April 2017 Issue
2016 was a pivotal year in global sanctions implementation, relaxation and enforcement, culminating in the unexpected election of Donald J. Trump, a vehement critic of president Barack Obama’s foreign policy. During the presidential campaign, then-candidate Trump extensively criticised president Obama’s policies with respect to Iran, Russia and Cuba – all policies in which the imposition or the easing of sanctions have played a key part. Despite the rhetoric, we do expect some continuity with the new administration, as president Trump is likely to maintain the reliance on economic sanctions as a tool of US foreign policy. Since 2000, there has been a nearly 300 percent increase in sanctions programmes in the US, with a commensurate increase in complexity in implementation, enforcement and compliance – and Trump’s actions in his first month of office already suggest a continuation of the trend.
In his early days in office, president Trump has relied heavily on his executive authority to push sweeping changes, often without the input or support of key players at the US Departments of State, Defence and Treasury. But his first month in office is also notable for what president Trump did not do – namely, roll back the sanctions relief offered to Iran under the Joint Comprehensive Plan of Action (JCPOA), a deal to ease sanctions on Iran in exchange for limitations on the country’s nuclear programme or significantly modify the complex web of sanctions imposed on Russia.
The Trump administration will face numerous challenges if it chooses to depart from sanctions relief the Obama administration negotiated under the JCPOA. Absent significant Iranian non-compliance with its nuclear commitments, US allies will be unlikely to go along with any return to pre-relief sanctions. Such a move would also increase instability in the Middle East – a region from which Trump had promised to further extricate the US – and compound the uncertainty posed by Iran’s upcoming presidential elections. Further, president Trump would risk some high-paying and sought-after manufacturing jobs, many of which are at least partly secured at US aerospace companies via future sales to Iran that have already been authorised.
However, the Trump administration will not have to renegotiate the JCPOA to impact progress made under the deal. The mere possibility of a US sanctions ‘snapback’ creates a formidable degree of uncertainty for companies seeking to do business in Iran. Guidance from US Department of Treasury’s Office of Foreign Assets Control (OFAC) does very little to ease those concerns. In the event of a snapback, OFAC has said that it will not retroactively impose sanctions for activities that occurred following implementation day in January 2016, but neither will it allow for the completion of pre-snapback contracts.
Beyond the JCPOA, the Trump administration may move to impose substantial new non-nuclear sanctions on Iran – staying true to the text of the nuclear accord, while pressuring Iran’s activities in missile development and its support of troublesome players in Syria, Yemen and elsewhere. Depending upon the sort of individuals and enterprises caught up in these measures, such new orders could affect the current state of Iranian sanctions relief. Certain entities (including financial institutions and major companies) that were delisted under the nuclear deal could be relisted under different, non-nuclear authorities.
Although the flurry of activity in the first few weeks of the Trump administration has not resulted in any seismic changes in Iran sanctions policy, it has complicated the relationship between the US and Iran. After a six-month hiatus, Iran resumed testing of ballistic missiles on 29 January – just two days after the US banned Iranian citizens, among others, from entering the country for a 90 day period. On 3 February, less than 48 hours after the Trump administration’s statement that Iran had been “put on notice” following its missile test, the US issued a set of new sanctions against Iran. The new sanctions target 13 individuals and 12 corporate entities for their alleged role in supporting Iran’s ballistic missile programme. OFAC also named officials and businesspeople tied to Iran’s elite military unit, the Islamic Revolutionary Guard Corps, for their suspected role in aiding the Lebanese militia, Hezbollah, and Tehran’s defence industries.
We consider the new sanctions to be highly targeted and unlikely to upset the broader sanctions relief in place under the JCPOA – in fact, the narrowly tailored nature of the list is consistent with the approach taken by the Obama administration with respect to Iran. Furthermore, given how targeted these sanctions are, we project limited collateral pushback from the European Union or Russia, and we do not expect China to react significantly to the limited number of small Chinese trading firms that were included. But the tenor of the action suggests that US-Iranian relations will not improve in the near future, which will chill economic development in Iran.
Ultimately, the uncertainty created by the Trump administration with regard to Iran could be just as detrimental to the Iranian economy as any specific change in US sanctions policy. Iranian president Hassan Rouhani, who shocked the world with a landslide victory over Iran’s hard-line conservatives in 2013, is up for re-election in May 2017. Rouhani was critical of his combative predecessor, Mahmoud Ahmadinejad, and propelled himself to victory with promises to improve ties with the West and revitalise Iran’s economy. Notably, the Iranian economy continues to struggle and the relaxation of sanctions under the JCPOA has yet to generate tangible economic gains.
Judith Alison Lee is a partner at Gibson, Dunn & Crutcher LLP. She can be contacted on +1 (202) 887 3591 or by email: jalee@gibsondunn.com.
© Financier Worldwide
BY
Judith Alison Lee
Gibson, Dunn & Crutcher LLP