Despite the sweeping headlines announcing the lifting of sanctions against Iran, Iran is still generally not open for business for U.S. persons and U.S. businesses. U.S. sanctions relating to terrorism and human rights abuses remain in full force and effect, and ballistic missile sanctions blocking designated entities and individuals were added over the weekend. Thus, the U.S. trade embargo against Iran remains in place, and U.S. persons continue to be prohibited from exporting, reexporting, or otherwise transferring, directly or indirectly, most goods, technology, and services to Iran absent authorization from the U.S. government. Although the recent actions relax a number of prohibitions on foreign persons,¹ this alert focuses on the how the regulatory changes affect U.S. persons and U.S-owned or U.S.-controlled foreign entities.

U.S. companies must still:

• prohibit sales of U.S. goods, directly or indirectly, to Iran;
• block downloads, as they have previously, from the U.S. to IP addresses associated with Iran; and
• screen for denied persons.

While the U.S. trade embargo remains in effect, a new General License H allows foreign entities controlled or owned by U.S. persons to engage in transactions with Iran and the government of Iran so long as: (1) no items subject to U.S. export controls are involved; and (2) there is no prohibited end-use or end-user. In many cases, U.S. persons even can share their global computing platform with their U.S.-owned or U.S.-controlled foreign entities. In addition, a favorable licensing policy for commercial passenger aviation and a general license for the importation of certain Iranian-origin products, namely carpets and foodstuffs, are being implemented by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC).

New Authorizations

On January 16, 2016, "Implementation Day," the United States and the European Union lifted nuclear-related sanctions against Iran, as Iran met its nuclear-related commitments under the Joint Comprehensive Plan of Action (JCPOA). The lifting of the U.S. nuclear-related sanctions relaxes the prohibitions in three key areas for U.S. persons or entities outside of the U.S. that are owned or controlled by U.S. persons as described below.²

General License Authorizing U.S.-Owned or U.S.-Controlled Entities to Engage in Certain Transactions with Iran

While the prohibitions on U.S. companies remain in place, the lifting of the nuclear-related sanctions and the newly implemented General License H (GL H) remove many of the prohibitions on doing business in Iran imposed on U.S.-owned or U.S.-controlled entities. A U.S.-owned or U.S.-controlled entity is an entity established or maintained outside the U.S. if a U.S. person (1) holds a 50 percent or greater equity interest by vote or value in the entity; (2) holds a majority of seats on the board of directors; or (3) otherwise controls the actions, policies, or personnel decisions of the entity.³ GL H authorizes these entities to engage in transactions with Iran and the government of Iran so long as no U.S.-origin items or items subject to the EAR are involved. Thus, foreign-produced goods, technology, or software incorporating controlled U.S.-origin content valued at 10 percent or more of the value of the foreign item may not go to Iran under GL H, and GL H also does not authorize foreign entities owned or controlled by a U.S. person to engage in transactions with Iran that involve prohibited end-users or end-uses.

GL H further authorizes the following with respect to U.S. persons:

• Participation by U.S. persons who are board members, senior management, or employees of the U.S. parent company or the U.S.-owned or U.S.-controlled entity in the creation and updating of operating policies and procedures regarding the U.S.-owned or U.S.-controlled entity's engagement authorized under GL H;
• Participation by U.S. persons who are senior management of the U.S. parent company or its controlled or owned foreign entities in the initial determination regarding whether to engage in activities authorized by GL H;
• U.S. persons making available, either directly or through a third-party vendor, automated and globally integrated computer, accounting, email, telecommunications, or other business support system, platform, database, application, or server that operates passively without human intervention necessary to store, collect, transmit, generate, or otherwise process documents or information related to authorized transactions even if located on a U.S. server (thus, U.S. companies can share their global computing platform with the foreign entities that it owns or controls as long as the transactions do not require action by a person located in the U.S. and the platform is broadly available to all such entities); and
• U.S. persons hired as outside legal counsel or consultants to draft, update, advise, and consult on such operating policies and procedures.

Importantly, GL H does not authorize the involvement of a U.S. person in the U.S.-owned or U.S.-controlled foreign entity's ongoing Iran-related operations or decision making regarding such business. For instance, U.S. persons may not approve, finance, facilitate, or guarantee any Iran-related transaction by the foreign entity. Further, U.S. persons remain prohibited from engaging in or facilitating transactions or dealings involving Iran not exempt from regulation or authorized by OFAC, except as set forth in GL H. In addition, the use of automated and globally integrated computers cannot be used in connection with the transfer of funds.

Favorable Licensing Policy for Commercial Aircraft

OFAC has implemented a favorable case-by-case license review policy relating to the export, reexport, sale, lease, or transfer to Iran of certain commercial passenger aircraft, including parts and components therefor. Some related services, including transportation, legal, insurance, shipping, delivery, and financial payment services, that are provided in connection with a licensed transaction are also authorized.

Importation of Iranian-Origin Foodstuffs and Carpets

Once published in the Federal Register, a new general license will authorize the importation into the United States of Iranian-origin carpets, textile floor coverings, and foodstuffs. Under the general license, U.S. depository institutions will be authorized to process letters of credit for payments for these items as long as it does not involve the debiting of an Iranian account, and U.S. persons will be permitted to act as brokers for the purchase or sale of licensed items.

Conclusion

The U.S. trade embargo against Iran remains in place and the lifting of the nuclear-related sanctions on Implementation Day only has a limited effect on U.S. persons and U.S. businesses. With respect to U.S. persons, the most significant relaxation relates to their limited involvement in the activities of their U.S-controlled or U.S.-owned foreign entities as set forth in GL H. Thus, U.S. businesses may want to make some tweaks to their sanctions and export compliance policies to reflect the lifting of the nuclear-related sanctions, but the major policies and procedures, such as prohibiting the export, reexport, or transfer of U.S.-origin products to Iran, directly and indirectly, denied person screening, and IP address blocking, should all remain in place.

If you have a specific transaction in mind or would like assistance in modifying your procedures to comply with GL H, please contact Josephine Aiello LeBeau (jalebeau@wsgr.com), Melissa Mannino (mmannino@wsgr.com), or Anne Seymour (aseymour@wsgr.com). As members of the export control and sanctions compliance practice, they can also provide additional guidance on changes to the Iran sanctions or any other sanctions program. Wilson Sonsini Goodrich & Rosati will continue to keep you informed of further significant developments in these regulatory programs.

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