Understanding U.S. Sanctions-Related Obligations Under the JCPOA Tyler Cullis It is an elemental condition of the Joint Comprehensive Plan of Action ( JCPOA ) - the nuclear accord between the United States, other major world powers, and Iran that the U.S. ensure that Iran receives the full benefit of the lifting of sanctions under the nuclear agreement. Most U.S. observers, however, have adopted a false belief that the U.S. s JCPOA obligations begin and end with the formal lifting of sanctions outlined in Annex II of the JCPOA. Such a view misunderstands the scope of U.S. commitments under the JCPOA and risks inhibiting the Obama administration from taking the steps required to faithfully implement the U.S. s sanctions-related obligations. It undermines ongoing efforts to remedy problems related to the lifting of sanctions and threatens the ultimate sustainability of the nuclear accord. This memo serves as a much-needed corrective at a time in which U.S. implementation of its JCPOA obligations has come under question. It is our view that a more appropriate reading of U.S. obligations under the JCPOA evidences a U.S. commitment to not just formally lift all nuclear-related sanctions, but also to prevent any interference with Iran receiving the full benefit of the sanctions-lifting and to ensure that Iran has access in areas of trade, technology, finance, and energy. This is a much broader view of the U.S. s JCPOA commitments than commonly understood in Washington, but it is one that is nonetheless faithful to the text of the JCPOA and central to the sustenance of the nuclear accord. Understanding the proper scope of U.S. sanctions-related obligations is thus key to cementing the decades-long restrictions on Iran s nuclear program. US Sanctions-Related Obligations Most observers regard the U.S. s primary commitment under the JCPOA to involve the formal lifting of U.S. nuclear-related sanctions outlined in Annex II of the JCPOA. While the lifting of such sanctions is indeed a fundamental commitment of the United States, it is far from the only U.S. sanctionsrelated obligation. The Main Text of the JCPOA and its preambular paragraphs, often ignored by proponents and opponents of the JCPOA alike, outline the full scope of U.S. sanctions-related obligations. These obligations can be broken down into three constituent (and equally valuable) parts: 1) Lift all nuclear-related sanctions outlined in Annex II of the JCPOA; 2) Prevent any interference with Iran receiving the full benefit of the sanctions-lifting and with the relations consistent with JCPOA; and 1
3) Take affirmative steps to ensure Iran s access to trade, finance, energy, and technology. Each of these obligations merit reflection, particularly as observers have failed to appreciate the latter two elements of the U.S. s sanctions-related commitments in ways detrimental to the administration s efforts to resolve lingering concerns. An understanding of the full range of U.S. sanctions-related JCPOA obligations provides appropriate context for recent (and prospective) actions by the administration to ensure full implementation of the JCPOA. Lifting the Sanctions It is a fundamental commitment on the part of the United States to lift all of the sanctions outlined in Annex II of the JCPOA, including sanctions inhibiting Iran s access to finance, energy, trade, and technology. Section 4 of Annex II spells out in specific detail the sanctions that are to be lifted under the nuclear accord whether via use of the President s waiver authorities; the termination of Executive orders; or the rescission of U.S. sanctions designations. 1 Moreover, the U.S. is obligated to allow for the sale of commercial passenger aircraft to Iran and related parts and services, consistent with the conditions outlined in Footnote 12 to Annex II of the JCPOA, and to license both the import into the U.S. of Iranian-origin carpets and certain foodstuffs and transactions by U.S.-owned or controlled foreign entities (i.e., foreign subsidiaries of U.S. companies) involving Iran otherwise prohibited by 31 C.F.R. 560.215. 2 Together, the lifting of such sanctions constitute the most elemental condition for which Iran agreed to decadeslong restrictions on its nuclear program. The Obama administration has faithfully implemented these commitments in full. On Implementation Day, the day on which Iran fulfilled its initial nuclear-related obligations, President Obama waived the imposition and application of certain sanctions, revoked certain Executive orders, and rescinded the designations of hundreds of Iranian and non-iranian entities and individuals, as required. 3 Moreover, the U.S. issued licenses for the import of Iranianorigin carpets and foodstuffs and for U.S.- owned and controlled foreign entities to re-engage in transactions involving Iran. 4 Currently, the U.S. Treasury Department is working with aircraft manufacturers to determine the license conditions for the sale and export of commercial passenger aircraft to Iran. As such, the formal lifting of sanctions under the JCPOA has proceeded without hesitation, despite initial concern over potential Congressional impediments to the President s statutory authorities to lift the sanctions. 