farhad emam Farhad Emam
Publish Date : 04/01/2016

Second JCPOA, a Need or a Must

EXECUTIVE SUMMARY

Key terms

JCPOA, US sanctions, UN sanctions, EU sanctions, second BARJAM

Summary

It is reported on the website of the Polymer Industry Media International on March 23, 2016 that in his New Year Message, Iran’s President made the following promise:

The government will bring five percent economic growth by public contribution and confirming that “Iranian economic growth will be more than all the neighboring states in near future” he hoped for bringing back the workers to the factories and farms and bring the young graduates to the market in the context of “BARJAM” and the 2nd BARJAM (Iranian abbreviation for JCPOA).

By referring to “second BARJAM”, the President has given his critics a good opportunity to criticize his economic policies and even to claim that JCPOA has not resulted in any real improvement of the economic conditions in Iran.

The questions to be raised in this Legal Report are:

a) What is the meaning of “second BARJAM”?

b) Does it mean that the JCPOA is not comprehensive so Iran and E3/EU+3 will have to sign a new agreement on their issues of joint concern?

c) Does the above term cover the actions to be taken by Iran alone at international and domestic levels?

d) If the response is on the positive side, what are those actions?

I. Incomprehensiveness of the JCPOA

The Joint Comprehensive Plan of Action (JCPOA) was entered into for one and only one purpose that is clearly stated in the first sentence of the JCPOA’s Preface:

The E3/EU+3 (China, France, Germany, the Russian Federation, the United Kingdom and the United States, with the High Representative of the European Union for Foreign Affairs and Security Policy) and the Islamic Republic of Iran welcome this historic Joint Comprehensive Plan of Action (JCPOA), which will ensure that Iran’s nuclear programme will be exclusively peaceful, and mark a fundamental shift in their approach to this issue. (emphasis added)

The UN, the US and the EU still have serious problems with two other major activities of the Iranian regime: Iran’s missile program, and Iran’s support for “terrorist activities”.

A. Ballistic missile program

1) The UN - The United Nations Security Council (UNSC) has adopted seven resolutions on the missile program of Iran: 1696, 1737, 1747, 1803, 1835, 1929 and finally 2231.

2) The US - Under the CISADA (Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010), as explained on the webpage of the US Department of Treasury, the sanctionable activities of a foreign financial institution are:

  • Facilitating the efforts of the Government of Iran (GOI) to acquire or develop Weapons of Mass Destruction (WMD) or delivery systems for WMD or to provide support for terrorist organizations or acts of international terrorism;
  • Facilitating the activities of a person subject to financial sanctions pursuant to UNSCRs 1737, 1747, 1803, or 1929, or any other Security Council resolution that imposes sanctions with respect to Iran;
  • Engaging in money laundering, or facilitating efforts by the Central Bank of Iran or any other Iranian financial institution, to carry out either of the facilitating activities described above; or

Facilitating a significant transaction or transactions or providing significant financial services for: (i) the Islamic Revolutionary Guard Corps or any of its agents or affiliates whose property and interests in property are blocked pursuant to the International Emergency Economic Powers Act (IEEPA), or (ii) a financial institution whose property and interests in property are blocked pursuant to IEEPA in connection with Iran’s proliferation of WMD, Iran’s proliferation of delivery systems for WMD, or Iran’s support for international terrorism.

3) The EU – It is explained in the section 5.1 of the Information Note on EU sanctions to be lifted under the Joint Comprehensive Plan of Action (JCPOA):

A prohibition to sell, supply, transfer, export or procure, directly or indirectly, the goods and technology listed in Annex III to Council Regulation (EU) No 267/2012 concerning restrictive measures against Iran, as modified by Council Regulation No 2015/1861 (hereafter: Council Regulation 267/2012 (as amended)), and any other item that the Member State determines that could contribute to the development of nuclear weapon delivery systems, and the provision of associated services continues to apply. Annex III lists all goods and technology contained in the Missile Technology Control Regime list. For more information on the Missile Technology Control Regime list, it is recommended to consult the Guidelines of the Missile Technology Control Regime.

