There has been much hype regarding the JCPoA and what it means for trade with Iran. Almost 6 months on, there has been significant discussion but little development. Recent forums held within Dubai have highlighted the misunderstandings which remain regarding the deal. As the world waits patiently for Implementation Day, we shed some light on the true state of play and deal with a few misconceptions.
US restrictions will remain
There is a widespread belief that the JCPoA was driven by a US desire to secure lucrative oil, gas and construction contracts for US companies. However,
US persons will continue to be prevented from dealing with Iran.
The only exceptions will be those within the aerospace sector and foodstuffs, along with some relief for foreign subsidiaries of US companies.
Sanctions relief has not taken effect
Whilst the JCPoA has been concluded, sanctions relief has not yet taken effect and may not do so for some months yet. Headlines in the mainstream media referring generically to the “lifting of sanctions” have unfortunately contributed to a number of misunderstandings. This continues to cause tensions as legal and compliance functions manage expectations from business lines.
Client due diligence needs to be considered
A recent visit to Dubai by a high profile OFAC delegation confirmed how OFAC views the JCPoA. Whilst the nuclear sanctions imposed by the US on Iran will be lifted, OFAC was keen to emphasise that non-nuclear sanctions (such as those linked to terrorism and ballistic missile technology) will be maintained. KYC and client due diligence will remain a key consideration for businesses to ensure that an Iranian company is not owned or controlled by a SDN.
Client due diligence itself is a potentially difficult when dealing with new Iranian counterparts. It is not often appreciated that the provision of standard KYC documents, such as passport copies, utility bills and otherwise confidential corporate documentation, is not a widespread practice in Iran at present. Whilst it is essential that proper due diligence is carried out on Iranian counterparts, to ensure that there is no controlling interest by SDNs, the request for KYC information will have to be handled delicately. Requests from western counterparts to divulge passport copies and sensitive corporate documents is likely to be treated with suspicion.
“Snap-back” of sanctions a major risk
There is an appreciation amongst the business community that sanctions might be re-imposed at short order should the JCPoA deal fall apart. Steps will need to be taken at the time of contracting to mitigate this risk. OFAC emphasised at its recent outreach session that no action would be taken against companies in respect of lawful deals concluded between Implementation Day and the date of any “snap back”. However, there would be no “grandfathering” of contracts which continue after the date of the “snap back”.
Businesses must be aware that they may have to terminate long term contracts should the continued performance of those contracts become illegal.
It is also unlikely that the risk can be easily mitigated simply by the use of force majeure clauses that refer to “snapback” as a force majeure event. There is likely to be fierce resistance to such clauses from Iranian counterparts. It may be that political risk insurance, where available, is the better mitigation strategy.
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