1 The scheme of Annex II of the JCPOA underscores the argument that U.S. obligations go beyond the mere formal lifting of sanctions. While 4 of Annex II spells out the precise sanctions to be lifted pursuant to the JCPOA, 7 of Annex II outlines the effects of the lifting of U.S. economic and financial sanctions. If the U.S. s JCPOA obligations were indeed limited to the mere formal lifting of sanctions, then 7 of Annex II would be a superfluity. Interpretive rules dictate that we not treat such provisions as superfluities. The United States will also be obligated to take steps to terminate all nuclear-related sanctions beginning on Transition Day, 2 JCPOA, Annex II, 5.1. 3 Implementation Day occurred on January 16, 2016. 4 See, respectively, 31 C.F.R. 560.534 and 560.535, as well as General License H. 2
which is the earlier of eight (8) years from Adoption Day or upon a report from the International Atomic Energy Agency (IAEA) stating that the IAEA has reached a Broader Conclusion that all nuclear material in Iran remains in peaceful activities. 5 Preventing Interference with Iran s Full Benefit Under the JCPOA, the United States is obligated to take certain affirmative steps and to refrain from taking other measures in order to ensure that Iran receives the full benefit of the lifting of U.S. nuclear-related sanctions. Few observers, though, have taken adequate note of these commitments, which are central to the JCPOA and explain the Obama administration s outreach to the global banking and business communities. First, the United States is committed to refrain from imposing new nuclear-related sanctions targeting Iran or re-imposing the sanctions lifted pursuant to Annex II of the JCPOA. 6 There has been some debate over the scope of this latter provision, particularly whether it would prohibit the U.S. from re-imposing the lifted sanctions on non-nuclear grounds. While the Obama administration has been less than clear as to how it interprets the relevant JCPOA commitment, the fairest reading of paragraph 26 of the JCPOA would indeed bar the United States from re-imposing the lifted sanctions on a pretext separate from Iran s nuclear program. In other words, for example, the United States could not redesignate certain Iranian financial institutions under Executive Order 13382 including its major state-owned banks for their provision of financial services to entities involved in the development Iran s ballistic missile program, as that would constitute the effective re-imposition of the sanctions lifted as part of the JCPOA. Evidencing this point, paragraph 26 of the JCPOA notes that Iran would view the reimposition of sanctions lifted under the nuclear accord as an abridgment of U.S. obligations and would thus cease its own nuclear-related commitments under the JCPOA as a result. It is no secret that Congressional opponents of the nuclear accord are seeking to push the Obama administration to publicly adopt a narrow interpretation of this provision, so as to permit Congress to re-impose sanctions on Iran s financial institutions on pretextual non-nuclear grounds. While the administration has not adopted a broader reading of this provision, it is clear that such a narrow reading would lead to the effective collapse of the JCPOA, as Iran s benefit under the JCPOA would be nullified insofar as the same sanctions lifted would be re-imposed under a new pretext. This would fatally undermine Iran s incentive to continue complying with the terms of the JCPOA. Besides refraining from re-imposing the sanctions lifted under the JCPOA, the United States is also obligated to refrain from any policy specifically intended to directly and adversely affect the relations with Iran inconsistent with the nuclear accord. 7 It is due to this provision that high-level U.S. officials have stated that the United States will no longer stand 5 JCPOA, Annex V, 21. 6 JCPOA, Main Text, 26. 7 JCPOA, Main Text, 29. 3
in the way of legitimate business activities with Iran a subtle but significant change in U.S. policy towards Iran. This provision obligates the U.S. to do more than to refrain from legislation aimed at undermining U.S. commitments, but also to ensure that no federal government policies are designed to undercut the benefit to Iran of its nuclear bargain. Pursuant to this provision, for instance, Iran has complained that passage of a new visa law subjecting business travelers to Iran to a heightened standard of review is intended to adversely affect the relations between Iran and the European Union a complaint that made it into the United Nations Secretary General s recent report on UNSCR 2231. In tandem with this, the United States also committed to prevent interference with the realization of the full benefit by Iran of the sanctions lifting specified in Annex II. 8 Effectively, the U.S. is obligated to ensure that no measures of its own are standing in the way of Iran reaping the full benefit of the sanctions-lifting under the JCPOA. For purposes of illustration, because the JCPOA lifted sanctions on correspondent