Financial Sanctions on Iran and the Joint Comprehensive Plan of Action

Illustration by: Jason Robinson

U.N. Resolution 2231 (2015) endorses the Joint Comprehensive Plan of Action (JCPOA) agreed by Iran and the P5+1. On Implementation Day, all U.N. sanctions resolutions will be terminated and specific restrictions will take their place. Formerly prohibited financial transactions will be permitted so long as the activities which they support are approved by the U.N. Security Council (UNSC). In addition, targets of asset freezes will reduce in number and requirements for activity-based sanctions and vigilance will be removed. The financial sector will need to put in place procedures to implement these new measures. It will be important to ensure that the wider U.N. framework of controls on the financing of proliferation remains fully implemented.

Background

Iran is currently subject to four UNSC sanctions regarding the proliferation risks presented by its nuclear program.1 These resolutions, together with four equivalent resolutions regarding North Korea and Resolution 1540 (2004), constitute a U.N. framework of controls on proliferation, including the financing of proliferation.

Iran is also subject to a range of sanctions imposed by the EU, U.S. and other countries. These unilateral regimes are targeted on Iran’s human rights, terrorism and other activities in addition to its nuclear program.

Following the agreement of the JCPOA between Iran and the P5+1 countries2 on July 14, 2015, a timetable was established for the termination of U.N. sanctions and the termination or modification of nuclear-related unilateral sanctions over a period of 10 years. The JCPOA was endorsed unanimously by the Security Council on July 20 under Resolution 2231 (2015). The following is an analysis of the changes which will affect financial sanctions under this resolution.

The four U.N. sanctions resolutions were adopted under Chapter VII of the Charter of the U.N.3 They are binding on U.N. member states; however, it is up to each member state to determine how to implement them. Resolution 2231 (2015) terminates all four sanctions resolutions on Implementation Day of the JCPOA. No date is specified for Implementation Day, but most observers assume it will take place in the first six months of 2016.4 Resolution 2231 (2015) is not a Chapter VII resolution; however, several operational paragraphs cite Article 41, which confers an equivalent legal requirement on states to comply.5

Current U.N. Financial Sanctions on Iran

Resolution 2231 (2015) makes important changes to the framework of U.N. financial sanctions regarding Iran. Currently, these financial sanctions fall into four categories:6

  1. Targeted financial sanctions (TFS): These require the freezing of funds, other financial assets and economic resources of designated entities and individuals, as well as those of persons or entities acting on their behalf or at their direction, or of entities owned or controlled by them.7 The designated individuals (43 in total) and entities (78) are listed on the website of the Security Council Committee established pursuant to Resolution 1737 (2006);
  2. Activity-based sanctions: These prohibit the transfer of financial resources or services related to the supply, sale, transfer, manufacture and use of items prohibited for transfer to Iran as well as financial services and the transfer of financial assets or resources which could contribute to Iran’s prohibited activities;8
  3. Requirements for vigilance over business if such business might be connected with Iran’s prohibited activities, and over financial dealings with Iran’s banks;9
  4. Other financial provisions include a prohibition on Iranian banks from initiating new business in member states if it is related to activities prohibited under U.N. sanctions. In addition, member state financial institutions are prohibited from initiating business in Iran if it is related to such prohibited activities.10

Resolution 2231 (2015) includes an exemption for the above provisions in connection with certain specific nuclear-related activities Iran is required to carry out prior to Implementation Day.

Changes to Sanctions following Implementation Day

The following describes how the framework of financial sanctions will be altered following Implementation Day:

