Reed Smith Client Alerts

Authors: Leigh T. Hansson Michael J. Lowell Siân Fellows

Type: Client Alerts

On 24 November 2013, the E3/EU+3 (or the P5+1, comprising the United States, Russia, China, the United Kingdom, France and Germany), together with Iran, agreed the Joint Plan of Action (“JPOA”), which relaxed some of the sanctions imposed against Iran by the EU and the United States. These measures were considered in detail in our client alert of 23 January 2014.

The JPOA was intended to provide interim sanctions relief, which would take effect while the parties worked towards a more comprehensive and long-term resolution.

New Joint Comprehensive Plan of Action After several extensions to the JPOA and intensive negotiations, the Joint Comprehensive Plan of Action (“JCPOA”) was finally agreed yesterday, 14 July 2015.

The focus of the JCPOA is to ensure that Iran’s nuclear programme is “exclusively peaceful”. The preface to the main JCPOA document states that it will “produce the comprehensive lifting of all UN Security Council sanctions as well as multilateral and national sanctions related to Iran’s nuclear programme, including steps on access in areas of trade, technology, finance and energy”.

In support of these aims, the JCPOA provides for specified voluntary steps to be taken by Iran and the E3/EU+3. It contemplates a staged, measured and long process.

Summary

  • The EU and the United States have agreed to lift the majority of nuclear-related sanctions against Iran, provided Iran first implements certain agreed measures for its nuclear programme. If certain goals are reached, the UN arms embargo could be removed in five years, and the restrictions on ballistic missile technology could be lifted in eight years. The implementation of such measures must be verified by the International Atomic Energy Agency (IAEA).
  • There is no immediate change to the sanctions position. All sanctions as relaxed by the JPOA on 20 January 2014 remain in place for the time being. A plan has been agreed, however, which may lead to an eventual lifting of certain sanctions. It is not possible at this stage to put a precise date on when any such lifting of sanctions will occur.
  • The EU has adopted Decision (CFSP) 2015/1148, which extends the JPOA moratorium to 14 January 2016, to allow time for the necessary arrangements and preparations for implementing the JCPOA.
  • Any lifting of sanctions will not be wholesale; rather, it will be a staged process. It should not be assumed that all business with Iran will be permitted once the JCPOA is implemented.
  • If Iran does not comply with its obligations under the JCPOA, provision is made for sanctions to be re-imposed.

Steps to be taken by Iran

  • Iran will take steps to reduce and limit its nuclear enrichment activities, enrichment R&D, and stockpiles, including conducting such activities within certain limitations, phasing out certain types of equipment, and keeping its uranium stockpile to under specified levels.
  • Iran will take steps to reduce its activity in the heavy water sector and reprocessing activities, including redesigning its key heavy water research reactor in Arak, taking steps to enable reliance on light water for future power and research reactors, and agreeing not to use any additional heavy water reactors, accumulate heavy water, or engage in certain spent fuel reprocessing activities for 15 years.
  • Iran will take various specified steps to increase transparency and confidence in its activities, including allowing the IAEA to monitor the implementation of the JCPOA, and allowing a long-term IAEA presence in Iran.

Steps to be taken by the E3/EU+3: lifting of sanctions

  • The UN Security Council, upon endorsement of the JCPOA by way of a UN resolution, will terminate all provisions of previous UN Security Council resolutions on the Iranian nuclear issue, contingent on Iran’s adherence to its JCPOA requirements.
  • The EU will terminate certain provisions of Council Regulation (EU) No 267/2012, as amended, which implemented all nuclear-related economic and financial sanctions. The EU and EU Member States will also terminate or amend all national implementing legislation as required in accordance with the JCPOA. This will cover all sanctions and restrictive measures in the areas specified in Annex II to the JCPOA, including:
    • Transfers of funds between EU and Iranian persons and entities (including financial institutions)
    • Banking activities
    • The provision of insurance and reinsurance
    • Financial support for trade with Iran
    • The import and transport of Iranian oil, petroleum products, gas and petrochemical products; the export of key equipment and technology for and investment in these sectors
    • The export of graphite, raw or semi-finished metals
    • The export of key naval equipment and technology, the design and construction of cargo vessels and oil tankers, and the provision of flagging and classification services
  • The EU will remove the designation of certain entities and individuals, set out in Annex II, as being subject to an asset freeze and/or visa ban. The removal of these entities and individuals will take place in stages as specified in the JCPOA.
  • Assuming the JCPOA obtains legislative approval, the United States will no longer impose its nuclear-related sanctions programs which authorize sanctions on non-U.S. persons who engage in specified transactions with Iran. U.S. persons, which include (i) U.S. citizens, (ii) U.S. permanent residents, (iii) entities organized under the laws of the United States, (iv) all persons within the United States, and (v) all entities owned or controlled by (i)-(iv), remain subject to OFAC’s Iran sanctions programs and are not authorized pursuant to the JCPOA to conduct business with Iran unless authorized by OFAC. The nuclear-related sanctions reductions committed to by the United States are specified in Annex II to the JCPOA. They include transactions by non-U.S. persons involved in:
    • Financial and banking transactions with Iranian banks and financial institutions
    • Crude oil sales
    • Investment in and provision of goods, services, information, technology, technical expertise and support for Iran’s oil, gas and petrochemical sectors
    • The purchase, acquisition, sale, transportation or marketing of petroleum, petrochemical products and natural gas from Iran
    • The export, sale or provision of refined petroleum products and petrochemical products to Iran
    • Transactions with Iran’s energy, shipping and shipbuilding sectors, and port operators
    • Trade with Iran in graphite, raw or semi-finished metals
  • The United States will remove the designation of certain entities and individuals on the SDN List and the Foreign Sanctions Evaders’ List, as listed in Annex II to the JCPOA. The removal of these entities and individuals will take place in stages as specified in the JCPOA.
  • The EU will refrain from re-introducing or re-imposing the sanctions which it terminated in implementing the JCPOA. There will be no new nuclear-related UN or EU sanctions.
  • The United States will make best efforts in good faith to sustain the JCPOA and to prevent interference with the realisation of the full benefit by Iran of the lifting of sanctions. The U.S. Administration, consistent with the respective roles of the president and Congress, will refrain from re-introducing or re-imposing the sanctions that it ceased applying under the JCPOA, and will refrain from imposing new nuclear-related sanctions.

