China Annexed the DPRK, C’mon Admit it, China is an Adversary

Posted on May 25, 2018May 25, 2018 by Denise Simon

Primer: The Fiscal 2019 NDAA includes impose a ban on technology products from Chinese firms such as ZTE and Huawei. Yet, North Korea has it courtesy of China.

And:

The Financial Crimes Enforcement Network (FinCEN) is issued this advisory to further alert financial institutions to North Korean schemes being used to evade U.S. and United Nations (UN) sanctions, launder funds, and finance the North Korean regime’s weapons of mass destruction (WMD) and ballistic

missile programs.

Private companies in China are not private at all. The Chinese state holds at least some stock and often a larger voting block. Private Chinese companies invests all over the world including Venezuela, United States, Britain as well as regions such as Latin America and Africa.

You can bet most of those companies in North Korea are actually owned by the Chinese State.

China does bad things and yet no world leader publicly states that fact nor declares China is an adversary while China has declared the United States as an adversary. President Xi, the now eternal ruler quotes a dynasty cliche ‘Tǒngzhì yīqiè zài yángguāng xià’, translation is rule everything under the sun.

So now we have ZTE: ZTE, once the scourge of U.S. authorities for its violations of Iran sanctions, has become a key source of evidence about North Korea’s use of the American financial system to launder money, said the people, who gave details about the confidential investigations on the condition of anonymity. Federal investigators have been poring through data supplied by ZTE to find links to companies that North Korea has used to tap into the U.S. banking system, the people said.

Using evidence from ZTE, prosecutors on June 14 filed a case seeking $1.9 million held in six U.S. bank accounts in the name of China’s Mingzheng International Trading Limited. Prosecutors allege that Mingzheng is a front company for a covert Chinese branch of North Korea’s state-run Foreign Trade Bank. Between October and November 2015, Mingzheng was a counterparty to 20 illicit wire transfers in violation of the International Emergency Economic Powers Act, according to prosecutors.

On Aug. 22, prosecutors in Washington filed a lawsuit seeking more than $4 million in funds tied to China’s Dandong Chengtai Trading Limited and a network of companies owned by Chi Yupeng, a Chinese national with close ties to North Korea’s military. That same day, the Treasury Department added Dandong Chengtai Trading and several of its business affiliates, as well as Mingzheng, to the sanctions list. More here.

During the negotiations for the talks between Kim Jung Un and President Trump, ZTE was thrown in the mix. Why? China made some demands during recent trade talks. It was just announced that Trump imposed a $1.5 billion fine on ZTE and relayed that to President Xi. More negotiations and the final fine was $1.3 billion and alter the Board members of ZTE, which means that China state cannot have any management or vote. China will skirt that too. How so?

AEI explained it for us and quite well.

One of the substantial challenges in curtailing North Korea’s nuclear program is preventing Chinese companies from doing business with their pals in Pyongyang. Usually, Chinese companies in North Korea operate through networks of shell companies to avoid falling afoul of US and international sanctions. And most of these companies are small in scope and can easily rebrand themselves if caught. Enter Zhongxing Telecommunications Equipment (ZTE), not a small, expendable subsidiary, but instead a large PRC state-owned enterprise (SOE) with over 74,000 employees.

ZTE has transferred US technology to North Korea, supplying the Kim regime with US telecommunications tech that strengthens its defense capabilities by allowing it indirect access to US semiconductors (dual use technology for communications). For that and other transgressions — including violating US Iran sanctions — ZTE paid a monster fine and entered into an agreement with the US to cease and desist. It was caught violating that agreement and banned from business with the United States as a result.

But President Trump offered China’s state-owned ZTE a lifeline via a May 13 tweet. Apparently, all that it took was for Chinese President Xi to dangle access for US agriculture exports to China in exchange for allowing ZTE to continue to do business with American firms. For what it’s worth, the president denied intending to lift the sales ban, but then followed up to describe a punishment that includes lifting the sales ban.

What’s Donald Trump’s message to Beijing (and Pyongyang and Tehran)? Companies that matter to China’s top leadership can violate US sanctions with impunity. All it takes is the will to blackmail the US and large Chinese SOEs will have carte blanche to supply the rogue regimes of the world.

