Iran: Open for Business on November 25?

There have been many mixed signals on the current status of the nuclear negotiations between Iran and the five permanent UN Security Council members and Germany.  Some say the deal is almost done, others say there may be an extension.  What is clear, however, is that whether a deal is signed Monday night or next month, many are holding their breath at the possibility of an opening of the world’s last untapped major emerging market.

As expected, a number of people seem to have their bags packed, ready to go to Iran (some Europeans have already gone) to bag deals – many of them might not even know for what.  Some have even asked me what I will do for a living once all sanctions are removed Monday night (even if that happens, which it won’t, we’ll be set with our other practices).  For the more realistic, such lofty expectations have been tempered by sobering statements by U.S. officials and policy experts.

So what will happen?

It’s hard to tell. If a deal is reached, and that is still not for sure, you may expect to see some of the following:

1. Continuation of suspension (or repeal) of certain secondary sanctions that were subject to the temporary relief granted last year (e.g., those sanctions that punish third country entities for dealing with the Iranian automotive industry, precious metals trade, etc.).

2. Improved (but not necessarily normal) banking channels for legitimate, authorized trade.  Personally, I’m eager to see if the U.S. will create a direct banking channel with Iran for the narrow band of permissible transactions, preempting even a partial removal of Iran from the SWIFT banking messaging network.  In other words, it may become easier for money to flow from Iran to the U.S. than to Europe.  Reentry to SWIFT may be enabled for certain limited transactions and with specific Iranian banks.  The removal of major Iranian banks like Saderat, Melli, and Tejarat from various U.S. and EU sanctions lists, however, seems less likely.

3. Enabling the sale of civilian aircraft to Iran. Much news was made of the new licensing regime by U.S. companies could obtain specific OFAC authorization to sell spare parts to Iran Air for its aged fleet, but reports indicate only about $120,000 of sales have been actually made by Boeing. The reason may be twofold – limited time for Boeing to obtain a license and sell and deliver parts, and also the age of these aircraft rendering the procurement of expensive parts very cost in-effective.  Either way, few would disagree from the proposition that Iranian carriers need revamped civilian fleets.  A window could open allowing Airbus and Boeing this to happen.

4. A moderate increase in the types of transactions U.S. persons can enter into with Iran.  In recent years we have seen certain limited openings for U.S.-Iran trade, driven primarily by humanitarian and policy reasons.  While removing the outright ban on virtually all goods going from the U.S. to Iran is hard to imagine, certain limited categories may be freed up. This could be as broad as allowing all EAR99 goods (i.e., goods that are not subject to export control laws for potential dual civilian and military use) or as narrow as say, allowing certain specific categories of goods such as software or building materials to go to Iran.  More likely we may see an expansion of the general license for medical goods, allowing more medical goods to go to Iran without a specific license.

5. Authorized trade will become easier. Even if nothing additional is allowed for U.S. persons, other easing of the sanctions may make it legal (and if already legal, more cost-effective) for third country companies to resume business with Iran. This may result in more entities providing logistics services such as shipping and insurance, which will make U.S. persons engaged in trade that is currently authorized but difficult to carry out (e.g., pharmaceutical sales) easier.

6. The need for compliance will increase. This sounds counter-intuitive – if the laws are relaxed even a bit, how can the pressure for compliance increase? Very simple – people often get carried away when the government issues new authorizations. A slight easing of sanctions laws, coupled with a poor understanding of the law and miscommunication (think of the “telephone” game some children play) can lead to huge exposure for U.S. persons and other entities. When virtually everything is prohibited, many people often just stay away, thereby reducing a sizable amount of exposure and risk.  When some things become allowed and people start treading into these slightly relaxed but still heavily regulated areas, mistakes are arguably more likely to happen. It will be critical that companies reeducate themselves on compliance, and get a full understanding of what they will and will not be able to do.

Bottom line – a deal is not going to be reached for sure, but if it does, it may open some doors. What it will not result in is an immediate repeal of the sanctions regime in its entirety. As such, it is critical that U.S. and other entities have a full grasp of what limitations and authorizations will emerge and what the presumably sizable terms and conditions will be before going forward. Understanding the law will be critical to avoid costly mistakes that can lead to civil and criminal penalty, not to mention reputational damage.

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An international trade and regulatory lawyer.

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Posted in Compliance, Corporate, Iran, OFAC, Sanctions

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Copyright 2017 Farhad R. Alavi.
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