B.  Alleged terrorist activities

1) The US - Chapter 3 of the Country Reports on Terrorism 2014 of the US Department of State summarizes the current situation of Iran from the point of view of the US:

Designated as a State Sponsor of Terrorism in 1984, Iran continued its terrorist-related activity in 2014, including support for Palestinian terrorist groups in Gaza, Lebanese Hizballah, and various groups in Iraq and throughout the Middle East. This year, Iran increased its assistance to Iraqi Shia militias, one of which is a designated Foreign Terrorist Organization (FTO), in response to the Islamic State in Iraq and the Levant (ISIL) incursion into Iraq, and has continued to support other militia groups in the region. Iran also attempted to smuggle weapons to Palestinian terrorist groups in Gaza. While its main effort focused on supporting goals in the Middle East, particularly in Syria, Iran and its proxies also continued subtle efforts at growing influence elsewhere including in Africa, Asia, and, to a lesser extent, Latin America. Iran used the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) to implement foreign policy goals, provide cover for intelligence operations, and create instability in the Middle East. The IRGC-QF is the regime’s primary mechanism for cultivating and supporting terrorists abroad.

2) The EU – Under section 6 of the Information Note on EU sanctions to be lifted under the Joint Comprehensive Plan of Action (JCPOA):

Iranian persons who are also listed under EU terrorism and Syria sanctions regimes (or any other EU sanctions regime) continue to be subject to restrictive measures under these regimes which are outside the scope of the JCPOA.

II. American sanctions that remain in force after the Implementation Day

The starting point for any discussion about the sanctions imposed on Iran is that the JCPOA lifted the international sanction and not all the American sanctions. According to OFAC, certain sanctions remain in force even after the Implementation Day of the JCPOA. Part I of the “Guidance relating to the Lifting of Certain US Sanctions pursuant to the Joint Comprehensive Plan of Action on Implementation Day” (January 16, 2016) lists the sanctions that remain in force:

• The sanctions-related commitments described in the JCPOA are directed towards non- U.S. persons, and except for the commitments described in section 5 of Annex II of the JCPOA, do not apply to U.S. persons. 

• The sanctions commitments described in the JCPOA and this guidance do not apply to transactions that involve persons who remain or are placed on the SDN List.  Transactions involving such persons remain sanctionable after Implementation Day. 

• The USG commitment to lift sanctions described in the JCPOA is without prejudice to sanctions that may apply under legal provisions not included within the scope of section 4 of Annex II of the JCPOA.  As further detailed in section VII below, the USG retains the authority to continue imposing sanctions under authorities not included within the scope of section 4 of Annex II, including those used to address Iran’s support for terrorism, support for persons involved in human rights abuses in Syria or for the Government of Syria, support for persons threatening the peace, security, or stability of Yemen, human rights abuses, and ballistic missile program.

The above list just represents the tip of the iceberg of the American sanctions that remain imposed on Iran.

III. Impacts of the American sanctions on business with Iran

Foreign companies that are interested in entering into business deals with Iran are fully aware of the risks of violating the US rules and regulations that impose sanctions on Iran. Whenever interested persons tend to forget the seriousness of these sanctions, American courts or US government send a loud warning message that make a wave everywhere in the global market. The last example is the case of the Chinese company ZTE Corp for alleged Iran sanctions violations. Reuters reported on March 7, 2016 that ZTE planned to use a series of shell companies "to illicitly re-export controlled items to Iran in violation of U.S. export control laws." The allegation is that ZTE acted "contrary to the national security or foreign policy interests of the United States."

Two consequences of these sanctions’ violations according to the above report were:

1) U.S. manufacturers were banned from selling components to ZTE; and

2) Foreign manufacturers were prohibited from selling products containing a significant amount of U.S.-made parts to the Chinese company.

As reported by Jeffrey Sparshot from Wall Street Journal on March 21, due to strong objections of the Chinese government:

“The U.S. government plans to temporarily lift trade sanctions against China’s ZTE Corp., a senior Commerce Department official said Sunday, easing a source of tension between Washington and Beijing.”

