New Sanctions Against Iran

February 3, 2017

Less than 48 hours after President Donald J. Trump’s statement that Iran had been "put on notice" following its test of a ballistic missile, the United States issued a set of new sanctions against Iran.[1] 

Recent Events Involving Iran

After a six-month hiatus, Iran resumed testing of ballistic missiles on January 29, just two days after Iran’s inclusion on a list of seven countries whose citizens are subject to restrictions on travel to the United States under President Trump’s January 27 Executive Order.[2]  Such tests were not prohibited under the terms of the Joint Comprehensive Plan of Action ("JCPOA"), a deal to ease sanctions on Iran in exchange for limitations on the country’s nuclear program.  U.S. officials argued that the test was "in defiance of" U.N. Security Council Resolution 2231, which was passed in 2015 to endorse the Iran nuclear deal. 

Notably, and unlike an earlier U.N. resolution, Resolution 2231 does not prohibit ballistic missile testing.[3]  In U.N. Security Council Resolution 1929 (2010), the U.N. Security Council indicated that Iran "shall not undertake any activity related to ballistic missiles capable of delivering nuclear weapons, including launches using ballistic missile technology . . . ."  In Resolution 2231, however, the U.N. Security Council terminated the provisions of the 2010 resolution and added language indicating that Iran was "called upon not to undertake any activity related to ballistic missiles designed to be capable of delivering nuclear weapons, including launches using such ballistic missile technology, until the date eight years after the JCPOA Adoption Day or until the date on which the IAEA submits a report confirming the Broader Conclusion, whichever is earlier."

Characterizing the missile test as a violation of the 2015 U.N. Resolution, Michael T. Flynn stated that the administration was "officially putting Iran on notice" following the test.[4]  President Trump echoed Mr. Flynn’s statement on Twitter and again threatened Iran with reprisals on Twitter early this morning.[5]

Iran confirmed that the missile test took place but maintained that it did not violate the U.N. Security Council resolution.[6]  The United Nations has not yet made a statement as to whether it considers the missile test to be a violation of the Resolution.

New Sanctions Announced February 3, 2017

This morning, the United States Department of Treasury Office of Foreign Assets Control ("OFAC") announced new Iran-related sanctions, described in more detail below.  The sanctions, which consist of additions to the Specially Designated Nationals List ("SDN List"), appear to be highly targeted, and thus do not themselves appear to materially change the landscape of the Iran sanctions regime. 

The new sanctions target thirteen individuals and twelve corporate entities for their alleged role in supporting Iran’s ballistic missile program.  OFAC also named officials and businesspeople tied to Iran’s elite military unit, the Islamic Revolutionary Guard Corps, for their suspected role in aiding the Lebanese militia, Hezbollah, and Tehran’s defense industries.[7]  Of the newly listed companies, five are Iranian and four are Lebanese.  Two companies are Chinese, and one is based in the United Arab Emirates.  The targeted Chinese companies appear to be trading companies (as do some of the Lebanese companies), and companies of this nature have been targeted by OFAC in the past. 

Each of the newly sanctioned parties was designated under one or more of four different sanctions programs:

• Global Terrorism Sanctions Regulations (31 C.F.R. part 594)
• Iran Financial Sanctions Regulations (31 C.F.R. part 561)
• Sanctions against the Iran Revolutionary Guard Corps (31 C.F.R. part 561)
• Weapons of Mass Destruction Proliferators Sanctions (31 C.F.R. part 544)

Consistent with the existing approach to secondary sanctions, which prohibit non-U.S. persons from engaging in transactions with parties on the SDN List, all of the newly targeted parties are subject to both primary and secondary sanctions–which means that if a non-U.S. person knowingly engages in significant transactions with these parties the non-U.S. person could face sanctions in the United States.

Several aspects of the new designations suggest that these new sanctions are unlikely to have a significant direct effect on companies that are engaged in or considering transactions following the implementation of the JCPOA. 

