Landmark Nuclear Agreement with Iran Reached

July 14, 2015

On July 14, 2015, the E3/EU+3 (China, France, Germany, the Russian Federation, the United Kingdom, and the United States) signed a landmark agreement with the Islamic Republic of Iran to ease sanctions on the country in exchange for limitations on its nuclear program. This agreement was the result of intense negotiations beginning in November 2013. The Joint Comprehensive Plan of Action ("JCPOA" or "the Agreement") removes many of the nuclear-related economic sanctions imposed by the United States and the European Union in the past decade. As Iran complies with various provisions of the agreement–including caps on its uranium enrichment capabilities and inspections of its key nuclear facilities to ensure that no prohibited activity is occurring–the E3/EU+3 will relax U.S., European Union, and United Nations sanctions currently in place.

Under the Agreement, Iran agreed to cap its uranium enrichment capability for 10 years. Iran also agreed to international monitoring of its nuclear program. The monitoring will address whether Iran has engaged in weapons-related activity under the auspices of its nuclear program.

In exchange, the United States, European Union, and United Nations will provide broad sanctions relief to Iran. The United Nations Security Council will pass a new Resolution–simultaneously with international nuclear inspectors’ verification that Iran had implemented the nuclear-related restrictions–that will terminate United Nations Security Council Resolutions 1696, 1737, 1747, 1803, 1835, 1929, and 2224. These Resolutions will be subject to re-imposition in the event of significant non-performance by Iran of JCPOA commitments. The Agreement establishes a Joint Commission, which includes representatives from Iran, China, France, Germany, Russia, the United Kingdom, and the United States, that will review implementation of the Agreement. If Iran is determined to be in non-compliance with its obligations by a majority of the members of the Joint Commission, the United Nations Security Council Resolutions will be re-imposed. This is the so-called "snapback" provision.

The European Union will also terminate regulations implementing all nuclear-related economic and financial sanctions, likewise simultaneously with international nuclear inspectors’ verification that Iran has implemented the nuclear-related restrictions. The prohibitions which would be lifted include–but are not limited to–those on:

the transfer of funds between EU persons and entities, including financial institutions, and Iranian persons and entities, including financial institutions;
banking activities, including the establishment of new correspondent banking relationships and the opening of new branches and subsidiaries of Iranian banks in the territories of EU Member States;
provision of insurance and reinsurance;
supply of specialized financial messaging services, including SWIFT, for persons including the Central Bank of Iran and Iranian financial institutions;
financial support for trade with Iran (export credit, guarantees or insurance);
import and transport of Iranian oil, petroleum products, gas and petrochemical products;
export of key equipment or technology for the oil, gas and petrochemical sectors;
investment in the oil, gas and petrochemical sectors;
access to EU airports of Iranian cargo flights;
export of gold, precious metals and diamonds;
export of raw or semi-finished metals such as aluminum and steel;
designations on various individual and entities as specified in the Attachments to the Agreement;
associated services for these categories.

The EU will also refrain from re-introducing or re-imposing the sanctions that it has terminated under the JCPOA, and will refrain from implementing new nuclear-related sanctions or restrictive measures.

Upon verification by international nuclear inspectors that Iran has implemented the nuclear-related restrictions, the United States will also remove a number of sanctions specified in Annex II of the JCPOA and terminate Executive Orders 13574, 13590, 13622, 13645, and sections 5–7 of Executive Order 13628. The bulk of this sanctions relief is geared toward non-U.S. persons (i.e., the “secondary sanctions”), and will include lifting restrictions against non-U.S. persons involved in the following activities:

financial and banking transactions with Iranian banks and financial institutions, including the Central Bank of Iran and entities identified as Government of Iran by the Office of Foreign Assets Control ("OFAC") at the United States Department of the Treasury (including the opening and maintenance of correspondent and payable through-accounts at non-U.S. financial institutions, investments, foreign exchange transactions and letters of credit);
transactions in the Iranian Rial;
provision of U.S. banknotes to the Government of Iran;
bilateral trade limitations on Iranian revenues abroad, including limitations on their transfer;
financial messaging services to the Central Bank of Iran and Iranian financial institutions;
underwriting services, insurance, or reinsurance;
efforts to reduce Iran’s crude oil sales;
investment, including participation in joint ventures, goods, services, information, technology and technical expertise and support for Iran’s oil, gas and petrochemical sectors;
purchase, acquisition, sale, transportation or marketing of petroleum, petrochemical products and natural gas from Iran;
export, sale or provision of refined petroleum products and petrochemical products to Iran;
transactions with Iran’s energy sector;
trade in gold and other precious metals;
sale, supply or transfer of goods and services used in connection with Iran’s automotive sector.
associated services for these categories.

