Commentary: U.S. businesses should exercise ‘extreme caution’ in dealing with Iran

The majority of sanctions applicable to U.S. companies remain in effect, and violators could be subject to fines and other penalties, according to Brent Helms, special counsel for the energy, environment and natural resources team at Jones Walker LLP.    Most of the United States’ primary Iranian sanctions applicable to U.S. individuals and companies have not been suspended and remain in full force and effect. Violations of those sanctions will continue to expose U.S. individuals and companies to fines and penalties.

Why should you be concerned?  The U.S. and International sanctions involving Iran have had a convoluted history and have been at best confusing for those involved in international trade and transportation.
   The relatively recent actions by the European Union; Germany, France, United Kingdom, China, Russia and the United States under the Joint Comprehensive Plan of Action (JCPOA) with respect to sanctions against Iran have further muddied the compliance waters and left most in the international trade community confused or at least wary about what can or cannot be done with respect to trade with and shipment to Iran.
   Removal of sanctions issued by the U.S. is much more complicated than with U.N. and EU sanctions because the U.S. Government has issued myriad and overlapping sanctions against Iran since the early 1980s. Those fines and penalties can be substantial. 
   U.S. international traders and shippers must take care to fully understand these changes in the U.S. sanctions in order to avoid the continuing fines and penalties that remain in place.

JCPOA.  Under the JCPOA blueprint, the U.S. is poised to unravel some of the sanctions it has placed on Iran.  However, under this plan the U.S. is lifting only its “so-called nuclear-related secondary sanctions,” specifically, those sanctions targeting foreign companies who did business with the U.S. and Iran and related to Iran’s nuclear program.
   U.S. businesses that provide civil aircraft, parts, or services may, under JCPOA, apply for a special license to do business with Iran. However, these U.S. businesses will have heavy competition from EU based aviation businesses that will not have to go through a lengthy waiver or licensing process.

What remains?  The JCPOA does not, however, commit the U.S. to suspend the primary U.S. sanctions that apply only to U.S. individuals or companies or persons physically in the U.S. or to suspend application of those sanctions imposed because of Iran’s support of terrorism or its human rights abuse.   Accordingly, the following activities are generally still prohibited for U.S. individuals, U.S. companies and persons physically in the U.S.
     • Direct or indirect export or re-export of U.S. goods, technology or services to Iran or to Iranian companies without separate authorization from Office of Foreign Assets Control (OFAC),
     • Transferring funds to, from or through U.S. financial systems,
     • Investing in Iran, 
     • Trading in Iranian oil or LNG, 
     • Generally, facilitating any of the above, with certain exceptions.

Beware of the potential for snapback.  If Iran fails to adhere to the JCPOA, OFAC is authorized to snapback the suspended/terminated sanctions into place. Thus, contracts regarding Iran which are entered into during the period of sanctions relief would not be grandfathered and would not be allowed to continue.  Also any activity conducted after the snapback could be subject to new sanctions, fines and penalties.
General License H – aka the “Foreign Subsidiary Loophole”
   General License H authorizes an entity owned or controlled by a U.S. person and established or maintained outside the U.S. to engage in most transactions directly with the Government of Iran or any person subject to the jurisdiction of the Government of Iran that would otherwise be prohibited by Iranian sanction regulations.
   Under this exception, no U.S. person or company can be involved in the Iran-related day-to-day operations, management or decision making for the non-U.S. subsidiary. A separate article could be written on the complexities and intricacies of General License H.

Automated and globally integrated systems.  In General License H situations, it is permissible for a U.S. parent company to make available to a non-U.S. subsidiary any “automated” and “globally integrated” computer, accounting, email, telecommunications, or other business support system, platform, database, application, or server necessary to store, collect, transmit, generate, or otherwise process documents or information related to any authorized transactions.
   So, by way of example, it would be OK for a U.S. parent and non-U.S. subsidiary to share an enterprise resource planning (ERP) system that utilizes a U.S.-based server to generate a purchase order initiated by a U.K. based, non-U.S. person employee if there was no human intervention in the U.S.
   However, it would not be OK if the ERP system required the intervention of an individual located in the U.S. to complete a request initiated by a U.K.-based, non-U.S. person employee of a U.S.-owned or- controlled foreign entity, such as a U.S. person performing data entry or internal processing for the creation of a customer record.

   JCPOA has generated worldwide business anticipation of new opportunities.  While there may be some possibilities for certain U.S. business segments, for the most part the U.S. sanctions regime against Iran is still in place.  U.S. person and businesses must still exercise extreme caution in their potential dealings regarding Iran.

   Brent Alan Helms is special counsel with Jones Walker LLP’s Energy, Environment, and Natural Resources Industry Team in the Houston office. He has extensive experience in the oil and gas exploration, refining, chemical, petrochemical and manufacturing industries and spent 25 years as in-house counsel for Total Petrochemicals & Refining USA, Inc. (Total), in Houston.