• First, half of the new designations are designations of individuals, which tend to have a narrower effect than corporate designations. 
• Second, the new corporate designations do not include any financial institutions.  The lack of any new sanctions against Iranian banks is significant because securing the assistance of financial intermediaries is one of the key practical challenges companies face when pursuing now legal transactions involving Iran.
• Third, no major corporations were designated.  Although the list includes some corporate entities, none (inside or outside Iran) are appear to be economically significant.
• Fourth, the new designations do not include any government ministries–which could also have had a significant chilling effect on companies needing to interface with the Iranian government to enter the Iranian market.

Although companies will need to take care to ensure that they are in compliance with the new sanctions, the points above suggest that the newly designated parties will be relatively straight-forward to avoid, and thus the new sanctions are unlikely to foreclose significant business transactions that were previously permitted by the regulations.  The sanctions do, however, increase the temperature between Washington and Tehran as well as the already significant risks associated with taking advantage of newly licensed transactions.

Looking Ahead

We consider the new sanctions to be highly targeted and unlikely to upset the broader sanctions relief in place under the nuclear deal–in fact, the narrowly tailored nature of the list is consistent with the approach taken by the Obama administration with respect to Iran.  Given how targeted these sanctions are, we are projecting limited collateral pushback from the European Union or Russia, and we do not expect China to react significantly to the limited number of small Chinese trading firms that were included.

Even so, the new sanctions are President Trump’s first action against Iran since his inauguration, and we expect some retaliation from Iran (of unknown sort or quantity).  At the same time, President Trump’s statements this week have signaled that he intends to take a harder line with Iran than President Obama did and that he continues to take a dim view of the JCPOA.[8]  Moreover, a senior administration official characterized the new sanctions as "initial steps."[9]  In light of this signaling by the Administration, as well as the potential that Iran may respond with steps that continue to escalate tensions, we may see broader sanctions measures in the coming weeks or months.

We will endeavor to keep our clients apprised of any further developments.

[1] OFAC, "Iran-related Designations; Non-proliferation Designations; Counter Terrorism Designations; Balkans Designation Update" (Feb. 3, 2017), available at https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20170203.aspx.

[2] Executive Order:  Protecting the Nation from Foreign Terrorist Entry into the United States (Jan. 27, 2017), available at https://www.whitehouse.gov/the-press-office/2017/01/27/executive-order-protecting-nation-foreign-terrorist-entry-united-states;  W.J. Hennigan, "Iran tests first ballistic missile since Trump took office," Los Angeles Times (Jan. 30, 2017), available at http://www.latimes.com/world/middleeast/la-fg-iran-missile-20170130-story.html.

[3] United Nations Security Council, Resolution 2231 (2015); see also http://www.un.org/en/sc/2231/restrictions-ballistic.shtml.

[4] Mark Landler and Thomas Erdbrink, "Iran is Threatened with U.S. Reprisals Over Missile Test," N.Y. Times (Feb. 1, 2017), available at https://www.nytimes.com/2017/02/01/world/middleeast/iran-missile-test.html.

[5] Donald J. Trump,https://twitter.com/realDonaldTrump/status/827118012784373760 (Feb. 2, 2017); https://twitter.com/realDonaldTrump/status/827478751931924480 (Feb. 3, 2017).

[6] "Iran confirms missile launch, says it doesn’t breach UN resolution," Tehran Times (Feb. 1, 2017), available at http://www.tehrantimes.com/news/410693/Iran-confirms-missile-launch-says-it-doesn-t-breach-UN-resolution.

[7] OFAC, "Iran-related Designations; Non-proliferation Designations; Counter Terrorism Designations; Balkans Designation Update" (Feb. 3, 2017), available at https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20170203.aspx.

[8] Donald J. Trump, https://twitter.com/realDonaldTrump/status/827118012784373760 (Feb. 2, 2017); https://twitter.com/realDonaldTrump/status/827478751931924480 (Feb. 3, 2017).

[9] "Trump administration imposes new sanctions on Iran," The Guardian (Feb. 3, 2017), available at https://www.theguardian.com/us-news/2017/feb/03/trump-administration-iran-sanctions.