Computer Services : Compliance Update: How Recent Changes to Sanctions on Iran Affect Regulatory Compliance

Recently, historic actions were taken by the U.S. to lift nuclear-related sanctions on Iran under the Joint Comprehensive Plan of Action (JCPOA). The agreement provides for the lifting of certain nuclear-related sanctions that were imposed on Iran in exchange for Iran's agreement to limit the development of its nuclear program.

Despite reports indicating that all U.S. sanctions on Iran were lifted on Jan. 16, 2016, the U.S. is only suspending the extraterritorial-or secondary-sanctions on non-U.S. persons and financial institutions that engage in transactions with Iran.

U.S. Sanctions Framework That Remains in Place

By contrast, the U.S. has essentially left its primary sanctions framework in place, which imposes significant restrictions on financial institutions and companies that engage in financial or other transactions with Iran. While the U.S. implementation of the JCPOA made some changes to the primary sanctions architecture:

Given the complexity of the remaining U.S. sanctions and export controls on Iran, the numerous Iranian parties that remain on various U.S. and non-U.S. restricted party lists, and the creation of a new OFAC list, significant Iran sanctions compliance issues and risks remain. This means restricted party screening is more important than ever before.

Major Changes Pertaining to Implementation of JCPOA Announcement

These are a few major changes to U.S. sanctions on Iran following Implementation Day of the JCPOA:

• The U.S. lifted most secondary sanctions affecting non-U.S. persons that engage in transactions with Iran.
• OFAC issued a Statement of Licensing Policy that now allows-on a case-by-case basis-the issuance of specific licenses for U.S. and non-U.S. persons to export, re-export, sell, lease or transfer to Iran commercial passenger aircraft, and related parts and services, for commercial passenger aviation use.
• OFAC issued General License H, which authorizes U.S.-owned or -controlled foreign entities to engage in certain activities involving Iran.
• OFAC issued a general license authorizing the importation into the U.S. of Iranian-origin carpets and foodstuffs, including pistachios and caviar.

Despite these changes, most U.S. sanctions, including the export and re-export of U.S. origin items to Iran, remain in place. In addition, it remains generally prohibited for U.S. financial institutions to process payments relating to Iran, the Government of Iran, Iranian banks or sanctioned persons, including U.S. dollar payments related to authorized activities by non-U.S. entities owned or controlled by a U.S. person or related to activities no longer covered by secondary sanctions.

Watch Lists Affected by the JCPOA Announcement

Several restricted party watch lists were affected by the implementation of the JCPOA, including:

• OFAC's SDN and FSE Lists: Approximately 400 entities and parties associated with Iran were deleted from the SDN List and the Foreign Sanctions Evaders Lists; however, more than 200 Iran-related parties remain on the SDN List for non-nuclear reasons, including several of Iran's largest banks.

  Not only are U.S. parties prohibited from engaging in transactions with these parties, secondary sanctions continue to apply to non-U.S. persons who knowingly facilitate significant financial transactions with or provide material or certain other support to those Iranian or Iran-related persons that remain or are placed on the SDN List.

• OFAC's New EO 13599 List: OFAC created a new list of Iran-related parties that meet the definition of the Government of Iran or an Iranian financial institution. Unless authorized by OFAC, U.S. persons-wherever located-are prohibited from engaging in any transaction with, and must continue to block the property and interests in property of, persons on this list.

• HM Treasury (England) and other non-US lists: More than 300 parties were removed from the HM Treasury List and many other countries removed parties from their restricted party lists. Further complicating matters, not all countries have modified their sanctions on Iran.

Watch list screening solutions providers have had to work quickly to update their software programs to make sure that watch list screening processes remain up-to-date and include all of the changes resulting from the implementation of the JCPOA. In fact, the day after JCPOA implementation was announced, the U.S. added additional parties to the SDN List for their role in Iran's ballistic missile program.

How to Best Stay Compliant

The U.S. government has stressed that it will continue to 'vigorously enforce' all U.S. sanctions on Iran that have not been suspended. As a result, U.S. banks and U.S. companies of all sizes must remain vigilant in complying with the Iran sanctions that remain in place.

To learn more about the practical implications of the Iran JCPOA announcement on U.S. financial institutions, U.S. companies and their non-U.S. affiliates, see the comprehensive article on this subject at International Trade Law News.

Douglas N. Jacobson is a Washington, D.C.-based international trade attorney with Jacobson Burton Kelley PLLC who specializes in export controls and sanctions compliance matters. He works with a wide variety of companies and financial institutions in compliance and enforcement matters involving OFAC, BIS and other U.S. government agencies. Doug can be reached at [phone] or [e-mail].