In an Executive Order on Monday, September 21, 2020, President Donald J. Trump announced the addition of eleven (11) individuals (or groups of individuals) to the Specially Designated Nationals and Blocked Persons List (“SDN List”) maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). The Executive Order expands the scope of existing designations for eight (8) other Iranian-based or connected persons or business entities, and adds two (2) companies to the U.S. Department of Commerce’s “Entity List” maintained by the Bureau of Industry and Security (BIS). All those persons and companies named are asserted to be engaged in promoting or supporting the Iranian nuclear program or trade with Iran in conventional arms or dual-use materials. The products involved range from nuclear technology to circuit boards to speedboats.
This action follows on the heels of Secretary of State Michael R. Pompeo’s statement two days earlier that “virtually all previously terminated UN sanctions” had returned to being in force, reiterating the U.S. determination to go it alone, if necessary, to reimpose prior sanctions and extend the arms embargo against Iran.
It may have to. Last August, citing Iranian “provocations,” including increased uranium enrichment and joint missile technology exchanges with North Korea, Pompeo announced the U.S. intention to invoke the so-called “snapback” provisions of the 2015 Joint Comprehensive Plan of Action (JCPOA). This not only reactivated alleged secondary sanctions (applicable to nations, persons and entities not directly subject to U.S. jurisdiction), but also proposed a resolution to reimpose the UN embargo on arms sales and shipments to Iran (scheduled to expire October 18, 2020). The UN Security Council, however, rejected the resolution and instead voted to allow the 13-year-old embargo to expire as scheduled.
Nevertheless, the U.S. has continued in the months since to increase pressure on the Iranian regime with successive additions to the SDN List of prominent Iranian entities, businesspeople and officials.
The position of most UN Security Council members is that the U.S. lacks standing to invoke the snapback (or any other provision of the JCPOA) since the President formally withdrew the U.S. from participation in the JCPOA in May 2018. The U.S. disagrees, citing the separate status of the arms embargo, as well as U.S. listing as an original party.
Regardless of critics’ skepticism that the U.S. can effectively wield what amounts to unilateral sanctions, the impact on international trade will be felt nonetheless. The diplomatic turmoil does little to mitigate the increased risk that such uncertainty imposes on business. Governments may purport indifference, but their non-U.S. persons or companies doing business with – or providing services to those trading with – Iranian persons or entities, have long been under U.S. scrutiny. Now such persons or companies – and importantly, due to the renewed secondary aspect of the sanctions, those companies doing business with them – find themselves subject to even greater potential exposure to U.S. sanctions in the form of being cut off from U.S. business, including trade, finance, or services from or to any U.S. person or company. It may well be that even as governments declare the sanctions invalid, banks and other trading companies could hold back, not wanting to be the next caught in the complex web of sanctions exposure.
Additionally, U.S. companies will need to step up their due diligence regarding trading and business partners. Counsel for such companies already keeping a sharp eye on the updated SDN and Entity Lists in screening counterparties will now need to add an additional layer of diligence to avoid the possible consequences of engaging in even non-Iran-related business with a trading partner involved with a sanctioned entity.