Iran Sanctions and Third Party Risk
United States businesses are experiencing a sanctions whipsaw. Since 1979, the President has issued twenty-six Executive Orders restricting trade and commerce with Iran.
The Iran Sanctions Program imposed strict prohibitions in a range of areas. The Iran Sanctions Program and the Cuba Embargo are the two most restrict sanctions program implemented by the United States.
All of this changed in January 2016 when the Joint Comprehensive Plan of Action (JCPOA) was reached between Iran and the P5+1 countries. In exchange for sanctions relief, Iran agreed to curb its nuclear-related programs. The JCPOA lifted secondary sanctions against non-US persons, removed approximately 300 persons from the Specially Designated Nationals List, and authorized U.S. companies to conduct business with Iran through foreign subsidiaries under General License H.
On May 8, 2018, the Iran Sanctions Program world changed again when the Trump Administration announced its withdrawal from the JCPOA and its plan to reimpose the U.S. nuclear-related sanctions. Under the new policy, all of the sanctions in existence prior to the JCPOA, including nuclear secondary sanctions, will be reimposed effective November 5, 2018. Businesses have to wind-down Iran-related activities pursuant to JCPOA authorizations, some within 90 days of the announcement, and the remaining within 180 days of the announcement.
The U.S. Secretary of State Mike Pompeo has stated that the administration plans to implement the “strongest sanctions in history,” including “secondary sanctions” that target foreign companies that do business with any U.S. person or entity.
The European Union has decided not to follow the United States’ action. Germany, Britain and France have requested that the U.S. exempt EU companies from compliance with the U.S. re-imposed sanctions but the U.S. rejected that request.
U.S. companies will face a challenge complying with the new, re-imposed Iran Sanctions Program. The EU’s decision not to follow suit complicates sanctions compliance, particularly with respect to third party risks.
The Iran Sanctions Program broadly prohibits the exportation, sale, or supply of goods, technology or services to Iran. See Section 560.204. Even if an exported good is not destined for Iran, a person or business may violate sanctions prohibiting transshipments through Iran. See Section 560.403.
More significantly, the Iran Sanctions Program prohibition includes the exportation, re-exportation, sale, or supply of goods to a person in a third country undertaken with knowledge or reason to know that the goods are intended for supply, transshipment, or re-exportation to Iran or the Government of Iran.
U.S. companies have to take affirmative steps to ensure that any export of goods or services to a person in a third country are not intended for Iran. When selling goods to a foreign distributor, for example, U.S. companies have to make sure that such goods will not be reshipped to Iran or an Iranian business.
Such a prohibition increases significantly a company’s third-party risk and the need to conduct due diligence, secure appropriate written assurances, and review shipping plans for any export to ensure that it does not pass through Iran. Sanctions compliance requires not only managing third party risks but also identifying a company’s customers and the intended use of goods exported to a foreign company.