Remarks by Ambassador Doherty at the AmCham Annual General Meeting: “Changes to Sanctions on Iran: What Do They Mean for Businesses?”

Good evening Minister Lakkotrypis, Mr. Chairman, ladies and gentlemen.  I’m happy to be here this evening to discuss a challenging and important topic: the recent changes to our Iran sanctions policy and what those changes mean for businesses here in Cyprus.   These changes are the direct result of one of the major diplomatic achievements of our time.

Tonight, I will give you background on how we arrived at the Joint Comprehensive Plan of Action, or the JCPOA.  This phrase does not exactly roll off the tongue, so I will refer to it as “the Iran Deal.” The Iran Deal represents a huge diplomatic accomplishment and a significant achievement in non-proliferation.   I will summarize for you some of the major changes in the Iran sanctions regime brought about by the Iran Deal.  And lastly, while nuclear related sanctions were lifted on Implementation Day, January 16th, other non-nuclear sanctions remain in place, so I will outline those as well.

A couple of things I want to say up front:

I am not an Iran sanctions expert and not a lawyer – both of which would have been helpful since my remarks will be technical, with a lot of legal language.  But I hope to shed some light on this complex subject, and in the back of the room, I have some handouts that will guide you to other sources.

Let me start with how we got to this point.  Over the past three decades, despite a complex regime of sanctions against Iran’s nuclear program, Iran moved closer and closer to having the ability to build a nuclear bomb.  President Obama, therefore, took a very bold step and determined that national and international security would be best served by engaging in direct conversations with Iran.

It was not easy to open this dialogue, and I can tell you the work was difficult and slow-going.  There were many people who thought reaching a deal to bring Iran back into the community of nations and off the ledge of nuclear status couldn’t be done or even shouldn’t be done because they viewed talks as a reward for Iran.  But as John F. Kennedy said, “Let us never negotiate out of fear.  But let us never fear to negotiate.”  So negotiations began among the EU, the P5+1 – which are the five members of the UN Security Council plus Germany – and, of course, with Iran.  The result was the JCPOA:  a nuclear deal that we, our allies, and partners reached with Iran.  It is not only a tribute to Secretary Kerry and the negotiating teams, but also a reaffirmation that through dialogue and diplomacy, the toughest of issues can find resolution.

The negotiations had one simple, overriding purpose: to cut off all of Iran’s paths to acquire enough fissile material for a nuclear weapon.  The deal reached on July 14, 2015 allows unprecedented visibility into Iran’s nuclear program and provides certainty that Iran no longer has the ability or the capacity to break out and build a bomb.  This is certainly in everyone’s best interest.

On January 16, the IAEA verified that Iran completed all the nuclear-related steps to which it had committed under the JCPOA.  With the Secretary of State’s confirmation of that verification, the United States and the European Union’s commitments under the Deal went into effect.  Iran now has the opportunity to begin building new ties with the world, something that appears to be ardently desired by many of the citizens of Iran.  We too have a chance to pursue a new path – a future that delivers progress and opportunity for the Iranian people.

So the part you are probably most interested in:  what about our sanctions program has changed?  The rules in place are quite complex and I can’t delve into every aspect of the recent changes, but I’ll give you an overview of the major shifts in policy and what these mean for business leaders.

I will refer frequently to the Department of Treasury’s Office of Foreign Assets Control.  This is a long title, so I will refer to it by its initials: OFAC.  OFAC is the U.S. government’s lead office charged with enforcing sanctions.  So let’s get to the heart of the matter…

The sanctions that were lifted were in the form of what we call secondary sanctions, ones that non-U.S. persons must abide by – meaning most, if not all, of you in the room – and for activity wholly outside of U.S. jurisdiction.  Under this category, the sanctions lifted were those that applied to Iran’s banking, financial, insurance, energy, petrochemical, and automotive sectors; shipping and shipbuilding sectors and port operators; trade in gold and precious metals; trade in certain materials and software; and associated services for each of these categories.

