On 18 October, 2015 the Joint Comprehensive Plan of Action ("JCPOA") was adopted by Iran, the EU, the US and the UN.  It allows for the phased elimination of sanctions levied against Iran by the US, the EU and the UN as a result of Iran's nuclear programme. In return, Iran agrees never to seek, develop or acquire any nuclear weapons.  The sanctions relief presents both opportunities and risks for those planning to do business in Iran or with Iranian entities.

Opportunities

Iran is the second largest economy in the Middle Eastern and North Africa region, with an estimated GDP in 2014 of €378 billion.  It has the second largest population of the region, with an estimated 78.5 million people in 2014.  Iran ranks second in the world in natural gas reserves, holding 18% of natural gas globally, and fourth in proven crude oil, holding almost 10% of global reserves.  According to the World Bank, successful implementation of the JCPOA and its concomitant sanctions relief will have significant implications for Iran's economy.  Iran's potential as an energy market has already encouraged energy giants such as Royal Dutch Shell, Total and Eni to express interest in developing Iran's energy sector if sanctions are lifted.  Prior to the signing of the JCPOA in July, the French government informed Peugeot and Citroen that sanctions on motor parts would most likely be lifted by 2016.  Sanctions relief is also likely to be of interest to investment firms and trading companies given Iran's status as a strong emerging market. Consumer-orientated companies will also find opportunities amongst its 78 million consumers.

Risks

The JCPOA require all JCPOA participants to make the necessary arrangements to implement their JCPOA commitments.  However, no sanctions relief will occur until Implementation Day: the date on which the International Atomic Energy Agency verifies that Iran has complied with certain nuclear-related commitments.  Implementation Day is not expected to occur until mid-2016.

Until Implementation Day, the existing sanctions regime remains in place. Companies seeking to explore opportunities within Iran post-Implementation Day should be careful to ensure compliance with the existing sanctions regime in the meantime.  For example, the US Office of Foreign Assets Control ("OFAC") has expressly stated that no relaxation of US sanctions has yet occurred and that any non-US persons entering into prohibited contracts with Iranian entities, even where such contracts are contingent on sanctions relief taking place, will create exposure for such persons.  OFAC has stated that it will vigorously enforce existing sanctions until Implementation Day. The EU sanctions also remain in place pending Implementation Day. Companies taking preliminary steps in expectation of Implementation Day must be extremely careful to avoid inadvertently dealing with black-listed persons and/or assets.

Clients will still need to be careful in pursuing opportunities in Iran even after Implementation Day.  For example, under the JCPOA, the US will lift secondary sanctions (i.e. sanctions imposed by the US on "non-US persons" for doing business with Iran) on Implementation Day. However, primary sanctions, prohibiting "US-persons" from conducting business with Iran, will remain (although it is envisaged that OFAC will license certain activities).  Many EU sanctions are being relaxed on Implementation Day. However, the rate at which EU, UN and US sanctions are lifted and the extent of relief implemented may differ, causing some confusion as to what activities remain open to sanction.  International sanctions against Iran in respect of terrorist financing and human rights violations will also remain.

Any companies seeking to enter into contractual relations with Iranian parties or conduct business in Iran should carefully study the current state of play regarding sanctions before doing so. They should also consider inserting appropriate wording in their contracts to allow them to terminate should sanctions be reinstated under the JCPOA's snap-back provisions (which apply where parties are in default of their JCPOA obligations).

Conclusion

The JCPOA presents significant commercial opportunities. However, the complexity of the sanctions regime and staged manner in which it will be relaxed means that parties thinking of conducting business in Iran should carefully analyse the current position before doing so. 

Sanctions: Practical Tips (27 November 2015)

The international sanctions regime is complex. We outline below four practical tips to bear in mind when conducting business in countries or with entitles that are potentially subject to sanctions.

  1. The devil is in the detail: The international sanctions regime is detailed, complex, and changes regularly. It is extremely important to carefully study the latest sanctions in detail before doing business in a sanctioned country or with a sanctioned entity;   
  2. Be aware of the multi-jurisdictional nature of the sanctions regime: Although the sanctions imposed by the US and EU tend to be quite similar, there are important differences. US clients with Irish operations will need to consider obtaining both EU/Irish and US law advice;   
  3. Be aware of the difference between prior authorisation and outright prohibition: Some activities are strictly prohibited by sanctions.  Others are only permitted subject to prior authorisation;  
  4. Cast the net wide: The reach of the international sanctions regime is wider than it first appears.  Some sanctions cover not just particular entities but also other entities in which they have an interest. In practice, this means that entities not obviously identifiable as being potentially sanctioned could be subject to trade restrictions, thereby exposing unsuspecting business partners to significant liability.