Iran Sanctions
In the 2000s, as concerns about Iran’s nuclear weapons program grew, the US and its allies implemented comprehensive sanctions against Iran, targeting key sectors of the country’s economy. Special attention was given to restrictions on oil exports and access to the international financial system.
Iran sanctions have limited ability to attract foreign investment, participate in global trade, and engage in technological exchange. The worsening economic situation has led to increased unemployment, higher prices for basic goods, and a rise in social tension within the country.
Understanding the Iran Sanctions Program
The OFAC sanctions regime against Iran is a complex system of requirements and restrictions. Non-compliance can lead to hefty fines, asset freezes, and reputational risks for your business. U.S. law requires Americans to obtain a special OFAC license to participate in any transactions subject to these sanctions.
Over the past few decades, the United States government has implemented a comprehensive sanctions regime against the Islamic Republic of Iran, which is overseen by the Office of Foreign Assets Control (OFAC).
These sanctions are aimed not only at achieving the foreign policy objectives of the United States but also at strengthening global security, countering the proliferation of weapons of mass destruction, and combating the financial support of terrorism.
The restrictions affect key sectors of the Iranian industry, such as energy, automotive manufacturing, and metallurgy. Blocking measures are being introduced against companies and individuals operating in sectors strategically important for Iran.
Sanctions limit both the import of Iranian goods into the US and the export of American products and services to Iran (except for humanitarian supplies, medicines, and food). Additionally, an unfavorable environment is created for international partners who collaborate with Iranian counterparts.
Restrictions are being imposed on Iranian financial institutions’ access to the global financial system, including asset freezes, bans on transactions in U.S. dollars, and restrictions on interactions with foreign banks. This significantly complicates conducting financial transactions, attracting foreign investments, and accessing credit resources.
For international companies and investors, failing to comply with OFAC sanctions against Iran can lead to serious legal and financial consequences, including fines, asset freezes, and even criminal prosecution. Competent risk assessment, consulting with specialized lawyers, and timely adaptation of business strategies to the conditions of the sanctions regime are key to ensuring legal safety and sustainable partnerships.
Sanctions related to the JCPOA
The Joint Comprehensive Plan of Action (JCPOA), or The Iranian deal, is an international agreement reached in 2005 between the Iranian government and the permanent five plus one (P5+1 group: the United States, the United Kingdom, France, Germany, Russia, and China) with the participation of the EU member states. The JCPOA was aimed at limiting Iran’s nuclear program in exchange for the gradual lifting or easing of some unilateral and international sanctions.
However, in 2017, the United States announced its withdrawal from the JCPOA and reinstated some of the previously lifted sanctions, significantly altering the architecture of the agreements and increasing tensions surrounding the Iranian issue.
Additional sanctions against the oil industry were fully reinstated, including restrictions on exporting Iranian oil and petroleum products. The re-inclusion of Iranian banks in the sanctions lists has made foreign financial institutions subject to complicated transactions in U.S. dollars when interacting with businesses in the country. This creates what are known as secondary sanctions, increasing risks and costs for global banks.
Certain sanctions restrict the purchase of industrial goods and technologies that could aid the development of Iran’s missile or nuclear programs.
Legal Basis of OFAC Sanctions on Iran
The U.S. sanctions policy towards Iran is based on a series of legislative acts and regulatory instruments that grant the Office of Foreign Assets Control (OFAC) broad authority to implement and enforce restrictive measures.
The International Emergency Economic Powers Act, or IEEPA, is a law that grants the President of the United States the authority to impose economic and financial sanctions in response to unusual and extraordinary threats from abroad to the national security, foreign policy, or economy of the United States. It is under the IEEPA that many of the sanctions against Iran were initially approved and subsequently expanded.
The Code of Federal Regulations, CFR, is a codex of federal regulatory standards that specifies which types of economic and financial transactions involving Iran are prohibited, which require a special license, and which are permitted provided certain restrictions are observed. 31 CFR Part 560 covers a wide range of areas—from trade in goods and services to financial transactions and investments.
Executive Orders – utilizing the powers granted by the IEEPA, the president issues executive orders that supplement and specify the scope of sanctions. They can introduce new restrictions, expand the lists of sanctioned individuals, companies, and sectors of Iran’s economy, as well as define the conditions for issuing licenses for certain types of activities.
Under the provisions of the IEEPA and 31 CFR Part 560, OFAC creates and updates lists of blocked individuals (Specially Designated Nationals and Blocked Persons – SDN list), which include Iranian financial institutions, companies, shipping lines, individuals, and government entities.
OFAC develops and implements a licensing mechanism that allows for certain transactions that would otherwise be prohibited. For example, the delivery of humanitarian aid, medical goods, or food to Iran may require obtaining a special license to avoid human rights abuses.
OFAC also monitors financial and commercial activities to identify potential violations. If any non-compliance is detected, the agency can impose fines, freeze assets, add additional individuals to sanction lists, and initiate other legal actions.
Export and import restrictions under Iran sanctions
The sanctions policy that OFAC imposes significant restrictions on the export, re-export, and import of goods, technologies, and services. Companies engaged in international activities and financial institutions must clearly understand the boundaries of permissible interactions with Iranian counterparts to avoid legal and economic consequences.
According to the Iranian Transactions and Sanctions Regulations established in 31 CFR Part 560, the United States effectively implements a broad trade embargo against Iran.
Export restrictions apply to virtually all goods of American origin or those containing more than a negligible share of American-made components. This includes industrial equipment, electronics, and software, as well as raw materials, dual-use technologies, and products related to energy and metallurgy.