So that list includes a lot of sectors where companies in Cyprus may have an interest.  OFAC also removed more than 400 individuals and entities from the Specially Designated Nationals list (the SDN list).  This is an OFAC list of individuals and companies owned or controlled by, or acting for, or on behalf of, targeted countries.  Their assets are blocked.   Secondary sanctions no longer apply to transactions with entities that were removed from this list, and that broadens the number of entities you can do business with.

The U.S. primary embargo remains in place.  Therefore, U.S. persons – which I will explain in a minute what this means -are still generally prohibited from engaging in most commercial  activities involving Iran, including:  investing in Iran, facilitating third country trade with Iran, and exporting or importing goods or services to or from Iran.  Export-controlled, U.S.-origin technology also is still prohibited from going to Iran from third countries – meaning Cyprus and any other country.

So what is a “U.S. person?”  This means any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.  There are three exceptions for U.S. persons:

First, OFAC issued a policy allowing for the case-by-case licensing for trade in commercial passenger aircraft, as well as associated parts and services.  Second, it issued a general license authorizing U.S.-owned or U.S.-controlled foreign entities to engage in activities with Iran that are consistent with the JCPOA and U.S. laws and regulations.  This is one of the most complex part of the rules, and which is explained in one of the handouts in the back.  And third, a license was issued authorizing the importation into the United States of Iranian-origin carpets and foods.  These three activities are valid as long as they don’t involve individuals and entities on the Specially Designated Nationals list.

For agents of U.S.-owned or controlled foreign entities, you are eligible to participate in transactions only if OFAC authorizes the U.S. –owned or controlled foreign entity to engage in those activities.

So, how are these changes being explored by U.S. companies? American businesses are in the beginning stages of exploring commercial opportunities with Iran.  For instance, earlier this month, Boeing was invited to talks with Iranian officials about modernizing Iran’s aged commercial aircraft fleet.  This could be a precursor to the biggest business arrangement with an American company after more than three decades of estrangement.

While there have been significant changes, there also are important non-nuclear sanctions that remain in place.  The embargo on U.S. trade with Iran continue because of concerns outside of Iran’s nuclear program, such as Iran’s support for terrorism, human rights abuses, its ballistic missile program, and destabilizing activities.  Sanctions tied to those activities will remain in effect.

Secondary sanctions also continue to apply to the more than 200 Iran-related individuals and entities that remain on the SDN List, as well as any such persons we add to the SDN List in the future.  Non-U.S. persons who conduct significant transactions with, or provide material support to those on the list may face being cut off from the U.S. financial system.  So if you are contemplating transactions with Iran, it is very important to do your due diligence to avoid unintended repercussions for your firm or business.

Further, secondary sanctions continue to attach to significant financial transactions, including those by foreign financial institutions, with Iran’s Islamic Revolutionary Guards Corps or with any individual or entity sanctioned in connection with Iran’s support for international terrorism, its ballistic missile program, or human rights violations.

We will continue to exercise these authorities to counter these activities, as we did on January 17, when OFAC designated eleven individuals and entities in connection with their support for Iran’s ballistic missile program.

Since Cyprus is a hub of international banking and I know there were also a couple of specific questions about how the changes impact the banking sector, I’ll go into more detail here.  One question was whether foreign financial institutions would be subject to sanctions for conducting or facilitating transactions with persons removed from the SDN List.  As a general guidance, the answer would be:  no.  But you should check with U.S. experts. Foreign financial institutions are able to conduct or facilitate financial transactions with persons who have been removed from the SDN list.  This would include transactions by foreign financial institutions that have branches in the United States, provided that the branches in the United States are not directly or indirectly involved in the transactions.  Such transactions may not transit the U.S. financial system.  This bears repeating:  any transaction processed in or through the Unites States or that involves a U.S. person, directly or indirectly, continues to be prohibited, unless they are exempt from regulation or authorized by OFAC.  Here too, just a reminder that this is explained better in the handouts.

As Ambassador, I want to reiterate Secretary Kerry’s message that the United States in no way intends to stand in the way of legitimate business dealings with Iran.  We are in the early days of a significant change in our sanctions posture and many companies are in the very early exploratory phase of learning what sanctions relief means for them.  We are just two months from Implementation Day, after decades of sanctions, so we ask all of you to be patient as the rules become clearer.

