We are rubbing our eyes in disbelief and are dumbfounded: The agreement that has been worked out since November 2013 as Joint Plan of Action and that has been implemented after months of negotiation as Joint Comprehensive Plan of Action (JCPOA) in January 2016 has been revoked at the drop of the hat by one of its signatories after having been in force for only a little more than two years – of course, the agreement is still in place, but the president of the United States decided that the USA would no longer be a part of it and announced on May 8th, 2018 that the USA would reinstate her sanctions. The president argues that Iran would be violating the agreement, completely ignoring the fact that the International Atomic Energy Agency had consistently attested Iran to be faithfully sticking to the conditions of the agreement. The president was not convinced. To be sure, he formally may have had the right to back off the agreement because based upon US legal opinion the JCPOA would not be considered an international treaty but “merely” a non-binding political commitment. Whether that legal opinion is correct or not, what can be thought of such “negotiating partners” when it comes to future negotiations? Is there any trust?
To be sure, not everything is in order in the Islamic State of Iran, but the JCPOA provides a chanced of a minimum guarantee for stabilizing the relationship with that country through trade and commerce – in fact, creating certain stabilization in a region in which the various interests constantly lead to intensive tensions, once in a while hysterically dramatized, though. At a time when the same president these days enters into an “agreement for denuclearization” with the North-Korean dictator (probably again only not much more than a “non-binding political commitment”) and the “archenemy” all of a sudden becomes a “friend” without there being – unlike in the case of Iran - any guarantees agreed upon or even mentioned, it begs the question in what kind of political-chaotic world we are living?
Are there, nevertheless, reasonable possibilities for trade relationships with Iran? In any event, enterprises who had – despite many stumbling blocks created by still existing US sanctions - entered the arduous path to establish trade relationships with Iran that had been promoted and encouraged by many politicians (outside the USA) should not stop at lamenting the situation. Even in light of a rather confusing, even chaotic situation, pragmatism should outweigh pessimism.
In his National Security Presidential Memorandum (NSPM) on May 8th, 2018, the president had ordered the line of approach for Treasury’s Office of Foreign Assets Control (OFAC):
By November 4th, 2018 all nuclear-related sanctions that had been lifted in the context of the JCPOA are to be reinstated (1).
Briefly summarizing the process:
By on August 6th, 2018, sanctions will be reinstated pertaining to
With respect to US persons (primary sanctions), the general license regarding the import of Iranian carpets and foodstuff will be revoked.
By November 4th, 2018, sanctions will be reinstated relating to
In particular, by then the General License H will be revoked which allowed foreign entities owned or controlled by US persons to enter into commercial relationships with Iranian trading partners. At that time the Specially Designated Nationals and Blocked Persons List (SDN List) will be reinstated to its pre-2016 state.
It may be that most of such sanctions pertain to US enterprises and persons, in the first place (primary sanctions). However, the reinstatement of many sanctions also has repercussions on foreign entities and persons (secondary sanctions). In that context, sanctions-related consequences may not be enforceable outside the USA, but a “fined” enterprise most likely will not be in a position, anymore, to keep any trade relationships in the USA without accepting the respective fines. The question, therefore, is whether there is anything that a company can do to keep its commercial relationship with Iranian partners. The possibilities are, admittedly, very limited but a possible, if only a most bureaucratic, path to pursue could be to reach an understanding with the controlling US authority.
Treasury’s Office of Foreign Assets Control (OFAC) is vested with immense power. Under the – as one might think – pretext of “averting danger” and “national security” the authority has a wide range of discretion of, at the direction of the president, investigation of countries, organizations, enterprises, and individuals, and may impose fines and wide-ranging economic sanctions which it is more or less able to enforce directly or indirectly.
Generally, the procedure with respect to assumed violations would be as follows
OFAC’s decision as to penalties is based upon several deliberation criteria, which are in particular:
The determination of the penalties entails whether there has been knowledge or by applying reasonable care reason to know that actions will constitute a violation of sanctions. For the determination of the amount of the penalties, the economic or other benefits for the violator (enterprise or individual), the quantifiable damages, or the erosion of the US export control regulations will be taken into account. Mitigating factors will be actions that are performed in the context of humanitarian or non-profit activities.
Of significant impact may also be the fact that the violator would have had the possibility to apply for a specific license at OFAC.
The advantage of an application for a specific license would possibly be that it creates a situation for the applicant to show and give proof to OFAC “to be compliance”. Particularly when there is a “dual” situation, such an application may be advisable. For instance, if there is a shipment of parts for rescue vehicles involved, one could assume that such shipments are covered by the general license for medical devices under the respective general license pursuant to CFR 560.530 (2), with the result that such shipments would not be subject to sanctions. On the other hand, it is possible that such shipments would be assumed by OFAC to be subject to sanctions under the automotive sanctions. In such or similar cases it is strongly advisable to get clarification by OFAC which can be achieved through application for a specific license.
Even if there are “straightforward” business relationships – aside from such cases as dealing with weapons and the like – it is to be recommended to make use of the possibility to apply for a specific license in order to compel a clear statement from OFAC.
The steps for such an application are made easy by OFAC: On its website( 3), the button „Start an online application“ is easy to find. The next page contains general information on how to proceed, and before the actual application process is started it has to be determined what kind of application is being made. Among the six alternatives, as a rule, “Transactional” will apply. The next page, again, contains comprehensive information before the application process on the following pages have to be gone through. Granted, it is a cumbersome, typical bureaucratic procedure, but it is “straightforward” and in general assisted by several pull-down alternatives.
In order to put more emphasis on the application, it is recommended to send the application to OFAC separately in writing including a copy of the online application plus the respective documentation. Such a letter may also include reasons why a specific license in the particular case even could be in the interest of the US, e.g. by pointing out that perhaps Chinese commercial activities could be thwarted.
Applying for a specific license may be worthwhile to pursue. There is nothing to lose by it. In the best case scenario, the business relationship with Iran can be continued uninterrupted.
(2) “Commercial sales, exportation, and re-exportation of agricultural commodities, medicine, medical devices, and certain related software and services.”