  1. Member states are permitted to provide financial assistance or to transfer financial resources or services in connection with Security Council-approved procurement by Iran of nuclear goods and materials. Under current U.N. sanctions, with certain limited exceptions, such procurement is prohibited. The measure lasts for 10 years from Adoption Day (October 18, 201511) or, if sooner, the date on which IAEA reaches a “Broader Conclusion” regarding Iran’s nuclear program.12 After this date, the need for approval by the Security Council ceases.
  2. States are permitted to provide financial assistance or to transfer financial resources or services in connection with Security Council-approved procurement by Iran of items related to missile technologies. Under current U.N. sanctions, with certain limited exceptions, such procurement is prohibited. The measure lasts for eight years from Adoption Day (or, if sooner, the date on which IAEA reaches a “Broader Conclusion”). After this date, the need for approval by the Security Council ceases.
  3. States are permitted to provide financial assistance or to transfer financial resources or services in connection with Security Council-approved procurement by Iran of certain categories of conventional arms. Under current U.N. sanctions, with certain limited exceptions, such procurement is prohibited. The measure lasts for five years from Adoption Day (or, if sooner, the date on which IAEA reaches a “Broader Conclusion”). After this date, the need for approval by the Security Council ceases.
  4. States must continue to freeze funds, other financial assets and economic resources that are owned or controlled by the individuals and entities currently listed on the website of the Committee pursuant to Resolution 1737 (2006), except those named in an attachment to Annex B of Resolution 2231 (2015).13 Twenty-three individuals and 62 entities connected with Iran’s ballistic missile activities, conventional arms transfers or the Islamic Revolutionary Guards Corps (IRGC) will remain subject to freezing provisions after Implementation Day. The provisions last for eight years following Adoption Day (or, if sooner, the date on which IAEA reaches a “Broader Conclusion”). After this date, they will cease.
  5. The four current U.N. sanctions resolutions include certain exceptions to freezing requirements.14 These are carried over after Implementation Day, but under Resolution 2231 (2015) two additional exceptions are added. The first concerns activities connected with civil nuclear cooperation projects taking place under the JCPOA,15 and the second with activities required for the JCPOA to be implemented by Iran (activities under both of these headings are subject to approval by the Security Council).
  6. The existing U.N. sanctions extend freezing requirements to entities owned or controlled by individuals or entities listed by the Committee, or by individuals or entities acting on their behalf or at their direction. Resolution 2231 (2015) contains no specific language in this respect although the context could indicate it is the Security Council’s intention that, with respect to the individuals and entities remaining subject to freezing provisions after Implementation Day, such extensions would continue to apply.16
  7. Resolution 2231 (2015) includes measures against violators of the JCPOA or the resolution: States must freeze assets of individuals and entities that may be designated by the Security Council for involvement in activities contrary to Iran’s commitments under the JCPOA, for assisting designated individuals or entities evading or acting inconsistently with the JCPOA or Resolution 2231 (2015), for acting on behalf or at the direction of designated individuals or entities, or for being owned or controlled by designated individuals or entities.
  8. Resolution 2231 (2015) includes no references to activity-based financial sanctions, to requirements for vigilance or to other financial measures, such as those that exist under current U.N. resolutions.
  9. Resolution 2231 (2015) includes provisions to re-impose existing UNSC sanctions after Implementation Day in the event that the Security Council determines that Iran or the P5+1 failed to commit to the new resolution.17

Therefore, following Implementation Day, U.N. financial sanctions are either:

  1. Reduced in scope by removing from the list of the 1737 Committee names of individuals or entities connected with the nuclear program and thus no longer subject to asset freeze provisions.
  2. Removed altogether (for example, activity-based sanctions or requirements for vigilance).
  3. Modified: Resolution 2231 (2015) creates a new form of control on proliferation financing by requiring Security Council approval for financial assistance or the transfer of financial resources or services in connection with Security Council-approved procurement by Iran.

States must continue to freeze funds, other financial assets and economic resources that are owned or controlled by the individuals and entities currently listed on the website of the Committee pursuant to Resolution 1737

In regards to Iran’s nuclear program, so long as the procurement after Implementation Day takes place through recognized channels with the approval of the Security Council,18 there will be no prohibitions on provision of related financial assistance or the transfer of financial resources or services.

Similar provisions extend to Iran’s missile and conventional arms procurement activities after Implementation Day. So long as the procurement is approved by the Security Council there will be no prohibition on the provision of related financial assistance or the transfer of financial resources or services.19

The number and range of listed individuals or entities subject to asset freezes is reduced to those connected with the IRGC and with Iran’s proliferation sensitive missile, or conventional arms-related activities. The requirements will be removed altogether after eight years.

The Role of FATF

The asset freeze measures under Resolution 2231 (2015) are equivalent to TFS and the Financial Action Task Force (FATF) could presumably continue to assess their implementation by relevant states in the context of mutual evaluation reviews under Recommendation 7.

However, FATF will need to consider more generally the impact of Resolution 2231 (2015) on Recommendation 7 and its Interpretive Note, and on related guidance regarding the financing of proliferation.20 These are all, to a certain extent, based on U.N. sanctions resolutions on Iran that will be terminated after Implementation Day. They may need to be rewritten so as to incorporate the provisions of Resolution 2231 (2015).