Another example is that “EU Banks are Still Reluctant to Process Iran Deals despite Nuclear Accord” (highbeam.com on March 24, 2016).

To avoid facing the serious risk of becoming subject to the US sanctions, foreign companies tend to get advice from their governments. The “Iran trade guide and frequently asked questions on doing business with Iran” of the UK Foreign & Commonwealth Office summarizes the requirements of doing business with or in Iran:

You will need to consider in particular, if you are dealing with a designated person or entity, whether a certain trade product or material is restricted, and how and to whom payments will be made. UK companies will also want to consider whether their proposed activity is subject to US sanctions. It is important to ensure appropriate due diligence measures are undertaken before engaging in any activity. Iran will remain a difficult place to do business so if in doubt you should seek legal advice.

The steps to be taken are:

a) To consider whether the Iranian partner is a designated person or entity;

b) To determine whether a certain trade product or material is restricted;

c) To consider how and to whom payments will be made;

d) To determine whether the proposed activity is subject to US sanctions; and

e) To ensure undertaking of appropriate due diligence measures.

IV. The second JCPOA 

The JCPOA enabled Iran to make its nuclear program acceptable to the international community. Two major issues remain unsettled: ballistic missile program and alleged terrorist activities. Iranian authorities show no intention to get into any international agreement on any of these two issues. The recent speech of the Supreme Leader of Iran about the missile program of the country left no ambiguity about the position of Iran on this issue. Further, Iran claims that it supports revolutionary movements that must not be qualified as “terrorist organizations” by the UN, the US or the EU.

It is clear that Iran will not sign a second JCPOA with E3/EU+3 in the foreseeable future because it will neither accept any international control on its missile program nor will it stop or even subside its support for “revolutionary movements”. So what does President Rouhani mean when he refers to the “second JCPOA”?

Iran signed the JCPOA to start a trust-building process at international level. A major objective of this process was to take the Iranian economy out of the straitjackets that restricted any economic activities under the international sanctions imposed on Iran. How could Iran prove to the international community that it was ready to play the game according to the rules that were set and respected internationally? The three-pronged economic policy of Iran aims at the following objectives:

a) To convince the international market that Iran can negotiate an international agreement (i.e. the JCPOA) and can also abide by its international commitments;

b) To become a member of two important international or regional organizations, namely the WTO and the Shanghai Cooperation Organization (SCO), and to build closer ties with the Eurasian Economic Union (EEU) through establishing a joint free zone; and

c) To prove to foreign companies that they must not worry about the real identity of or the public control exerted upon the Iranian private companies. In other words, they do not need to go through the expensive, long, burdensome and difficult process of due diligence.

Iran faces serious challenges in meeting the above objectives. First, it is true that Iran has respected its obligations under the JCPOA but every legal text has its own raison d’être. As explained in part (I) above, the JCPOA is signed to have the nuclear program of Iran controlled by international authorities. It never meant to facilitate international trade with Iran. Secondly, Iran needs to wait a long time before becoming a member of the WTO or the SCO. In the meantime, aspirations of Iran will not be of great help to its objective of becoming recognized as a “fair player” in the international market. Thirdly, it is really difficult to verify whether an Iranian “private” company is really private or not. The reason is that under Article 44 of the Constitution of Iran, its economy is divided into three sectors: public, private and cooperative. In practice, apart from the cooperative sector that does not play a serious role in the economy of Iran, three sectors exist: a) public, b) private, and c) private-public or prilic (known as khosoolati in Persian language). A brief explanation about the last sector is necessary. During the privatization process, some of the entities or persons that were indirectly related to the public sector purchased the shares or properties of the public sector entities and became their new owners. The purchased companies apparently became private because they came out of the ownership of the public sector. However, they remained under indirect control of public entities or persons. So, they became private-public or prilic companies

Each privatization process made the prilic sector bigger and stronger because prilic sector companies in their turn purchased shares or properties of other privatized companies to expand the scope of their control over the Iranian economy.

A real privatization needs a sophisticated legal structure to empower the existing but weakened private sector to level the economic playing field for a fair competition, and to democratize the economic system by supporting the private sector against unfair competition of the public sector.

 

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