Remember, Chinese SOEs that do business with North Korea are not motivated merely by profit. Instead, they are motivated by policy directives that originate in the Chinese Communist Party. Historically, China’s position on North Korea has been fairly opaque, yet its continued trade with the regime indicates Beijing has an interest in its wellbeing, in direct opposition to US interests and overall security in Asia.

At the end of the day, President Trump says he wants to cripple North Korea’s nuclear program. If North Korean dictator Kim Jong Un won’t denuclearize voluntarily, the US will have to rely on “maximum pressure,” including aggressive sanctions. Forgiving ZTE for violating US law is yet another example of the US shooting itself in the foot in dealing with North Korea. And probably not the last.

Meanwhile, as North Korea blew up the tunnels leading to the already destroyed nuclear test site, no one has asked where are those nuclear weapons now? No one has mentioned other possible military dimension sites or missile locations. Just as a reminder:

President Trump Withdraws from North Korea Nuclear Summit

Posted on May 24, 2018May 24, 2018 by Denise Simon

A letter from President Donald Trump to North Korean dictator Kim Jong Un canceling their planned meeting. There are several things in play. China, Iran and Russia and North Korea are watching all U.S. positions and it began with the Pompeo demands announced of Iran since exiting the JCPOA, nuclear deal. Iran has not only responded with several nasty grams but Iran is putting threats towards Europe on many of their demands to stay in the deal.

National Security Counsel chair John Bolton is also being blamed by North Korea for the breakdowns due to the reference of the Libya model. That is an excuse as the Libya model for removing the nuclear program was far in advance of the removal of Maummar Gaddafi and his eventual death.

Further, there is the matter of China injecting itself into the preparations and talks between North Korea and the United States. North Korea follows all advise and leads from President Xi. Now, where are those pesky nuclear weapons in North Korea since the nuclear test site collapsed and was further blown up in a gesture move for selected outside media?

There is also the issue of the other locations of interest in North Korea that the United States is well aware of that proves China has aided and assisted in the military sites and nuclear program as had Iran and Russia. China does not want to be confronted with that proof.

Further, there is the matter of the ‘nuclear umbrella’. Japan, South Korea, and the United States Nuclear Umbrella

In this book, Terence Roehrig provides a detailed and comprehensive look at the nuclear umbrella in northeast Asia in the broader context of deterrence theory and U.S. strategy. He examines the role of the nuclear umbrella in Japanese and South Korean defense planning and security calculations, including the likelihood that either will develop its own nuclear weapons. Roehrig argues that the nuclear umbrella is most important as a political signal demonstrating commitment to the defense of allies and as a tool to prevent further nuclear proliferation in the region. While the role of the nuclear umbrella is often discussed in military terms, this book provides an important glimpse into the political dimensions of the nuclear security guarantee. As the security environment in East Asia changes with the growth of North Korea’s capabilities and China’s military modernization, as well as Donald Trump’s early pronouncements that cast doubt on traditional commitments to allies, the credibility and resolve of U.S. alliances will take on renewed importance for the region and the world.

The U.S. nuclear umbrella in the region is not focused on North Korea but also incorporates planning against potential Chinese aggression. Nullifying or weakening the umbrella over the Peninsula, some would argue, might leave South Korea open to potential Chinese coercion and send the wrong signal at a time when China is seem by some as trying to pressure Taiwan and reassert its influence in the region.

U.S. Takes Steps on Venezuela and President Maduro

Posted on May 22, 2018May 22, 2018 by Denise Simon

Primer: Venezuela’s diplomatically isolated president got a show of support from his Turkish counterpart Tayyip Erdogan and Argentine soccer legend Diego Maradona on Thursday ahead of a weekend election widely decried as unfair.

The United States, the European Union and major Latin American countries have criticized Sunday’s vote in which leftist President Nicolas Maduro is likely to win re-election to a six-year term. More here.