Conclusion

Resolution 2231 (2015) introduces important changes to the existing framework of U.N. financial measures regarding the proliferation risks of Iran’s nuclear program. By extension, they impact the wider U.N. framework of controls on the financing of proliferation.

Many banks and other financial institutions will be focused primarily on the changes to U.S. and EU financial sanctions that will take place at various times over the next 10 years under the timetable of the JCPOA21 and are waiting for the authorities to issue guidance.

Financial institutions will need to put in place procedures to fully implement the U.N. measures on Iran that will take effect following Implementation Day. But it will be vital that they also remain diligent in implementing the continuing and unchanged U.N. financial sanctions regarding the proliferation risks of North Korea’s weapons of mass destruction programs and the measures to control the financing of proliferation required under Resolution 1540 (2004). In these ways, banks and financial institutions can continue to play their part in maintaining international peace and security.

Jonathan Brewer,22 visiting professor, King’s College, London, U.K., jonathan.brewer@kcl.ac.uk

  1. UNSC Resolutions 1737 (2006), 1747 (2007), 1803 (2008) and 1929 (2010).
  2. The P5+1 comprises China, France, Germany, Russia, the U.K. and the U.S.
  3. Chapter VII of the U.N. Charter deals with “Action with Respect to Threats to the Peace, Breaches of the Peace, and Acts of Aggression.”
  4. Implementation Day will occur when the International Atomic Energy Agency (IAEA) has verified that Iran has carried out certain nuclear-related actions.
  5. Article 41 of Chapter VII states that “The Security Council may decide what measures not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the Members of the United Nations to apply such measures. These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations.”
  6. The categorization is based on guidance published by the FATF: “The Implementation of Financial Provisions of United Nations Security Council Resolutions to Counter the Proliferation of Weapons of Mass Destruction (2013).”
  7. Paragraphs 12 to 15 of Resolution 1737 (2006), paragraph 6 of Resolution 1747 (2007), paragraph 7 of Resolution 1803 (2008) and paragraphs 11, 12 and 19 of Resolution 1929 (2010)).
  8. Paragraph 6 of Resolution 1737 (2006), and 8, 13 and 21 of Resolution 1929 (2010).
  9. Paragraph 6 of Resolution 1747 (2007), 10 of Resolution 1803 (2008) and 22 of Resolution 1929 (2010).
  10. Paragraph 7 of Resolution 1747 (2007) and 9 of Resolution 1803 (2008).
  11. Adoption Day is defined in Resolution 2231 (2015) as 90 days after the endorsement of the JCPOA by the Security Council, i.e., July 20.
  12. A “Broader Conclusion” that “all nuclear material remains in peaceful activities” requires IAEA to conclude both that no indication exists of diversion of declared nuclear materials and that no indication exists of undeclared nuclear material or activities (page 18 of IAEA Safeguards “Staying Ahead of the Game,” IAEA, 2007).
  13. The attachment names individuals (20 in total) or entities (16) originally designated by the Committee on the basis of involvement in Iran’s prohibited nuclear activities but delisted by the Security Council on Implementation Day under the JCPOA.
  14. These exceptions include in connection with basic expenses (subject to notification to the Security Council); extraordinary expenses (subject to approval by the Security Council); and if subject to judicial lien etc. (subject to notification to the Security Council).
  15. JCPOA Annex III.
  16. Freezing requirements are described in paragraphs 6 (c) and (d) of Annex B of Resolution 2231 (2015).
  17. Such a determination would take place only when procedures following a complaint “by JCPOA participants about significant non-performance by another JCPOA participant” are followed (paragraphs 10-13 of Resolution 2231 (2015)).
  18. This measure will remain in place for 10 years.
  19. This measure will remain in place for eight years (missiles) and five years (conventional arms) respectively.
  20. In particular “The Implementation of Financial Provisions of United Nations Security Council Resolutions to Counter the Proliferation of Weapons of Mass Destruction (2013).”
  21. The timetable for changes is set out in Annex V of the JCPOA (Annex A of Resolution 2231 (2015). On Implementation Day the EU and U.S. will suspend, terminate or modify existing nuclear-related financial sanctions. A further lifting of sanctions will take place on Transition Day, eight years after Adoption Day or the date on which IAEA reaches a “Broader Conclusion” regarding Iran’s nuclear program, if sooner.
  22. From November 2010 to November 2015 Jonathan Brewer was the financial expert of the UN Panel on Iran created pursuant to Resolution 1929 (2010).

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