On October 15, 2012, the Council of the European Union adopted Council Decision 2012/635/CFSP, which strengthens existing EU sanctions against Iran. Although the EU does not go as far as to implement a comprehensive economic embargo eliminating nearly all trade with Iran (as has the United States), this most recent action shows that multilateral trade restrictions continue to be strengthened against Iran due to concerns about its nuclear development program. In brief, the new EU restrictions include prohibitions on:
- Transactions between EU financial institutions and Iranian banks and other financial entities without approval by the competent authority of a Member State;
- Importation, purchase, or transport of Iranian natural gas into or through a Member State;
- Transfer to Iran from the EU of (i) graphite and raw or semi-finished metals, software for integrating industrial processes, and (ii) key naval equipment and technology for ship-building, maintenance, or retrofit;
- Construction by a Member State of new oil tankers for Iran;
- Provision of flagging and classification services to Iranian oil tankers and cargo vessels;
- Supply of vessels for the purpose of transporting or storing Iranian crude oil and petrochemical products.
Furthermore, the Council Decision freezes the assets of certain designated persons and entities involved in nuclear or ballistic missile activities or providing support to certain sectors of the Government of Iran.
Background on Existing EU Sanctions Directed Against Iran
As we have previously advised, in January 2012 the EU introduced sanctions targeting Iran’s petroleum, petrochemical, energy, and financial sectors. For example, those sanctions:
- Prohibited persons within the EU from importing, purchasing, or transporting Iranian crude oil, petroleum, and petrochemical products, as well as the furnishing of any financial assistance related to transactions involving these items;
- Prohibited the sale, supply, or transfer by EU persons of “key equipment and technology,” directly or indirectly, for the subject Iranian industries;
- Froze the assets of the Central Bank of Iran and other designated persons held by EU persons or located within the EU.
In March 2012, as we also advised, the EU clarified and implemented certain of the restrictions summarized above.
New EU Sanctions Directed Against Iran
Council Decision 2012/635/CFSP introduces several new Iran-related restrictions:
Financial transactions. All transactions between EU financial institutions and Iranian banks and other financial entities are prohibited immediately unless licensed in advance by the competent authority of a Member State. The Council has implemented this restriction in order to prevent the (i) transfer to, though, or from the territories of Member States; or (ii) the transfer to or by nationals of Member States, entities organized under their laws (including branches abroad), or persons or financial institutions in the territories of Member States -- “of any financial or other assets or resources that could contribute to Iran’s proliferation-sensitive nuclear activities or the development of Iran’s nuclear weapon delivery systems.” The prohibition includes entering into, or continuing to participate in, transactions with:
- Banks domiciled in Iran, including the Central Bank of Iran;
- Branches and subsidiaries inside or outside of the Member States of banks domiciled in Iran;
- Financial entities wherever located controlled by persons and entities domiciled in Iran.
The Decision provides that Member States must authorize in advance transfers of funds relating to foodstuffs, health care, medical equipment, agricultural, or humanitarian purposes over €100,000, personal remittances over €40,000, and transactions exempt from, or not prohibited by, the Decision, for Iranian consular/diplomatic missions, and the satisfaction of claims against Iran over €10,000. For all but the latter category, which shall be decided on a case-by-case basis, no prior authorization or notification is required for transfers below €10,000, but prior notification is required to the competent authority of a Member State if between €10,000 and the respective thresholds listed above.
All other transactions between EU and Iranian financial institutions are prohibited, unless they are explicitly authorized in advance by the competent authority of a Member State under the strict conditions discussed above, which must be notified to other Member States. Under these conditions, only authorized transfers can continue.
- Import of Iranian natural gas. The purchase, import, or transport of natural gas from Iran into or through a Member State, as well as the provision of related financing or financial assistance, including financial derivatives, insurance, and reinsurance, as well as brokering services relating to insurance and reinsurance, are prohibited. The Decision includes a grandfathering clause, until April 15, 2013, for completing contracts concluded before October 16, 2012, if related to delivery of natural gas products, investments, and related service contracts or ancillary contracts.
- Sale of metals and software. The Council Decision prohibits the sale, supply, or transfer to Iran of graphite, “raw or semi-finished metals” such as aluminum and steel, and software used for integrating industrial processes, regardless of the origin of such items, shipped from the EU, through the EU, or on vessel or aircraft under the jurisdiction of an EU Member State. The prohibition is in effect to the extent such metals and software “are relevant to industries controlled directly or indirectly by the Iranian Revolutionary Guard Corps or which are relevant to Iran’s nuclear, military and ballistic missile programme.” Furthermore, the Council Decision prohibits the provision of related technical assistance, training, financing, or financial assistance.
- Supply of key naval equipment. The sale, supply, or transfer to Iran of “key naval equipment” and technology for ship-building, maintenance, or refit, is prohibited. The provision of related technical assistance, training, financing, and financial assistance is also prohibited. The Council Decision does not define “key naval equipment,” which presumably will be published at a later date as an Annex. The prohibition does not apply to the supply of key naval equipment and technology to a non-Iranian-owned or controlled vessel that has been forced into an Iranian port or Iranian territorial waters under force majeure.
- Construction of oil tankers. The construction or participation in the construction of new oil tankers for Iran or for Iranian persons and entities, as well as the provision of related technical assistance, training, financing, and financial assistance, is prohibited.
- Flagging/supply of vessels. The provision of flagging and classification services to Iranian tankers and cargo vessels is prohibited as of 15 February 2013. Moreover, the Council Decision prohibits the supply of vessels designed for the transport or storage of oil and petrochemical products to: (i) Iranian persons, entities, or bodies, and (ii) any person, entity, or body for the transport or storage of Iranian oil or petrochemical products.
As a general rule, the Decision also prohibits knowing or intentional participation in activities that have an object or effect of circumventing the prohibitions discussed above.
Furthermore, the Council Decision expands the group of persons and entities subject to asset freeze under Council Decision 201/413/CFSP to include those who provide support to the Government of Iran. The group was previously limited to persons and entities involved in nuclear or ballistic missile activities. Newly-designated entities include the Ministry of Energy, the Ministry of Petroleum, National Iranian Oil Company, Naftiran Intertrade Company, and several other entities involved in Iran’s petroleum sector.
Finally, the Council Decision calls for a review of existing EU controls on dual-use goods and technology “with a view to including items which might be relevant to industries controlled directly or indirectly by the Iranian Revolutionary Guard Corps or which might be relevant to Iran’s nuclear, military and ballistic missile programme.”
Council Decision 2012/635/CFSP marks a continuing effort by the EU to bolster Iran-related sanctions in response to Iran’s failure to adhere to international protocols regarding its nuclear program. The measures reflect a willingness on the part of the EU to target Iran’s petroleum, petrochemical, and financial sectors with escalating intensity. As reflected above, there are a number of potentially complex and far-reaching aspects to these sanctions, and further guidance and detail from the Council of the European Union may be needed to ensure compliance by those affected by the new Decision.