Venezuelan presidential elections for April 22 — MercoPress photo

Hundreds protest against ‘fixed’ election in Venezuela: (Reuters) – Several hundred Venezuelan opposition demonstrators blocked traffic in a march to the Organization of American States (OAS) headquarters in Caracas on Wednesday to protest this weekend’s presidential vote, which they say is rigged.

Related reading: Black Market for Food and Medicine

Actually, this is a gesture and for the most part meaningless, because China has first right of ownership and refusal of Venezuela’s oil, however:

President Donald Trump stepped up economic pressure on Venezuela President Nicolas Maduro with an order prohibiting purchases of debts owed to the government, including to the state-run oil company Petroleos de Venezuela.

The executive order, which covers all transactions on any debts owed to the Venezuelan government or state-owned enterprises including accounts receivable, was posted on the Treasury Department website Monday afternoon.

Trump administration officials who spoke on condition of anonymity said the order was intended to restrict the Maduro regime’s ability to liquidate its assets and close off avenues for corruption.

The prohibition on purchases of debts owed to Venezuela specifically includes accounts receivable. One administration official said the action was intended to choke off funding the Maduro regime has been raising by selling off money owed in future to the government and state-owned enterprises in exchange for immediate payment cash.

In response, Maduro expelled U.S. diplomats.

CARACAS (Reuters) – President Nicolas Maduro on Tuesday ordered the expulsion of the top U.S. diplomat in Venezuela in retaliation for a new round of sanctions over Venezuela’s widely-condemned election.

The United States was among a string of countries that did not recognize Sunday’s vote.

The 55-year-old successor to Hugo Chavez won re-election easily, but critics said the vote was riddled with irregularities, from the barring of two popular opposition rivals to the offering of a government “prize” to voters.

President Donald Trump responded with an executive order limiting Venezuela’s ability to sell state assets, heightening pressure on the cash-strapped government.

A press officer for the U.S. embassy in Caracas said she had no immediate comment in response to Maduro’s statements.

Earlier on Tuesday, Venezuela’s foreign ministry called the sanctions “a crime against humanity.” Maduro’s socialist administration, which has long said a U.S.-led “economic war” is to blame for a deep crisis in the OPEC nation, said the new sanctions violated international law.

“Venezuela once again condemns the systematic campaign of aggression and hostility by the U.S. regime to punish the Venezuelan people for exercising their right to vote,” the Foreign Ministry said in a statement. “These arbitrary and unilateral measures constitute a crime against humanity.”

Venezuela’s opposition has accused the Maduro government of behaving immorally and trying to hide shortcomings and corruption behind bombastic rhetoric. The mainstream opposition coalition boycotted Sunday’s vote, calling it a sham aimed at legitimizing Maduro’s rule despite his low popularity.

Among widespread international condemnation of the vote, the European Union said in a statement on Tuesday that the elections did not comply with “minimum international standards for a credible process” and repeated that it would consider the “adoption of appropriate measures.”

The latest U.S. sanctions appeared to target in part Citgo[PDVSAC.UL], a U.S.-based oil refiner owned by Venezuela state oil company PDVSA [PDVSA.UL]. More obstacles to PDVSA’s ability to sell oil abroad could restrict already-dwindling foreign exchange earnings, worsening the economic crisis and pressuring Maduro.

While it only applies to U.S. citizens and residents, a U.S. official told reporters on Monday that the Trump administration has also tried to convince China and Russia to stop issuing new credit to Venezuela. The two have provided billions of dollars in funding for Venezuela in recent years.

But they appeared unlikely to heed the U.S. warnings. Beijing said on Tuesday it believed the United States and Venezuela should resolve their differences via talks, while Moscow said it would not comply with the sanctions.

Accusing U.S. charge d’affaires Todd Robinson of being involved in “a military conspiracy,” Maduro ordered him and another senior diplomat, Brian Naranjo, to leave within 48 hours.

He gave no details of the accusations, but said the U.S. Embassy had been meddling in military, economic and political issues, and vowed to present evidence to the nation shortly.

“Neither with conspiracies nor with sanctions will you hold Venezuela back,” Maduro said, at an event in downtown Caracas at the headquarters of the election board, which is run by government loyalists. Full story here.

