This note provides an overview of the European Union’s (“EU’s”) new Council Regulation 961/2010 on restrictive measures against Iran (the “New Iran Sanctions Regulation” or the “Regulation”),1 which was adopted by the Council on 25 October 2010 and entered into effect on 27 October 2010, in the process repealing the previous Iran Sanctions Regulation (423/2007). The New Iran Sanctions Regulation, which is binding and has direct application in the Member States, implements Council Decision 2010/413/CFSP (“Council Decision”), which introduced the new EU regime for economic sanctions against Iran when it was adopted by the Council on 26 July 2010.2 Accordingly, any party subject to EU jurisdiction (“EU party”) must comply with the Regulation and could be subject to Member State enforcement.
As before, the New Iran Sanctions Regulation applies: with the EU territory, to nationals of EU Member States (regardless of whether they are inside or outside EU territory) and on board vessels and aircraft under Member State jurisdiction. It also applies to companies incorporated or registered under the law of a Member State and to other companies in respect of business done in whole or in part in the EU. This means that even non-EU companies could be covered by the Regulation, depending on the particular circumstances under which they perform business activities in the EU and how they are connected to any activities restricted by the Regulation.
II. Council Regulation 961/2010 – new implementing measures in the EU’s Iran sanctions regime
Export and import restrictions
The New Iran Sanctions Regulation implements and clarifies the new and important ban on sale, supply, transfer and export of specified key equipment and technology for four key sectors – oil and gas exploration and production, refining and gas liquefaction – of Iran’s oil and natural gas industry, which is listed in Annex VI of the Regulation. The Regulation imposes a broad ban: listed equipment and technology must not be supplied by EU parties directly or indirectly to any Iranian or Iranian-owned entities or persons or for use in Iran. Similar to supply restrictions applicable to other listed goods (i.e. goods related to nuclear and internal repression related activities and, as a new sanctions measure, dual-use goods: see below). The oil and natural gas industry supply restrictions also include a ban on related technical assistance, brokering services, financing or financial assistance and circumvention activities.
While the Regulation confirms the exemption to the new oil and natural gas industry supply ban for investments and obligations arising from contracts established before 26 July 2010, it adds an important condition that the EU party must notify Member State authorities at least 20 working days before executing such transaction or providing assistance under such contracts.
As mentioned above, the New Iran Sanctions Regulation implements the new restrictions on export and import of almost all goods considered dual-use items under Regulation 428/2009. It provides further details about the circumstances under which a Member State may allow and authorize specific transactions, including when appropriate end-user guarantees are included in the relevant contract and Iran has undertaken not to use the particular goods for nuclear-related activities.
Restrictions on financing and investment
The New Iran Sanctions Regulation implements the new ban on EU party financing, acquisition or extension of participation and joint ventures in relation to Iranian persons or entities. It applies not only to parties engaged in manufacture of specified restricted goods but also to those active within the four key sectors of the oil and natural gas industry outlined above. Also, a clear ban is imposed on EU party cooperation with Iranian persons or entities engaged in natural gas transmission.
As before, the Regulation makes EU party financing, acquisition or extension of participation and joint ventures in relation to the manufacture of certain nuclear-related goods (listed in Annex IV) subject to authorization by Member State authorities.
As for the supply restrictions, there is an exemption to the new oil and natural gas industry financing and investment ban for obligations arising from contracts established before 26 July 2010, subject to the important condition that the EU party must inform its Member State authorities about the contract at least 20 working days in advance of any agreement.
The Regulation also clarifies the ban on certain types of investment by Iranian persons or entities by specifying that EU parties may not accept or approve (through an agreement or other means) financial loans or credit, acquisition of extension of participation or joint ventures in relation to companies engaging in activities relating to uranium mining, enrichment and reprocessing, nuclear materials and technology production or use or ballistic missiles technologies.
