CFOs: Non-US Firms Might Face Secondary Sanction Risks after Trump’s Iran Deal Exit

Non-US companies might be at risk when it comes to Trump’s decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA)—commonly known as the Iran nuclear deal, said law firm Baker McKenzie recently.

“The big question mark is what the US government might do to non-US companies that continue to work with Iran and, by doing so, open themselves up to US secondary sanctions,”. Janet Kim, Washington, D.C. based Partner at Baker McKenzie noted.

As the authority for the US government to designate a company or person as a Specially Designated National (SDN) for working with Iran in certain key sectors including energy, financial, metals, shipping, and automotive will be reinstated, an SDN or blacklisted company or person is restricted from access to the US market in any way, which can be devastating, she pointed out.

“It’s perhaps more devastating than a large monetary penalty,” Kim said. “This leads to the second big question—what can other governments do to help companies that want to keep working with Iran?”

This is particularly relevant for the European countries—France, Germany and the UK—that are part of the JCPOA, as they’ve stated their intentions to uphold that agreement, she said.

European governments may urge their companies not to pull out of Iran, so that the Iranians feel as if they are still seeing the benefits of the JCPOA, but companies will want to know what their governments can do to protect them from secondary sanctions by the US. SDN designations – and the threat of them -- are a very powerful weapon.

Besides those European countries and Russia, China is also part of the JCPOA. "China regrets this decision made by the US," foreign ministry spokesman Geng Shuang said at a regular press briefing earlier this week.

He said China will maintain "normal economic and trade exchanges" with Iran despite Trump's decision to exit from the deal.

"China calls on all relevant parties to assume a responsible attitude" in order "to return at an early date to the right track of implementing the deal," he said.

Possible secondary sanctions out of the Iran nuclear deal might add even more risk to China, given the recent development of the China-US trade standoff and the US's ban on the country's second largest telecommunications equipment maker ZTE from buying components and services from American firms for seven years. ZTE said earlier this week in a public filing that it has already halted "major operating activities" because of the ban.

According to Baker McKenzie, the US government previously removed about 400 Iranian firms and individuals from the SDN list as part of the JCPOA but it is likely that they will be put back on again by November 5.

This will be a huge headache for companies as many of the formerly blacklisted companies and individuals are very active commercially, while many of them are Iranian banks that handle the cross-border flow of funds, the firm added.