U.S. Iran Strategy Announced by SecState Pompeo

Posted on May 21, 2018May 21, 2018 by Denise Simon

This speech/policy sets the table for the North Korea talks with President Trump. Further, it advances the mission on countering militant Islam not only in the region but globally. Europe has to decide on corporate business relationship with Iran versus human rights along with worldwide terrorism at the hands of Hezbollah and the Iranian Revolutionary Guard Corps.

Since 2014, a broad range of organizations, from medical companies such as GE Healthcare to aerospace firms such as Lufthansa Technik, as well as educational institutions such as Harvard University, have obtained permission and waivers to operate in Iran.

Other U.S. institutions that were permitted to do business in Iran include: General Electric Medical and Aviation Divisions, Bausch & Lomb, Boston Scientific, Smithsonian Institute, HSBC, Philips North America, University of California San Diego, University of Wisconsin, Loyola University, New York University, BNP Paribas S.A., American Pulp and Paper and Intelsat Corporation to list a few. More here.

(Reuters) – The United States on Monday demanded Iran make sweeping changes — from dropping its nuclear program to pulling out of the Syrian civil war — or face severe economic sanctions as the Trump administration hardened its approach to Tehran.

Iran dismissed Washington’s ultimatum and one senior Iranian official said it showed the United States is seeking “regime change” in Iran.

Weeks after President Donald Trump pulled out of an international nuclear deal with Iran, his administration threatened to impose “the strongest sanctions in history,” and vowed to “crush” Iranian operatives abroad, setting Washington and Tehran further on a course of confrontation.

U.S. Secretary of State Mike Pompeo demanded sweeping changes that would force Iran effectively to reverse the recent spread of its military and political influence through the Middle East to the shores of the Mediterranean Sea.

If Washington sees tangible shifts in Iran’s policies, it is prepared to lift sanctions, Pompeo said.

“The sting of sanctions will only grow more painful if the regime does not change course from the unacceptable and unproductive path it has chosen for itself and the people of Iran,” Pompeo said in his first major speech since becoming secretary of state.

“These will be the strongest sanctions in history by the time we are done,” he added.

Pompeo took aim at Iran’s policy of expansion in the Middle East through support for armed groups in countries such as Syria, Lebanon and Yemen.

He warned that the United States would “crush” Iranian operatives and proxies abroad and told Tehran to pull out forces under its command from the Syrian civil war where they have helped President Bashar al-Assad gain the upper hand.

Iran’s president summarily dismissed Pompeo’s demands.

“Who are you to decide for Iran and the world?,” the semi-official ILNA news agency quoted Hassan Rouhani as saying.

“The world today does not accept America to decide for the world, as countries are independent … that era is over … We will continue our path with the support of our nation.”

Tension between the two countries has grown notably since Trump this month withdrew from the 2015 nuclear agreement aimed at preventing Tehran from obtaining a nuclear weapon.

A senior Iranian official said Pompeo’s remarks showed that the United States was pushing for “regime change,” a charged phrase often associated with the U.S. invasion of Iraq in 2003 and the overthrow of President Saddam Hussein.

Pompeo warned that if Iran fully resumed its nuclear program Washington would be ready to respond and said the administration would hold companies doing prohibited business in Iran to account.

“Our demands on Iran are not unreasonable: give up your program,” Pompeo said, “Should they choose to go back, should they begin to enrich, we are fully prepared to respond to that as well,” he said, declining to elaborate.

Pompeo said Washington would work with the Defense Department and allies to counter Iran in the cyberspace and maritime areas.

The Pentagon said it would take all necessary steps to confront Iranian behavior in the region and was assessing whether that could include new actions or doubling down on current ones.

NAMING NAMES

Pompeo said if Iran made major changes, the United States was prepared to ease sanctions, re-establish full diplomatic and commercial relations and support the country’s re-integration into the international economic system.

Any new U.S. sanctions will raise the cost of trade for Iran and are expected to further deter Western companies from investing there, giving hardliners, including the Islamic Revolutionary Guard Corps, an opportunity to cement their grip on power.

Iran’s ruling elite are mindful of recent protests sparked by economic hardship, which is, in part, their calculation for working with the Europeans on ways to salvage the nuclear deal.