Financial sector restrictions
The New Iran Sanctions Regulation implements the strict new sanctions regime for financial institutions and banks. It clarifies important features and details of this regime, with the following highlights:
- All EU transfers of funds to and from Iran (except those relating to basic needs and humanitarian purposes) which exceed EUR 40,000 are subject to prior authorization by the Member State authorities. Even if such fund transfers are not subject to authorization requirements, they must always be notified, regardless of the purpose, when the amount is over EUR 10,000. The Regulation provides detailed notification and authorization instructions, and clarifies that the requirements apply regardless of whether the fund transfer involves a single transaction or a series of linked transactions. One important instruction given to the Member States is that authorizations shall not be granted for fund transfers when they would contribute to the four key sectors of the Iranian oil and gas industry described above. The provisions on the transfer of funds do not apply if the transfer of funds is related to an action which has already been authorized under another provision of the Regulation.
- Existing vigilance, record-keeping and reporting obligations imposed on EU banks are defined to now involve all activities related to not only all Iranian banks (particularly the Central Bank of Iran), but also all branches and subsidiaries of Iranian banks (whether inside or outside the EU) and non-Iranian credit and financial entities owned or controlled by Iranian persons and entities (hereafter referred to as “Iran-related banks”).
- EU banks must not open any new accounts or establish new correspondent banking relationships or joint ventures with Iranrelated banks or open any new offices, subsidiaries or branches in Iran. Also, EU parties are prohibited from allowing Iran-related banks to establish new branches, subsidiaries or offices or bank ownership interest in the EU.
- EU parties may not provide insurance and reinsurance to the Iranian government or Iranian persons or entities, or persons acting on behalf of such parties. There are some specified, narrow exceptions to this ban, including compulsory or third party insurance for Iranian parties based within the EU. The ban does not apply to natural persons, i.e. Iranian individuals can still obtain insurance, unless they are listed in Annexes VII or VIII. Compliance with preexisting (i.e. before 27 October 2010) insurance contracts is allowed, but such contracts may not be extended or renewed.
- The Regulation confirms the EU’s new restrictions on Iranian access to bond markets by clarifying that EU parties must not directly or indirectly sell or buy post-26 July 2010 public or public-guaranteed bonds to or from the Iranian government or Iran-related banks (or persons or entities acting on their behalf or under their control). Related brokering services and assistance are also prohibited.
Transport sector restrictions
The New Iran Sanctions Regulation confirms that the new sanctions measures on all cargo to and from Iran will include mandatory provision of pre-arrival and pre-departure information about such goods. The information provided about the cargo will then be used to determine whether prohibitions on bunkering or ship supply services and engineering and maintenance services in relation to restricted goods apply. While they are not included in the New Iran Sanctions Regulation, it is important to bear in mind that the underlying Council Decision also imposes an obligation on the EU Member States to prevent access to their airports of all cargo flights operated by Iranian carriers or originating from Iran (unless they are mixed passenger and cargo flights).
Freezing of funds and economic resources
The EU’s Iran sanctions regime continues to freeze the funds of certain designated natural persons and legal entities pursuant to UN Security Resolutions, but also under the EU’s additional list. While the underlying Council Decision added a long list of subsidiaries of Bank Melli which continue to be included in the EU’s Iran sanctions regime, the list featured in the New Iran Sanctions Regulation is slightly narrower as two of the previously listed entities (Future Bank BSC and Mazandaran Textile Co) have been omitted. Important clarifications are also provided with respect to the new restrictions on listed party Islamic Republic of Iran Shipping Lines (IRISL), including that vessels, third party cargo and crew shall not be subject to detention, even if it is prohibited to load or unload cargo to or from an IRISL vessel (except when the unloading/reloading involves execution of a contract concluded before 27 October 2010).
As before, the Regulation also provides that no funds or economic resources may be made directly or indirectly available to designated parties. It continues to provide for certain exemptions to the freezing of funds involving when they are used to pay specific fees and to satisfy basic needs.