banking relationships between non-u.s., non- Iranian financial institutions and certain Iranian financial institutions, the United States is committed to ensuring that neither U.S. law nor policy is standing in the way of non-u.s. banks resuming correspondent banking relations with their Iranian counterparts. If U.S. laws or policies are interfering with Iran realizing the full benefit of the lifting of sanctions on Iran s financial institutions, then the U.S. is required to take steps to ensure that those laws or policies 8 JCPOA, Main Text, 26. no longer are running such interference. To do so could require additional changes to U.S. laws or policies governing the issue. Taking Affirmative Steps to Ensure Iran s Benefit Besides preventing interference with Iran receiving the full benefit from the JCPOA s sanctions-lifting, the United States is also committed to take certain affirmative steps to ensure that Iran does receive practical value from the lifting of sanctions. Most immediately, the United States is obligated to take adequate administrative and regulatory measures to ensure clarity and effectiveness with respect to the lifting of sanctions under [the] JCPOA. 9 This includes the issuance of relevant guidelines and publicly accessible statements on the details of the sanctions...[that] have been lifted under [the] JCPOA. 10 The U.S. is obligated to consult with Iran regarding the content of such guidelines and statements, on a regular basis and whenever appropriate. 11 Importantly, there is no time-limit under which this obligation ends, meaning that the U.S. is committed through the duration of the nuclear deal to ensure that parties interested in undertaking legitimate business activities involving Iran have a clear understanding as to the scope and application of the sanctions-lifting under the JCPOA. It is this commitment that explains in part the Obama administration s robust efforts to engage with the international business community including via a global roadshow in order 9 JCPOA, Main Text, 27. 10 Id. 11 Id. 4
to respond to persistent questions and concerns regarding the lifting of sanctions under the nuclear accord. Beyond the issuance of guidance, however, the U.S. is obligated to lift certain additional nuclear-related sanctions should such sanctions be preventing the full implementation of the sanctions-lifting [under the JCPOA]. 12 This is an issue that arose during the recent controversy over whether the U.S. would license U-turn transactions a transaction in which Iran would have limited but effective access to U.S. dollar-clearing facilities due to the fact that global banking institutions have signaled their reluctance to re-engage their Iranian counterparts so long as Iran s access to the U.S. dollar is effectively prohibited. While the common wisdom is that re-authorizing the U-turn license would be an unwarranted concession to Iran above and beyond the express terms of the JCPOA few understand that the U.S. does have an express obligation to consult with Iran in order to resolve outstanding banking issues and that such consultation could lead to the lifting of the prohibition on U- turn transactions. Far from being alien to the nuclear accord, the licensing of U-turn transactions would have been consistent with U.S. obligations to lift additional sanctions that stand in the way of the effective implementation of the JCPOA. Even further, the U.S. is also committed to agree on steps [with Iran] to ensure Iran s access in areas of trade, technology, finance, and energy. 13 It is not enough for the U.S. to formally lift sanctions, to issue relevant regulatory guidelines to ensure effective implementation, or even to prevent interference with Iran receiving the full benefit of the lifting of sanctions: the United States also has an affirmative obligation to agree on steps with Iran that are designed to ensure Iran s access to trade, technology, finance, and energy. This means that should Iran not be able to access the global financial system due to the reluctance of major global banks to re-engage their Iranian counterparts, the U.S. is obligated to take certain agreed-upon steps to ensure such access for Iran. This is a far-reaching obligation deliberately tailored to ensure that Iran receives practical value from the lifting of nuclear-related sanctions. Conclusion Despite the formal lifting of U.S. nuclearrelated sanctions, implementation of U.S. obligations under the JCPOA has not proceeded altogether smoothly. In order to safeguard the decades-long restrictions on Iran s nuclear program, the U.S. must faithfully observe its JCPOA sanctionsrelated obligations in full. To do so, though, there must be a common understanding as to the full scope of those U.S. sanctionsrelated commitments. Failing this, the Obama administration (and its successors) will be inhibited from taking the action required to address ongoing problems related to the lifting of sanctions. This could endanger the long-term viability of the nuclear accord in a manner that puts at risk core U.S. national security interests. 12 JCPOA, Main Text, 24. 13 JCPOA, Main Text, 33. 5