Originally published by Lloyds List, 31 March 2016

The complex nature of regulation

Those in the international supply chain are subject to a significant range of regulations imposed by a number of agencies with jurisdiction from the place of departure, through the journey to the destination, through the import and release process and on to the recipient of the goods.

That regulation applies not just to the parties to the commercial deal which drives the transaction but also those providing the transport and facilitating the trade such as licensed customs brokers and freight forwarders. Of course, regulation is nothing without the regulators who assess compliance and undertake enforcement. In fact there are so many regulators, so much regulation and so much compliance and enforcement that it makes a nonsense of the legal maxim that "ignorance is no excuse" to liability. It has been determined in many cases that the level and complexity of regulation is a real deterrent to trade, especially for SMEs which, for example, can reduce the use of FTAs and other trade initiatives.

Recent moves in sanctions with Iran

Some impending changes to regulations such as the new Biosecurity legislation and the amendments to the SOLAS Convention have received significant coverage in recent time. However the changes associated with Iranian sanctions have received less coverage which is a shame as all in the supply chain, including service providers face significant liability from breaches of those sanctions.

Across the early 21st century, Iran has been something of an international pariah. It has most famously been named as part of the "axis of evil" but was also included as part of other groups such as the "axis of terror", "the axis of terror and hate", the "axis of diesel" and the "authoritarian axis". That status arose from a number of concerns, mostly around Iran's involvement with terrorism and involvement in a uranium enrichment programme.

Background to the removal of sanctions

Following Iran's refusal to suspend its uranium enrichment programme, Iran was subject to a number of years of "nuclear" and economic sanctions from the UN and the US, EU and Australia among other nations. The Australian sanctions were imposed pursuant to our autonomous sanctions regime allowing us to impose our own sanctions in addition those imposed by the UN.

In July 2015 Iran entered into an agreement with 6 countries (US, UK, France, China, Russia and Germany) committing them to release Iran from sanctions subject to a receipt of a report by the UN Security Council that it had observed the agreement. That report was released on 16 January 2016 confirming that Iran had "carried out all measures required under the [July] deal to enable Implementation Day [of the nuclear deal and the formal lifting of sanctions on Iran] to occur" under the "Joint Comprehensive Plan of Action" (JCPOA).

International responses

There were some immediate international responses:

  • The UN has lifted some sanctions. For example, Iran is now able to sell oil again on world markets and Iran's banks are permitted to operate globally. Further, business with entities previously specified in the UN list of prohibited entities would no longer be prohibited.
  • The US suspended general economic sanctions to release banking, steel and shipping routes to Iran which had been barred for 5 years. However, the US subsequently imposed new sanctions to prevent 11 entities and individuals from the using the US banking system following those parties being involved in Iran's ballistic missile program last year.
  • The EU moved to lift sanctions on trade, shipping and insurance with Iran.
  • China and Iran agreed on a deal to expand bilateral ties and increase trade to US$600B in the next ten years, as part of a 25 year comprehensive arrangement. This involved signing 17 accords including cooperation on nuclear power and a revival of the ancient Silk Road trade route known in China as "One belt, One Road".
Australian responses

It should be remembered that 20 years ago, Iran was Australia's biggest export destination in the Middle East and that a certain level of bilateral trade had been maintained despite the sanctions. As soon as the sanctions were released, Australia also moved to adjust its sanctions regime.

This has included:

  • Amendments to the Australian autonomous sanctions regime by way of passage of the "2016 Specification" (as it is known in short hand). This "suspended" certain existing sanctions until legislation could be passed to amend them more formally. The effect has been to reduce the categories of goods and services subject to sanctions for which trade would either be banned altogether or require DFAT approval. The changes have been significant.
  • Repeal of the requirement for authorisation from DFAT for financial transactions of $20,000 or more which has previously been imposed by Anti - Money Laundering and Counter - Terrorism Financing Legislation.

The combination of the these reforms is already having a significant impact with many exporters looking at new business to Iran including clients of mine for whom we have recently secured confirmation that its proposed export deals would not be subject to sanctions.

Australian trade - liberal but not unrestrained

However, even among the euphoria of the relaxed trading environment there still needs to be caution on trading with Iran.

  • There are still some goods and services subject to UN and Australian sanctions and new sanctions could be imposed if Iran breaches agreements under the JCPOA.
  • There are still prohibitions on dealing with certain persons and entities as on the "Consolidated list".
  • Certain financial transactions will still be subject to control by the Anti - Money Laundering and Counter - Terrorism Financing Legislation.
  • Even transactions now released from the previous financial control under the Anti - Money Laundering and Counter - Terrorism Financing Legislation, the relevant reporting entity (the financial institution) will need to comply with enhanced due diligence requirements under Australian law in relation to transactions to or from Iran as these continue under the new regulations. This could limit the availability of finance.
  • Overseas sanctions could still apply to Australian transactions. For example, transactions by entities with US operations or using $US could still be subject to the US sanctions regime which has extra - territorial effect and comes with the threat of large US penalties and the risk of extradition of individuals to the US to face actions with possible jail time if found guilty of breach of US sanctions.

Accordingly those trading with Iran, which includes service providers in the supply chain and companies providing air and sea freight who are also subject to the sanctions regime, need to exercise significant caution especially in the early stages of increased trade under the new sanctions regime. Legal advice and DFAT consultations are still recommended.