American companies and individuals are prohibited from providing Iran with a wide range of services, including advisory, financial, insurance, and logistics services. This also includes technical support services, technology transfer, software licensing, and any other forms of commercial cooperation.
The import of Iranian goods into the U.S. is also strictly limited. Prohibited items include oil, petroleum products, carpets, industrially produced food products, and several other categories.
However, some mechanisms allow for limited supplies or interactions with Iran to be legally conducted in certain situations. A company or individual can apply to OFAC for a specific license if their activities do not threaten the objectives of the sanctions regime and are not related to prohibited sectors of the Iranian economy.
Restrictions on transactions between foreign nationals and Iran
A distinctive feature of the American sanctions regime against Iran is the ability to apply so-called “secondary sanctions.” These measures are aimed against foreign individuals who:
- They collaborate with Iranian companies that are on the sanctions lists (SDN).
- Engage with individuals and entities of Iran’s economy that are subject to sanctions (oil and gas sector, metallurgy, shipping);
- They assist with financial or commercial operations that could support prohibited activities, including Iranian nuclear and missile programs.
As a result, foreign citizens and companies can become subject to the freezing of their assets within the United States, denial of access to the American financial system, and partnerships with American firms, as well as potentially suffering reputational damage.
OFAC sanction rules are often associated with the concept of a “U.S. nexus,” which refers to any engagement with and use of American jurisdiction:
- Dollar transactions through banks in the USA;
- American goods, technologies, or services;
- Transactions passing through servers or other infrastructure assets under the control of the United States;
- Companies and branches registered in the USA or controlled by American persons.
Even if a foreign citizen or company is located outside the U.S. and is not a resident of the country, such indirect connections to the American system can subject their transactions to the sanctions regime of OFAC.
Limited investments in Iran
The sanctions regime also limits opportunities for foreign investment in the Iranian economy. These measures are aimed at curbing the development of a nuclear program and weapons proliferation, as well as countering the financing of international terrorism and Iran’s destabilizing foreign policy.
The following types of investments are prohibited:
- Direct investments: placing capital in Iranian companies or projects in the country, including the purchase of stakes, shares, or other participation rights.
- Financial and credit operations: providing loans, opening credit lines, participating in debt instruments, or other financial transactions related to Iranian organizations.
- Investing in securities and derivatives: purchasing Iranian stocks, bonds, or derivative financial instruments traded on local or international markets.
- Purchasing property and assets: acquiring Iranian assets, real estate, or equipment can be considered an investment, especially if it involves a long-term perspective and commercial interest.
Without obtaining the appropriate permissions (Specific License), such transactions also fall under restrictions.
Failing to comply with OFAC regulations can lead to severe negative consequences for investors, regardless of their jurisdiction. individuals and entities determined to be in violation risk facing substantial monetary fines, often reaching millions of dollars. Assets involved in prohibited transactions may be frozen, complicating further commercial activities and disrupting financial plans. In serious cases, investors could face criminal penalties, including imprisonment for responsible officials.
The Economic Impact of Iran Sanctions
OFAC sanctions have a significant impact not only on the Iranian economy but also on global trade, international investments, and the operations of foreign companies.
Export restrictions on Iranian oil, gas, and petroleum products, which have traditionally served as the country’s primary source of income, have significantly reduced the inflow of foreign currency. This negatively affects the stability of the national currency’s exchange rate and increases inflationary pressure.
Iranian banks and financial institutions have restricted access to the global financial system. This makes it difficult to conduct international transactions, open lines of credit, and invest in infrastructure and industrial projects, inevitably impacting the pace of economic development.
Equipment, technology, and raw materials, whose supplies are now restricted, are hindering the modernization and expansion of Iran’s production capacities. As a result, many sectors—from petrochemicals to machinery manufacturing—are facing a shortage of critically important resources, leading to a decrease in competitiveness in global markets.
Restrictions lead to the closure of businesses, job cuts, and an increase in the prices of essential goods. Socio-economic difficulties intensify internal tensions, which in the long term affect political stability.
Even companies that are not residents of the USA can face the application of secondary sanctions for cooperating with Iranian partners or entering sanctioned markets. This creates additional legal and reputational risks, capable of undermining the trust of investors and counterparties.
International companies need to implement more sophisticated internal control mechanisms, vet their counterparts, and apply complex transaction monitoring systems. The increase in administrative and legal expenses reduces the profitability of projects and the overall efficiency of international business.
Need help with Iran sanctions?
Failing to comply with sanction regulations can lead to serious legal consequences, hefty fines, asset freezes, and even criminal prosecution. In an environment of strict regulation and the extraterritorial application of these restrictions, competent legal support becomes a key factor for conducting safe and successful business on the international stage.
Lawyers specializing in OFAC sanctions issues possess up-to-date knowledge of current legislation, executive orders, and regulatory frameworks. This enables them to promptly consider new rules and changes in existing regulations. Professional lawyers do more than just provide advice—they help develop internal regulations, compliance policies, and control mechanisms, enhancing the level of corporate responsibility. The sanctions landscape is dynamic. Regular monitoring of news, updating internal policies, and promptly responding to new requirements help minimize risks and maintain the resilience of your business.
Our lawyers will review your current business structure, financial flows, and supply chains to identify potential risk points and compliance with sanction requirements. If needed, we can assist with filing requests for a General or Specific License, preparing documents, and communicating with regulatory bodies.
We’ll help develop effective internal policies and counterparty verification algorithms to prevent potential violations at the planning stage of transactions.
Seeking advice from professional OFAC attorney in advance is an investment in legal security and business stability. Contact our team today for an initial consultation, and we will help you adapt to the complex sanctions regime and focus on growing your business.