Pompeo’s speech did not explicitly call for regime change but he repeatedly urged the Iranian people not to put up with their leaders, specifically naming Rouhani and Foreign Minister Mohammad Javad Zarif.

“At the end of the day the Iranian people will get to make a choice about their leadership,” Pompeo said.

Suzanne Maloney, deputy director of the Brooking Institution think tank’s foreign policy program, said Pompeo’s speech did indeed amount to a strategy of regime change.

“There is only one way to read it and that is that Trump administration has wedded itself to a regime-change strategy to Iran, one that is likely to alienate our allies. One with dubious prospects for success,” she said.

The administration’s approach “explicitly puts the onus on the Iranian people to change their leadership or face cataclysmic financial pressure,” said Maloney who has advised the State Department on Iran in the Bush administration between 2005-2007.

Lebanese analyst Ghaleb Kandil, who has close ties to the pro-Iran Hezbollah group, said Washington’s demands have previously not worked.

“These are conditions that were tested in previous phases of American pressures, before the nuclear deal, when Iran was in more difficult circumstances than it is in these days, and it did not surrender to these conditions or accept them,” said Kandil.

Pompeo outlined 12 U.S. demands for Iran including to stop uranium enrichment, never to pursue plutonium reprocessing and to close its heavy water reactor.

It also had to declare all previous military dimensions of its nuclear program and to permanently and verifiably abandon such work, he said.

Pompeo’s demand that Tehran stop uranium enrichment goes even further than the nuclear deal. Iran says its nuclear work has medical uses and will produce energy to meet domestic demand and complement its oil reserves.

Washington’s regional allies, the Gulf and Israel, who were strong critics of the deal, praised the administration’s position on Monday.

European parties to the nuclear deal – France, Britain and Germany – are working to find a way to keep the nuclear pact in effect after Washington’s exit.

Speaking ahead of Pompeo’s speech, British Foreign Secretary Boris Johnson said it would be difficult for the United States and its allies to deal with all the issues they had with Iran at the same time.

“If you try to pull all of those into a giant negotiation, a new jumbo Iran negotiation, a new treaty…that seems to be what they envisage and I don’t see that being very easy to achieve in anything like a reasonable timescale, Johnson said in Argentina.

Jones Day Legal Counsel to European Corps, Iran Deal

Posted on May 20, 2018May 20, 2018 by Denise Simon

Let’s begin with Ploughshares, shall we? Make sure you check the credits at the end of the video. Those that contributed money to the effort are listed here.

Meanwhile, there is a meeting scheduled in Vienna where Germany, France, Britain, Russia and China are to discuss saving the Iran nuclear deal. It is being chaired by Helga Schmid. Will it soon be called the Vienna nuclear deal?

Impact of U.S. Withdrawal from the Iran Nuclear Deal

May 2018

In Short

The Situation: On Tuesday, May 8, 2018, President Trump announced that the United States has withdrawn from the Iran Nuclear Deal and will fully reimpose its suspended sanctions targeting Iran.

The Result: All currently suspended U.S. sanctions in respect of Iran, including sanctions applicable to non-U.S. persons, will be reimposed by November 5, 2018.

Looking Ahead: The reimposition of U.S. sanctions will have limited impact on U.S. companies. However, foreign companies majority-owned or controlled by U.S. persons must now begin winding down any Iran-related activities. In contrast, the impact of the reimposition of U.S. sanctions on non-U.S. companies is less clear, and as the international response develops, non-U.S. companies will increasingly face a complex compliance landscape.

As reported earlier this week, on May 8, 2018, President Trump announced that the United States will reimpose, after specified wind-down periods, all nuclear-related sanctions lifted under the Joint Comprehensive Plan of Action (“JCPOA”) (commonly known as the “Iran Nuclear Deal”). As a result, the U.S. sanctions regime will revert to its pre-JCPOA scope by November 5, 2018.

