House of Cards: The Joint Comprehensive Plan of Action

by Grant Eldred and Nazanin Tajbakhsh

Against the backdrop of around 30 years of mistrust, animosity and sanctions, the agreement reached on the Joint Comprehensive Plan of Action (JCPOA) between Iran and the P5+1 on 14 July 2015 was a considerable diplomatic achievement. However, it remains to be seen whether this success will go beyond political rhetoric; not least because the success of JCPOA will ultimately depend on a complete change of practice within the relevant industries and institutions of multiple sovereign and independent states which, for the past few decades and up to now, have had a strict ‘Iran-averse’ attitude.

Whilst in practical terms the only relevant achievement of JCPOA to date has been to extend the timescale for the sanctions reliefs set out in the Joint Plan of Action (JPOA) in place since 24 November 2013; in the past three months, JCPOA has enjoyed numerous successes in the political field.

Within less than a week from the agreement, on 20 July 2015, the UN Security Council unanimously endorsed and adopted the agreement through Resolution 2231 (2015). Another landmark success was the failure of opposition in the US Congress to block its progress by the deadline of 17 September 2015. Iran has already complied with those obligations which it had to comply with since the agreement and within the past three months including allowing IAEA inspection of and sample taking from the Parchin site. Recently, a Joint Commission was set up to oversee the implementation and execution of the agreement and that Commission has now had its first successful meeting on 19 October 2015.

No real change to the sanctions regime will occur until the Implementation Date which is expected to be sometime in spring 2016. However, on 18 October 2015 (‘Adoption Date’), the EU set up the legislative framework to terminate most nuclear related sanctions as from the Implementation Date; the US president has also issued sanctions waivers to take effect as from the Implementation Date, and; Iran has voluntarily taken steps towards implementing the various changes agreed such as taking out thousands of centrifuges and a very large amount of infrastructure and allowing extensive monitoring and inspection rights to IAEA. Provided Iran complies with its obligations under the agreement and the IAEA report confirms full implementation of JCPOA on Iran’s part; the UN, US and EU sanctions reliefs (only those which have been nuclear-related; the other sanctions such as human rights-related sanctions will still remain in place) will kick in as from the Implementation Date.

Whilst the huge political will and effort driving JCPOA forward is praiseworthy; provided Iran complies with the provisions of JCPOA, the true success or failure of the agreement will depend on those commercial men who trade with Iran and the financial institutions supporting and facilitating this trade.

The specific geographical, demographic and psychographic peculiarities of Iran make it an appealing market and thanks to years of international isolation, the Iranian market has remained virtually unexploited. In the months leading up to the JCPOA and since, committee after committee of people representing various commercial interests have been Tehran-bound. Numerous memorandums of understandings have already been signed in anticipation of the lifting of the sanctions on the Implementation Date and many commercial contracts have been drawn up subject to the sanctions reliefs. Overall the international business community has been very quick to change its stance towards Iran in order to seize the opportunity.

Arguably, the success of JCPOA ultimately depends on the banks and other financial institutions supporting trade with Iran. Some of these institutions have received the heaviest penalties for noncompliance with the sanctions regime. Understandably they have in response adopted strict and rigid internal policies which are often stricter and more limited in scope than the government-imposed sanctions themselves. The question is whether the business will and commercial reality of the new post-sanctions era will be strong enough to encourage banks to change their attitude reasonably quickly and certainly before Iran becomes frustrated with the slow pace of change. After all, Iran’s main incentive in complying with the JCPOA is economic development so anything that will hinder the development, will in turn hinder the JCPOA.

Whilst banks must remain vigilant and keep a close eye on the political landscape surrounding Iran sanctions, they ought to start thinking about and preparing for Implementation Date so that effective policies could be adopted rapidly should it become necessary to do so.

This article is filed under:  Industry news

About the contributors

  • Grant Eldred Partner

    Grant is a partner and the head of our Finance Group. He specialises in banking law including bilateral and syndicated secured and unsecured lending, trade finance and banking regulation and compliance.

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  • Nazanin Tajbakhsh Solicitor

    Naz is a solicitor in the London office and is a member of the Shipping and the International Trade & Commodities Group.

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