In November 2013, the P5+1 – the US, UK, France, China, Russia plus Germany – reached agreement on a Joint Plan of Action ("JPoA") to suspend certain sanctions in exchange for Iran rolling back aspects of its nuclear programme. On Monday 20 January 2014, the JPoA came into effect for a period of 6 months, renewable by mutual consent for a further 6 months. The EU enacted Council Regulation 2014/42 (the "Implementing Regulation"), which suspends relevant measures for a 6 month period. The US Department State has also issued detailed guidance in relation to the corresponding US relaxations.
Whilst these changes are significant, they are limited in scope and the majority of the EU/Iran and US/Iran sanctions remain in force. The US relaxations are subject to a number of conditions and limitations, and both sets of sanctions may be re-imposed even prior to the expiry of the 6 month period if Iran fails to meet its commitments under the JPoA.
Any companies planning to conduct business which would previously have been prohibited will need to have careful regard to the scope of the relaxations. This newsletter explains the key changes to the EU and US regimes.
The Implementing Regulation amends various provisions of EU Regulation 267/2012 (the "Regulation"), which is the principal instrument in the EU's Iranian sanctions regime.
In summary, the Implementing Regulation contains the following provisions:
- The prohibitions which concern the transport of crude oil or petroleum products which originate in Iran, or are being exported from Iran, are suspended, as are the prohibitions on providing financing or financial assistance, insurance and re-insurance in relation to the import, purchase or transport of such products.1 The prohibition on the import and purchase of crude oil and petroleum products, however, remains in place. This means that EU persons2 can only transport or finance such products – they cannot buy them themselves.
- The prohibitions which concern the import, purchase, transport, financing and insurance of Iranian-origin petrochemical products, have been suspended.
- The prohibitions which concern the trade in gold and precious metals with the Government of Iran and its public bodies, and the provision of related technical, brokering and financial services, are suspended.
- The notification and authorisation thresholds, which apply when funds are transferred between EU banks and Iranian banks, or EU persons and Iranian persons, have been increased ten-fold.
- Consistent with the transport relaxations in relation to crude oil, petroleum and petrochemical products, the EU has suspended the prohibition on making available vessels designed for the transport or storage of oil and petrochemical products to an Iranian person.
In relation to all of these relaxations, it is important to recognise that the Implementing Regulation does not 'de-list' any designated persons or suspend the effect of the asset freeze – the transactions which are now permitted may still be illegal if the counterparty is a designated person.
Finally, the Recitals make clear that these suspensions are being taken "as a first step…for a duration of six months, renewable by mutual consent". It is possible – and indeed it is the hope of the P5+1 – that further progress will be made in negotiations during this period, but it remains possible that the suspension will cease at the end of the six month period, or even sooner if Iran does not take the required steps in relation to its nuclear programme.
The US sanctions relief covers certain specified activities and associated services taking place exclusively during the six-month period beginning on 20 January 2014 (the "JPoA Period"). Whilst close regard needs to be had to the detail of the waivers, the following general points are of importance:
- With the exception of certain civil aviation and humanitarian activities, none of the sanctions relief applies to US persons3 or foreign entities owned or controlled by US persons. Activities that would previously have been prohibited for US persons remain so. The relaxations described below principally apply to the various 'correspondent or payable-through account sanctions', 'blocking sanctions' and 'menu-based sanctions' which would previously have exposed non-US financial institutions and non-US persons to liability.
- All the relaxations require the relevant activities (i.e. those that would otherwise have been prohibited) to be commenced and completed entirely within the JPoA period.
- In general, the sanctions relief does not permit activities which involve persons on the Specially Designated Nationals (SDN) list. Due diligence therefore remains crucial in ensuring that any transaction does not give rise to US sanctions risk.
- The Department of State makes clear that it will "continue to vigorously enforce our sanctions against Iran" during the JPoA period, including by taking action against those who seek to evade or circumvent sanctions.
Subject to these general comments, the following areas have seen relaxations:
- Sanctions relating to the export of petrochemical products to non-US persons, and associated payments by non-US financial institutions. As noted above, dealings with certain specified petroleum companies and certain banks (but not other SDNs) are permitted for these purposes.
- Sanctions relating to Iran's auto industry. Non-US persons will be able to engage in transactions for the sale, supply or transfer to Iran of goods or services used in connection with the Iranian automotive sector, and non-US financial institutions will be able to conduct/facilitate related financial transactions.
- Sanctions relating to gold and precious metal. The relaxations relate to the purchase or acquisition of gold and precious metals by Iran or the Government of Iran. There are restrictions on the funds which Iran can use for such purchases.
- Sanctions relating to civil aviation. The Office of Foreign Assets Control (OFAC) will issue a new Statement of Licensing Policy that covers certain activities related to the safety of Iran's civil aviation industry, establishing a favourable licensing policy for US persons, their subsidiaries, and US-origin goods in relation to transactions to ensure the safe operation of Iranian commercial passenger aircraft. Non-US persons and non-US financial institutions will benefit from relaxations to the retaliatory sanctions in relation to transactions for such purposes.
- Sanctions relating to the export of Iranian crude oil. In broad terms, non-US persons will be permitted to engage in transactions for the export of Iran crude oil to China, India, Japan, the Republic of Korea, Taiwan, and Turkey, including associated insurance and transportation services, including transactions involving the National Iranian Oil Company, the National Iranian Tanker Company and certain banks (but not other SDNs).
- Humanitarian relief – Certain non-US financial institutions will host new mechanisms to facilitate humanitarian trade for Iran's domestic needs (food and agricultural products, medical devices, payment for Iran's UN obligations and payment of Iranian students' fees). Relevant banks will be contacted directly by the US authorities and provided with specific guidance.
Whilst these changes are significant, a stringent sanctions regime remains in place. The practical impact of the measures remains to be seen, but it is likely that companies and banks will still adopt a cautious approach in dealing with Iran, particularly given the continued risk of US 'retaliatory' sanctions where SDNs are involved in transactions. Banks, in particular, may as a matter of policy still refuse to facilitate much Iran-related business. The measures may, however, provide comfort for the various non-US/non-EU companies who are undertaking (US) sanctionable trade with Iran, facilitated by their domestic banks or those in other countries.