On 16 January 2016, the EU and UN nuclear-related economic and financial sanctions against Iran were terminated in line with the Joint Comprehensive Plan of Action (JCPOA) agreed between Iran, the EU and the ‘P5+1’ (permanent UN Security Council members France, China, Russia, the UK and the US ‘plus’ Germany) in July 2015. Article by Michelle Linderman, Ince & Co
This included the delisting of many entities and individuals. US secondary legislation imposing nuclear-related economic sanctions was also suspended.
As a result of the lifting of EU sanctions, EU entities have been able to recommence trade with Iran. Restrictions prohibiting the purchase/sale and/or transport of certain Iranian cargoes (including crude oil, petroleum or petrochemical products or gas) or the provision of insurance (including P&I insurance) in respect of the carriage of those cargoes have, amongst others, all been lifted and numerous Iranian persons and entities have been removed from the sanctions lists. Some EU restrictive measures remain in place (but these relate largely to military goods, weapons and items that might be used for internal repression) and some entities and individuals remain listed. However, this ‘opening up’ presents a wealth of opportunity for those keen to take advantage of opportunities in Iran’s oil, gas, shipping, trade and aviation sectors.
Many EU companies have started looking at opportunities in Iran, but, the initial rush to do business with Iran has slowed as companies find that, despite the lifting of many of the restrictions, there are still numerous hurdles to overcome not least of which are the remaining US restrictions and the impact those have had on banks.
The US angle
While the lifting of UN and EU sanctions represents a huge step forward, those looking to commence or recommence business with Iran need to bear in mind that many US primary sanctions i.e. those that affect US persons and entities, have not been lifted and there are still a number of Iranian Specially Designated Nationals. As such, US persons and entities still cannot do business with Iran although non-US- based subsidiaries of US companies can now carry out certain business with Iran pursuant to General Licence H issued by the US authorities on 16 January 2016. Further, any goods that are of US origin are subject to US export control restrictions, which means that US origin goods and technology for the oil and gas sectors remain off limits for Iran.
Perhaps the greatest impact of the remaining US sanctions has been on the banking sector. US banks are unable to process US dollar transactions relating to Iran which has made some of Europe’s biggest banks nervous about doing deals in Iran, or processing payments relating to Iran for fear of breaking US laws. Such reluctance to take the risk of handling Iranian transactions is understandable in the wake of the eye- watering fines that have been imposed on banks by the US authorities, including a record USD 9 billion fine imposed on BNP Paribas in 2014 for processing banned transactions involving Cuba, Sudan and Iran.
‘Snap back' provisions
For those who have identified that they are able to trade with Iran and are keen to sign contracts, it is also important to bear in mind that the JCPOA contains ‘snap back’ provisions that will reintroduce restrictions if Iran breaches its side of the deal or, indeed, if any of the other parties pulls out of its commitments. In light of this, consideration should be given to clauses that take the ‘snap back’ risk into account in any Iranian contracts that are signed.
Considerations for the insurance industry
Where companies wish to arrange insurance for business with Iran, the underwriter needs to ensure that, none of the parties or the subject matter of the insurance are subject to any sanctions restrictions. Carrying out careful due diligence checks helps to ensure that no sanctions are breached but also means that in the event that a breach of sanctions occurs, the underwriter may be able to avoid liability by relying on the due diligence defence contained in the EU regulations. It does, however, require that the assured provides comprehensive and detailed information in order to enable the underwriter to assess what the sanctions risks might be. For marine cover for trips to Iran, this will normally include providing the following information:
- Identities of all parties to the proposed business
- Details of the vessel and vessel owner
- Type and ownership of cargo/details of consignees
- Where the cargo will be loaded (names of ports/origin of cargo)
- Whether the client is aware of any aspect of the transaction that could breach sanctions
- Whether there is any US connection to the transaction
- Currency to be used
- Whether there is any activity in relation to nuclear technology, arms or dual-use goods.
It is worth bearing in mind that this due diligence process needs to be carried out by each individual underwriter on the policy.
Problems paying claims
Aside from carrying out due diligence at inception, underwriters also need to carry out due diligence when claims arise and at the time of payment in order to ensure that the status of the involved parties has not changed and/or that no new restrictions have come into place that may make it illegal to pay the claim.
Even where due diligence checks have been cleared, there can still be issues with payment of claims in relation to Iranian business. As mentioned above, European banks have taken a risk averse approach to Iran and continue to have strict internal compliance programmes, often preventing them from making transfers relating to Iran.
Continued need for vigilance
As we have said, while Iran is now open to business, some entities and individuals are still subject to US designations and/or remain subject to EU restrictions, and certain other restrictive measures remain in place. Those considering conducting business with Iran should therefore remain vigilant, continue to carry out appropriate due diligence on proposed counterparties and seek legal advice in order to ensure that they comply with any remaining restrictions.
Anti-bribery and corruption
Although the lifting of sanctions offers huge potential for EU businesses, it is also worth bearing in mind that Iran can present other risks: for example, Iran scores highly on Transparency International’s Corruption Perceptions Index. It is important, therefore, that, as well as ensuring sanctions compliance, suitable anti-bribery and corruption policies are put in place to help to reduce such risks.
EU sanctions against Iran post Brexit
The UK’s departure from the EU will have an impact on the sanctions landscape. While nothing will change in the immediate future (as with other areas of EU law, the UK will continue to implement EU regulations for two years after the UK has officially notified the EU of its wish to leave), going forwards the UK will be able to forge its own economic sanctions policy.
In relation to the sanctions against Iran, it is unlikely that the UK will take a different stance from the EU in the foreseeable future. The UK was one of the key negotiating countries in reaching the JCPOA agreement and there is no reason to think that Brexit will impact the UK’s foreign policy relating to Iran.
More generally, while it is not clear what path the UK will take in relation to sanctions post-Brexit, it is probable that the UK will continue to favour the use of economic sanctions as a tool of foreign policy. Further, with the recent establishment of the Office of Financial Sanctions Implementation whose remit is to ensure that sanctions are properly understood, implemented and enforced in the UK, there is the likelihood that there will be an increasing number of prosecutions.
Whatever happens in the UK/EU discussions over the next few years, it is clear that the sanctions landscape will remain a complex one and those doing business in countries subject to sanctions will need to remain vigilant continue to carry out due diligence and, where necessary, seek legal advice.
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For further information, please contact Michelle Linderman from Ince & Co at firstname.lastname@example.org