Over the summer, the United States, Iran, China, France, Germany, the Russian Federation, and the United Kingdom signed an agreement regarding Iran’s nuclear program and the lifting of related sanctions. Once EU and UN sanctions have been lifted, persons not subject to U.S. sanctions will have significantly more freedom in transacting with Iran. This disparity in treatment among various jurisdictions has the potential to lead to compliance issues for U.S. investment managers investing directly in foreign markets.

Over the summer, the United States, Iran, China, France, Germany, the Russian Federation, and the United Kingdom signed an agreement regarding Iran’s nuclear program and the lifting of related sanctions. Generally, under that agreement, once Iran passes its first International Atomic Energy Agency (IAEA) inspection, the parties will make the necessary preparations to lift the relevant sanctions.

The U.S. sanctions that will be lifted under this agreement, however, are only certain sanctions established in response to nuclear proliferation concerns; broad-based U.S. sanctions against Iran for supporting terrorist organizations and human rights abuses will still be in place. As a result, U.S. persons will still be almost wholly limited in their dealings with Iran and Iranian persons. The EU and UN, by contrast, currently only maintain broad-based sanctions related to nuclear proliferation concerns. Once these EU and UN sanctions have been lifted, persons not subject to the U.S. sanctions will have significantly more freedom in transacting with Iran. 

This disparity in treatment among various jurisdictions has the potential to lead to compliance issues for U.S. investment managers investing directly in foreign markets. The same can be true for non-U.S. domiciled investment managers managing money for U.S. clients. For example, a security traded on a non-U.S. market may be issued by a company that is covered by U.S. sanctions but not by EU sanctions. That security may be off limits to a U.S. domiciled investment manager (regardless of the nature of its client), while that same security may be off limits only to the U.S. clients of the non-U.S. investment managers.

The industry has experience with different sanction programs affecting markets located in developing (small) markets (see Cuba). However, many that practice or administer sanctions programs are concerned that the size and scope of Iran’s energy economy alone sets it apart from past examples of inconsistent sanctions applied to lesser developed markets. Significant interest has already been generating regarding investment in Iran.

There are substantial hurdles to cross and significant milestones to reach before sanctions are lifted against Iran. Nevertheless, the best compliance programs are those that anticipate issues rather than react.