In light of the comprehensive U.S. primary sanctions that remained in place after implementation of the JCPOA, President Trump’s announcement will have little impact on U.S. companies. In contrast, foreign subsidiaries of U.S. organizations and their non-U.S. counterparts face a dramatically changed compliance landscape. With the reimposition of U.S. extraterritorial, or secondary, sanctions, non-U.S. companies must navigate increasingly complex terrain as they assess continued engagement with Iran, compliance with U.S. sanctions, and the pending response of the other JCPOA signatories.

Immediate Impact

The background of the JCPOA, the resulting international sanctions relief, and President Trump’s criticism of the deal are, at this point, well-known (see “Iran Nuclear Deal Reached; Sanctions Remain in Place,” “Implementation Day Triggers Significant Changes to International Sanctions Against Iran,” and “Potential Options for U.S. Sanctions on Iran Under the Trump Administration“). Although the policy implications of President’s Trump’s announcement may be subject to debate, the immediate impact is clear. In connection with the announcement, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued Frequently Asked Questions setting out a staged reimposition of U.S. sanctions over the next 90 to 180 days (subject to any extension that may be put in place by the United States at a later stage).

Following a 90-day wind-down period ending on August 6, 2018, the United States will reimpose its secondary sanctions targeting activities related to:

Iran’s automotive sector;
The sale, supply, or transfer, directly or indirectly, of graphite, raw or semi-finished metals (such as aluminum and steel), coal, and software for integrating industrial processes to or from Iran; and
Certain financial and banking transactions related to Iranian sovereign debt, the acquisition of U.S. dollar banknotes by the Government of Iran, the purchase or sale of Iranian rials, Iranian rial-denominated funds or accounts, and trade in gold or other precious metals.

During the same period, the United States will revoke the following authorizations:

The general license authorizing the importation into the United States of Iranian-origin carpets and foodstuffs (as well as certain related financial transactions);
All specific licenses (and subsequent wind-down authorizations) issued in connection with the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (“JCPOA SLP”); and
General License I, which authorized certain transactions related to negotiating and entering contingent contracts for activities covered by the JCPOA SLP.

Following a 180-day wind-down period ending on November 4, 2018, the United States will reimpose its secondary sanctions targeting activities related to:

Certain transactions by foreign financial institutions with, and provision of specialized financial messaging to, the Central Bank of Iran and/or designated Iranian financial institutions;
Certain categories of transactions related to Iran’s energy sector, including certain investments (such as participation in joint ventures); provision of goods, services, technology or technical support; the purchase, sale, transport, or marketing of petroleum, petrochemical products, and/or natural gas to or from Iran; and transactions with certain designated persons (such as the National Iranian Oil Company, Naftiran Intertrade Company, and National Iranian Tanker Company);
Certain transactions involving Iran’s port operators and/or related to Iran’s shipping and shipbuilding sectors, including activities involving the Islamic Republic of Iran Shipping Lines, South Line Iran, or their affiliates; and
The provision of certain insurance, reinsurance, and underwriting services.

Effective November 5, 2018, the United States will also revoke General License H (and any subsequent wind-down authorizations issued in connection with that general license), which previously authorized foreign entities majority-owned or controlled by U.S. persons to engage in most transactions involving Iran. It appears all other Iran-related general and specific licenses, including licenses issued under the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”), issued by OFAC will remain unaffected.

Finally, no later than November 5, 2018, the United States will redesignate all persons who had been removed, through the JCPOA, from the List of Specially Designated Nationals and Blocked Persons and/or other U.S. sanctioned parties lists.

Consequently, by November 5, 2018, the United States is currently expected to have reimposed all sanctions that had been lifted pursuant to the JCPOA.

Near- and Long-Term Implications

As a practical matter, the reimposition of U.S. sanctions suspended under the JCPOA will have limited impact on U.S. companies. As noted in our prior Alerts and Commentaries, substantial U.S. sanctions in relation to Iran have remained in place and continued to prohibit U.S. persons from engaging, directly or indirectly, in virtually all transactions or dealings with Iran without authorization.