I also encourage all of you to make the documentation published by OFAC your first resource – especially when it comes to questions regarding entities on the SDN list.  Given the ramifications, it’s important that businesses that engage with Iran know the specifics of U.S. sanctions.

I appreciate very much the opportunity to speak to you today, on what is assuredly a difficult subject.  Please treat my broad overview as an introduction designed to help you understand why the sanctions regime has shifted, what some of the changes have been, and a few areas where there is no change.

Thank you.

 

Resources Related to Sanctions Relief under the Joint Comprehensive Plan of Action (JCPOA)

Prepared by the U.S. Embassy, Nicosia Cyprus
For the Cyprus –U.S. Chamber of Commerce

Current as of March 28, 2016

Key website for information about sanctions:

U.S. Department of Treasury
www.treasury.gov

Resources about Iran-related sanctions, generally.  Includes a link to sign up for e-mail notifications
https://www.treasury.gov/resource-center/sanctions/Programs/Pages/iran.aspx

Guidance Relating to the Lifting of Certain U.S. Sanctions Pursuant to the Joint Comprehensive Plan of Action on Implementation Day
https://www.treasury.gov/resource-center/sanctions/Programs/Documents/implement_guide_jcpoa.pdf (PDF 282 KB)

Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions Under the JCPOA on Implementation Day
https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_faqs.pdf (PDF 249 KB)

Information about the Specially Designated Nationals (SDN) List
https://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx

General License H: Authorizing Certain Transactions Relating to Foreign Entities Owned or Controlled by a United States Person
https://www.treasury.gov/resource-center/sanctions/Programs/Documents/iran_glh.pdf (PDF 2.7 MB)

For purposes of the U.S. commitment in section 5.1.2 of Annex II of the JCPOA, what activities are consistent with the JCPOA and applicable U.S. laws and regulations?

Activities by U.S.-owned or -controlled foreign entities that are within the scope of GL H will be deemed to be consistent with the JCPOA and the laws and regulations administered by OFAC. Individuals and entities acting pursuant to GL H remain responsible for complying with other applicable U.S. laws and regulations, including, for example, the Federal Food, Drug, and Cosmetic Act. Transactions that are not authorized under GL H because they are inconsistent with the JCPOA and/or U.S. law include transactions involving: (1) the direct or indirect exportation or re-exportation of goods, technology, or services from the United States (without separate authorization from OFAC); (2) any transfer of funds to, from, or through the U.S. financial system; (3) any individual or entity on the SDN List or any activity that would be prohibited by non-Iran sanctions administered by OFAC if engaged in by a U.S. person or in the United States; (4) any individual or entity identified on the FSE List; (5) any activity involving any item subject to the Export Administration Regulations (EAR) that is prohibited by, or requires a license under, part 744 of the EAR; or participation in any transaction with a person whose export privileges have been denied pursuant to part 764 or 766 of the EAR (without authorization from the Department of Commerce); (6) any military, paramilitary, intelligence, or law enforcement entity of the Government of Iran, or any official, agent, or affiliate thereof; (7) any activity that is sanctionable under Executive Order 12938 or 13382 (relating to Iran’s proliferation of weapons of mass destruction and their means of delivery, including ballistic missiles); Executive Order 13224 (relating to international terrorism); Executive Order 13572 or 13582 (relating to Syria); Executive Order 13611 (relating to Yemen); or Executive Order 13553 or 13606, or section 2 or 3 of Executive Order 13628 (relating to Iran’s commission of human rights abuses against its citizens); or (8) any nuclear activity January 16, 2016 29 involving Iran that is subject to the JCPOA procurement channel and that has not been approved through that procurement channel process.

U.S. Department of State
www.state.gov

Iran Country Specific Travel Information
http://travel.state.gov/content/passports/en/country/iran.html

U.S. Embassy in Nicosia, Cyprus
https://cy.usembassy.gov/