Adverse U.S. Action on Iran Nuclear Deal Likely to Chill Transactions

The surprise March 13 dismissal (via Twitter) of Secretary of State Rex Tillerson and the announcement of current CIA head and former Congressman Mike Pompeo to replace him fueled an entire U.S. news cycle and speculation as to whether the Trump Administration, if Pompeo’s nomination stands and he is confirmed by the Senate, will pursue a more hawkish foreign policy unrestrained by Administration “moderates” (or “globalists”) like Tillerson. 

Among the issues on which the President and Pompeo are understood to agree is the Iran nuclear deal, the Joint Comprehensive Plan of Action (JCPOA). Repeatedly on the campaign trail and while in office, the President has condemned the Iran Deal and threatened to withdraw the United States from the multilateral JCPOA and ramp up sanctions against Iran.

In October 2017, the President refused to certify to Congress (as required by domestic law, the Iran Nuclear Agreement Review Act of 2015, and not the JCPOA) that Iran has been in verifiable compliance with the JCPOA and that the continuing suspension of some sanctions on Iran are both “appropriate and proportionate” to Iran’s nuclear capacity reduction measures and vital to U.S. national security interests.” In an October 2017 speech outlining his plan to not re-certify the Iran Nuclear Deal, the President stated that“in the event we are not able to reach a solution working with Congress and our allies then the agreement will be terminated. [The Iran Nuclear Deal] is under continuous review, and our participation can be cancelled by me, as President, at any time.”

“I look forward to rolling back this disastrous deal with the world’s largest state sponsor of terrorism.” -Mike Pompeo (Bloomberg)

With Tillerson’s dismissal and Pompeo’s prospective ascendance to Secretary of State (if confirmed, and even if not given his influence in the Administration), the United States remaining a party to the JCPOA (particularly on its current terms) appears less likely. As a then-Congressman, and just 8 days after the 2016 U.S. Presidential Election, Pompeo stated on Twitter that “I look forward to rolling back this disastrous [Iran Nuclear Deal] with the world’s largest state sponsor of terrorism.” The President, in discussing on March 13 his thinking in dismissing Tillerson, said: “When you look at the Iran deal — I think it’s terrible. I guess . . . [Tillerson] thought it was O.K. . . .  I wanted to either break it or do something. And he [Tillerson] felt a little bit differently.”

The mere threat of stiffer U.S. sanctions on Iran or the prospect, in a hostile geopolitical climate, of greater U.S. scrutiny of Iran-related transactions could have a chilling effect on lawful Iran-related transactions.

With these statements and what is known about the President and Pompeo’s Iran leanings, a further ratcheting up of U.S. sanctions on Iran (along with pressure on other nations to heighten sanctions or take other steps adverse to Iran) may be forthcoming. Even in the absence of such actions, the mere threat of stiffer U.S. sanctions on Iran or the prospect, in a hostile geopolitical climate, of greater U.S. scrutiny of Iran-related transactions could have a chilling effect on lawful Iran-related transactions, whether they involve U.S. parties or not. For example, foreign banks that are essential to facilitating transactions that are permitted under or are outside the scope of current U.S. sanctions–such as permitted transfers from Iran to the United States of the proceeds of certain inherited property or business transactions not at all involving the United States or U.S. persons–may refuse such transactions out of fear or unwillingness to bear the administrative burdens of a tenser enforcement environment.

Time will soon tell the fate of the Iran Nuclear Deal. Any changes to U.S. sanctions on Iran (primary or secondary) will likely also soon become apparent. In the meantime, the prospect of increasingly hostile policy and legal actions toward Iran may be enough to thwart or make more difficult Iran-related transactions that are (and might remain) legal. Parties planning to engage in such legal Iran-related transactions should take note and, if appropriate, action ahead of any changes in law or adjustments in Iran-related risk-assessments by banks and individual and commercial parties.