Timeframe for implementation The lifting of sanctions provided for by the JCPOA will not take place immediately.

The termination of the sanctions provisions summarised above, and in more detail in the JCPOA, is stated to take place “simultaneously with the IAEA-verified implementation of agreed nuclear-related measures by Iran as specified in Annex V”.

Annex V of the JCPOA sets out the following timeframe to which the JCPOA provisions will be implemented:

1. The first step is for the E3/EU+3 and Iran to endorse the JCPOA.

2. A proposed UN Security Council Resolution, by which the UN will endorse the JCPOA, will be submitted to the UN Security Council for adoption “without delay”.

3. Iran and the IAEA will develop the necessary arrangements to implement all transparency measures provided for in the JCPOA so that such arrangements are in place and ready for implementation on “Implementation Day” (further discussed at point 5 below).

4. The JCPOA will come into effect on “Adoption Day”. This will occur either (a) 90 days after the endorsement of the JCPOA by the UN Security Council or (b) at an earlier date by mutual consent of all JCPOA participants. Beginning on Adoption Day, the JCPOA participants will make the necessary arrangements and preparations for implementing their JCPOA commitments, including the following:

    • The EU and its Member States will adopt an EU Regulation terminating all nuclear-related economic and financial sanctions provisions in EU Regulation 267/2012, as amended.
    • The United States will issue waivers ceasing the application of specified statutory nuclear-related sanctions. The President will also take action to direct that all appropriate additional measures be taken to implement the cessation of application of specified sanctions. The proposed EU Regulation and the U.S. waivers will not take effect immediately following their adoption, but rather on Implementation Day (further discussed at point 5 below).

5. “Implementation Day” will occur upon the implementation by Iran (provided that such implementation is verified by the IAEA) of the nuclear-related measures specified in the JCPOA (referenced at point 2 above). Only once this has occurred will the lifting of sanctions as specified in the JCPOA take place. There is no specification in the JCPOA as to a timeframe within which Implementation Day will or must occur.

6. “Transition Day” will occur either (a) eight years from Adoption Day or (b) upon a report from the IAEA, together with confirmation from the UN Security Council, that the IAEA has concluded that all nuclear material in Iran remains in peaceful activities, whichever is earlier. Transition Day will mark the next stage in the easing of sanctions, when further terminations and amendments will be made.

7. “UN Security Council Resolution (UNSCR) Termination Day” will occur 10 years from Adoption Day, provided that the provisions of previous resolutions have not been reinstated. On this day, the provisions and measures imposed in the UN Security Council Resolution (referenced at point 2 above) will terminate, and the UN Security Council will no longer be seized of the Iran nuclear issue. Also on this day, the EU will terminate all remaining provisions of sanctions against Iran.

Within this timeframe, the E3/EU+3 and Iran will meet at the ministerial level every two years, or earlier if needed, in order to review and address progress and to adopt appropriate decisions by consensus.

An historic achievement, but no immediate change The joint statement issued by the EU High Representative Federica Mogherini and the Iranian Foreign Minister Javad Zarif describes 14 July 2015 as “an historic day”, on which a dispute has been resolved that lasted more than 10 years. The tone of this statement, and indeed of the JCPOA as a whole, makes clear that this is the first step in a long-term plan.

The immediate consequence is that there will be no immediate change to the sanctions position; rather, the first step has been taken towards the lifting of sanctions.

Both the EU and the United States will be publishing guidance on the JCPOA provisions in due course.

If you have any queries about the contents of this alert, or about sanctions regimes in general, please contact one of the authors of this alert, sanctionsteam@reedsmith.com or your usual contact at Reed Smith.

 

Client Alert 2015-195