U.S. sanctions against Iran snap back into place – A compliance risk turns into reality

On 8 May 2018, U.S. President Trump announced his decision to cease U.S. participation in the Joint Comprehensive Plan of Action (“JCPOA”). U.S. sanctions that were lifted in connection with the JCPOA will be re-imposed. The Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) will thus revoke general and specific licenses issued in connection with the JCPOA. Parallel thereto, OFAC will issue new authorizations allowing the termination of business activities involving Iran within 90 day or 180 days (so called wind-down periods). Accordingly, by 5 November 2018, all U.S. sanctions will be in full effect again. The risk of a potential snap-back of secondary U.S. sanctions is turning into reality.

In particular, the revocation of General License H may have severe implications for the Iran business of German companies. General License H permitted foreign subsidiaries of U.S. companies to engage in certain business activities with Iran.

In case the risk of sanctions snapping back had not been addressed in contracts signed with Iranian companies, adhering to U.S. sanctions will lead to liability risks. In addition, if the EU remains committed to the JCPOA, German companies may have to deal with conflicting sanctions regimes. German companies risk a breach of Sec. 7 AWV.

The new US ambassador to Germany, Richard Grenell, called on German companies to immediately shut down their business dealings with Iran. For current Iran business operations, however, hasty approaches would not helpful in view of the wind-down periods. Rather, German companies should thoroughly analyze the implications of the “snap back” of secondary U.S. sanctions for their business dealings with Iran.