The reimposition of U.S. sanctions will, however, have immediate impact on non-U.S. organizations that are majority-owned or controlled by U.S. persons and on U.S.-linked aviation companies. As noted above, the United States intends to revoke all specific and general licenses issued in connection with the JCPOA “as soon as administratively feasible,” including General License H and aviation-specific licenses issued under the JCPOA SLP and General License I. In their place, OFAC intends to issue authorizations that will likely narrowly authorize only activities necessary to wind down previously authorized activities. Companies that rely on these authorizations should immediately reassess their existing Iran-related activities, including in-process and pending transactions, in order to prepare to wind down Iran-related activities and ensure compliance with U.S. sanctions during the wind-down period.

The near- and long-term implications of President’s Trump announcement for non-U.S. companies are less clear. Non-U.S. persons are not, with limited exceptions, subject to U.S. primary sanctions. However, U.S. secondary sanctions provide for an array of penalties that, in effect, foreclose access to U.S. markets—a meaningful deterrent for non-U.S. companies. The United States appears poised to rigorously enforce the renewed sanctions and has advised non-U.S. companies to begin winding up soon-to-be sanctionable activities to “avoid exposure to sanctions or an enforcement action when the applicable wind-down period ends.” Continued engagement with Iran will therefore become an increasingly fraught proposition for non-U.S. persons, and one that may be further complicated by the international community’s response to the United States’ withdrawal.

In that regard, following President Trump’s announcement, the European Union has reiterated its commitment to “the continued full and effective implementation of the JCPOA,” as long as Iran meets its nuclear-related obligations, adding that it “is determined to work with the international community” to preserve the deal. Although the European Union has not yet indicated any measures it may implement to preserve the JCPOA, it suggested earlier this year that it may expand its Blocking Regulation—Council Regulation (EC) No. 2271/96 of November 22, 1996—to protect EU-based organizations doing business in Iran following any U.S. withdrawal.

The Blocking Regulation was adopted in 1996 by the European Union (European Communities at the time) in response to the extraterritorial application of U.S. sanctions against Cuba, Iran, and Libya. It prohibits EU companies from complying with blocked sanctions “whether directly or through a subsidiary or other intermediary person, actively or by deliberate omission.” The importance of the Blocking Regulation in the last decade has been limited. This would change if the scope of its application is expanded to cover the U.S. secondary sanctions in relation to Iran, possibly protecting EU companies from enforcement of U.S. judgments or administrative decisions giving effect to the secondary sanctions.

Historically, enforcement of the Blocking Regulation has generally been very limited, but expanding its scope now has the potential to lead to increased enforcement actions across Europe. An expanded Blocking Regulation would, however, place EU companies squarely between the competing demands of U.S. sanctions and EU and national requirements. The European Union may also try to negotiate an exemption for EU companies from the reimposition of the U.S. sanctions. The prospects of relief for EU companies under either approach remains uncertain.

China and Russia have likewise consistently reaffirmed their commitment to the JCPOA, and in a joint statement last month confirmed their “unwavering support” for the deal. In light of current tensions between the United States and Russia and China, it seems unlikely that the U.S. withdrawal will lead Russia or China to alter its commitment to the JCPOA or have a substantial impact on Russian and Chinese business interests in Iran.

As the international response to the U.S. withdrawal from the JCPOA develops, non-U.S. companies should take steps to protect their interests in light of the pending reimposition of U.S. sanctions. In particular, non-U.S. companies should reassess their Iran-related activities to determine their potential liability under the soon-to-be imposed U.S. secondary sanctions and/or any potential blocking statutes; open dialogues with their financial institutions, insurers, and other service providers regarding any Iran-related activities; and, significantly, prepare to possibly wind down any potentially sanctionable Iran-related activities in order to move promptly to comply with U.S. secondary sanctions, if warranted.

Jones Day will continue to monitor developments and provide updates.

Three Key Takeaways

The U.S. withdrawal from the Iran nuclear agreement will result in the reimposition of sanctions that had been lifted as part of JCPOA, or, the “Iran Nuclear Deal.”
Because the comprehensive U.S. primary sanctions remained in place after implementation of JCPOA, the withdrawal and reimposition of sanctions hold few consequences for U.S. companies.
However, foreign subsidiaries of U.S. organizations and their non-U.S. counterparts face a markedly altered compliance situation, and those companies affected should take decisive and deliberate measures to protect their interests.