolution, although Congress could then attempt to override the president’s veto by the approving vote of two-thirds of the members of each chamber of Congress.  In the event that Congress opposes the JCPOA, the Obama Administration may be unable to implement sanctions relief as required under the agreement. 

Sanctions Can Be Reimposed Quickly if Iran Violates the JCPOA

Finally, if the sanctions are lifted, the United States has vowed to preserve their legal architecture so that sanctions can quickly snap back into operation.  Any new business with Iran, or investment in the country, will be done under the threat of the reimposition of the U.S. sanctions if Iran is deemed not to have complied with the nuclear commitments and verification of those commitments.  The White House has reported that the snap-back provisions will last indefinitely.  

© 2015 Perkins Coie LLP