The United States will also allow for the sale by U.S. persons of commercial passenger aircraft and related parts and services to Iran, license non-U.S. persons that are owned or controlled by U.S. persons to engage in activities in Iran consistent with the JCPOA, and license the importation into the United States of Iranian-origin carpets and foodstuffs.

Finally, the United States will remove certain entities and individuals identified in Attachment 3 to Annex II from OFAC’s Specially Designated Nationals List, Foreign Sanctions Evaders List, and/or the Non-SDN Iran Sanctions Act List. Further removals of entities and individuals listed in Attachment 4 to Annex II are envisioned down the road.

The JCPOA also requires the United States to take appropriate steps to implement the sanctions lifting as specified in the Agreement, including actively encouraging officials at the state or local level (such as the New York State Department of Financial Services, or DFS) to take into account the changes in U.S. policy reflected in the lifting of sanctions and to refrain from actions inconsistent with this change in policy. The EU and its Member States, as well as the United States, must issue relevant guidelines and make publicly accessible statements on the details of the sanctions or restrictive measures which have been lifted.

Sanctions relief will be provided gradually in a complex and lengthy process. It is anticipated that the United Nations Security Council will endorse the Agreement over the next few days. The JCPOA and its commitments will come into effect 90 days thereafter, on "Adoption Day." Beginning on Adoption Day, JCPOA participants will make the necessary arrangements and preparations for the implementation of their JCPOA commitments. Implementation Day is the date on which, simultaneously with the international inspectors’ report verifying implementation by Iran of its nuclear-related commitments, the United Nations Security Council, the European Union, and the United States commence lifting their respective sanctions as set forth in the Agreement. The UN, EU, and U.S. sanctions on Iran will remain in place until that day.

In the more immediate term, the United States Congress has 60 days to review the Agreement. Congress can vote to accept or reject the Agreement, or take no action. If Congress votes for a resolution of disapproval, which would likely scuttle the Agreement by ensuring that the United States could not provide its obligate sanctions relief, President Obama can veto the resolution. Congress would then need a two-thirds majority in each house to override the President’s veto. While a two-thirds majority is unlikely, such a level of disapproval threatens any sanctions relief.

While there is significant interest in re-entering Iranian markets, we recommend businesses proceed with caution. First, the sanctions relief is not yet in place. As noted, the process for implementing the Agreement is complex and lengthy. Achieving sanctions relief may take a significant amount of time. Given the complexity of the process, the deal could still unravel during implementation. U.S. and European businesses must wait until the relief is in place before engaging in any activities that could be permitted under the Agreement. Likewise, even when the sanctions relief is in place, a significant risk exists that Iran will be judged to be in non-compliance with its obligations and that sanctions will be re-imposed. Second, while the Agreement eases a significant number of sanctions on Iran, many prohibitions remain, including U.S. sanctions related to Iran’s human rights abuses and to its support of terrorist groups and Syria. OFAC will continue to aggressively enforce the sanctions still covering the country. Our clients and friends should exercise caution in re-entering Iranian markets, as such new business could easily result in inadvertently conducting prohibited transactions.

Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have regarding the above developments. Please contact the Gibson Dunn lawyer with whom you usually work, or the authors in the firm’s Washington, D.C. office:

Judith A. Lee – Washington, D.C. (+1 202-887-3591, [email protected])
Andrea Farr – Washington, D.C. (+1 202-955-8680, [email protected])
David A. Wolber – Washington, D.C. (+1 202-887-3727, [email protected])
Eric B. Lorber – Washington, D.C. (+1 202-887-3758, [email protected])

Please also feel free to contact any of the following leaders and members of the International Trade Group:

United States:
Ronald Kirk – Dallas (+1 214-698-3295, [email protected])
Jose W. Fernandez – New York (+1 212-351-2376, [email protected])
Marcellus A. McRae – Los Angeles (+1 213-229-7675, [email protected])
Daniel P. Chung – Washington, D.C. (+1 202-887-3729, [email protected])
Lindsay M. Paulin – Washington, D.C. (+1 202-887-3701, [email protected])

Europe:
Peter Alexiadis – Brussels (+32 2 554 72 00, [email protected])
Attila Borsos – Brussels (+32 2 554 72 10, [email protected])
Patrick Doris – London (+44 (0)207 071 4276, [email protected])
Penny Madden – London (+44 (0)20 7071 4226, [email protected])
Mark Handley – London (+44 (0)207 071 4277, [email protected])

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