Since President Trump’s announcement, on May 8, that the United States would withdrawal from the Joint Comprehensive Plan of Action (“JCPOA”) and re-impose previously lifted sanctions against Iran, the remaining JCPOA signatories have been scrambling to save the agreement. On June 4, officials from the UK, Germany, France, and the EU sent a letter to Secretary of State Mike Pompeo and Secretary of the Treasury Steven Mnuchin seeking a number of exemptions to US secondary sanctions scheduled to come back into effect later this year in order to facilitate the continued economic engagement between the EU and Iran that is a key part of the JCPOA. (See our previous advisory on the United States withdrawal from the JCPOA here). The letter from EU officials outlined a number of specific requests:
- grant exemptions from US sanctions for EU companies that initiated or concluded their contracts after JCPoA Implementation Day (16 January 2016).
- give public confirmation of areas of business that are exempt from US secondary sanctions, such as pharmaceuticals, healthcare; and grant exemptions to allow for economic relationships in key sectors, in particular in the fields of energy, automotive, civil aviation and infrastructure.
- grant exemptions to maintain banking channels and financing channels with Iran. This notably includes maintaining links with the Central Bank of Iran as well as with the other Iranian banks that are not sanctioned by the European Union and the preservation of financial messaging services (SWIFT) to these banks.
- grant extended and adapted winding-down periods according to the necessary time to properly wind down affected projects for companies that may eventually choose to withdraw from Iran.
- prolong General License H (foreign subsidiaries of US companies to be able to continue business).
- reaffirm the exemption for Embassy bank accounts.
The United States has now reportedly responded to those requests in a letter from Secretaries Pompeo and Mnuchin to European leaders. The letter itself is not public, but its contents have been described in a handful of media reports. According to those reports, the letter notes that the United States is applying “unprecedented financial pressure” on Iran, which will continue until Iran makes a “tangible, demonstrable, and sustained shift” in its policies. With regard to the requested exemptions, the letter explains, “The president withdrew from the JCPOA for a simple reason — it failed to guarantee the safety of the American people. We are thus not in a position to make exceptions to this policy except in very specific circumstances where it clearly benefits our national security.”
While the letter reportedly rejected the demands for broad waivers made by Europe, Secretary Mnuchin later clarified that the United States would consider providing more limited relief from the secondary sanctions triggered by the continued purchase of crude oil from Iran.
Section 1245 of the National Defense Authorization Act of 2012, which will go back into effect on November 5, requires the president to impose sanctions on foreign financial institutions that have “knowingly conducted or facilitated any significant financial transaction with the Central Bank of Iran or another Iranian financial institution” designated under the International Emergency Economic Powers Act. Such prohibitions also apply to “a foreign financial institution owned or controlled by the government of a foreign country, including a central bank of a foreign country” if the entity “engages in a financial transaction for the sale or purchase of petroleum or petroleum products to or from Iran.” However, Section 1245 contains a waiver provision for foreign financial institutions where the president has determined “that the country with primary jurisdiction over the foreign financial institution has significantly reduced its volume of crude oil purchases from Iran.” Additionally, the NDAA waiver of Section 1245 will also serve to waive certain provisions of Section 1244 and Section 1247 of the Iran Freedom and Counter-Proliferation Act of 2012. Section 1244 concerns the “imposition of sanctions with respect to the energy, shipping, and shipbuilding sectors of Iran.” Section 1247 concerns the “imposition of sanctions with respect to foreign financial institutions that facilitate financial transactions on behalf of special designated nationals.”
The Trump Administration had previously indicated that no such waivers would be issued and that countries would need to reduce their imports to zero immediately upon the sanctions re-imposition on November 5. On Friday, Secretary Mnuchin offered a more nuanced stance, stating, “We want people to reduce oil purchases to zero, but in certain cases if people can’t do that overnight, we’ll consider exceptions … We want to be very careful in the wind-down around the energy markets to make sure that people have the time.” However, he added that the US would not issue “blanket waivers” and there would be no “grandfathering.”