On 24 November 2013, an agreement was reached between the E3+3 (also known as the P5+1, and which includes the United States, United Kingdom, Russia, China, France and Germany) and Iran.
This agreement, known as the Joint Plan of Action (JPOA), was the result of negotiations the aim of which was “to reach a mutually-agreed long-term comprehensive solution that would ensure Iran’s nuclear programme will be exclusively peaceful”. As part of the agreement, Iran reaffirmed that “under no circumstances would it ever seek or develop any nuclear weapons”.
The JPOA stated that this “comprehensive solution” would:
- Enable Iran to fully enjoy its right to nuclear energy for peaceful purposes under the relevant articles of the Treaty on the Non-Proliferation of Nuclear Weapons in conformity with its obligations therein.
- Involve a mutually defined enrichment programme with practical limits and transparency measures to ensure the peaceful nature of the programme.
- Constitute an integrated whole where nothing is agreed until everything is agreed.
- Involve a reciprocal, step-by-step process.
Produce the comprehensive lifting of all UN Security Council sanctions, as well as multilateral and national sanctions related to Iran’s nuclear programme.
The JPOA envisaged a two-step process in relation to relief from international trade sanctions against Iran.
On 12 January 2014, it was announced that the first step, the “interim deal”, would begin to run on 20 January 2014, with a time limit of six months renewable by mutual consent. At the end of that initial six month period, when no agreement between Iran and the P5+1 could be reached, all measures were extended for a further six months, to 24 November 2014.
On 24 November 2014, it was announced that in order for discussions between Iran and the P5+1 to continue, all measures would be extended to 30 June 2015. The parties’ goal is to have significant points agreed by March 2015, and the final agreement in place by 30 June 2015. The specific changes brought into effect by the JPOA are summarised below. There are two key points to be aware of when considering these changes:
The EU and U.S. positions are not entirely in line, so caution must be exercised. Although intended business may be clear from an EU perspective it may remain subject to U.S. sanctions, for example if payments are made in U.S. dollars.
The easing of restrictions is currently stated to end on 30 June 2015. U.S. guidance states that transactions under the eased restrictions must be “completed” by that date The EU legislation states that all relevant contracts must be “executed” by 30 June 2015. Prudence dictates that “executed” should be read to mean “occur and be completed” by 30 June 2015.
The EU Position
The following amendments to the EU Iran sanctions regime were brought into force following the JPOA agreement (by EU Regulation 42/2014, Council Decision 2014/21/CFSP, Council Decision 2014/480/CFSP and, most recently Council Decision 2014/829/CFSP).
Crude oil and petroleum products In respect of certain crude oil and petroleum products, it is no longer prohibited to:1
- Transport those products if they originate in Iran, or are being exported from Iran to any other country.
- Provide insurance and reinsurance related to the import, purchase or transport of those products.
This suspension only applies to crude oil and petroleum products with HS Code 2709 00 (defined in Annex I to Regulation 42/2014 as “petroleum oils and oils obtained from bituminous minerals, crude”).
It is still prohibited to import these products into the EU if they originate in or have been exported from Iran, and to purchase such products which are located in or which originated in Iran.2
The full range of prohibitions (i.e. on the import, purchase, transport and provision of associated services) still apply to all crude oil and petroleum products not specifically listed in Annex I to Regulation 42/2014. These are numerous, and include products with HS Codes 2710, 2712, 2713, 2714 and 2715 00 00.
Petrochemical products The full range of prohibitions in respect of petrochemical products has been suspended.3 This means that parties subject to EU jurisdiction are permitted to:
- Import these products into the EU if they originate in Iran or have been exported from Iran.
- Purchase these products which are located in or which originated in Iran.
- Transport these products if they originate in Iran, or are being exported from Iran to any other country.
- d. Provide, directly or indirectly, financing or financial assistance, including financial derivatives, as well as insurance or reinsurance related to the import, purchase or transport of these products which are of Iranian origin or that have been imported from Iran.
Cargoes which fall within the EU’s definition of “petrochemical products” are listed in Annex V to Regulation 267/2012.
It is important to remember that there have been no amendments to the EU’s asset freeze provisions,4 save for the derogation in respect of the Ministry of Petroleum considered below. As such, a transaction in respect of petrochemical products may still trigger sanctions if a designated party is involved.
Gold, precious metals and diamonds The full range of prohibitions has been suspended in respect of the cargoes listed in Annex II to Regulation 42/2014.5 Parties subject to EU jurisdiction are permitted to:
- Sell, supply, transfer or export these goods, directly or indirectly, whether or not originating in the EU, to the Government of Iran, its public bodies, corporations and agencies, any person, entity or body acting on their behalf or at their direction, or any entity or body owned or controlled by them.
- Purchase, import or transport these goods, directly or indirectly, whether the item concerned originates in Iran or not, from the Government of Iran, its public bodies, corporations and agencies and any person, entity or body acting on their behalf or at their direction, or any entity or body owned or controlled by them.
- Provide, directly or indirectly, technical assistance or brokering services, financing or financial assistance, related to these goods, to the Government of Iran, its public bodies, corporations and agencies and any person, entity or body acting on their behalf or at their direction, or any entity or body owned or controlled by them.
Derogations to asset freeze provisions A further derogation has been added to the existing asset freeze provisions. Member State authorities may authorise the release of economic resources, or the making available of funds or economic resources, to the Ministry of Petroleum.6
Authorisation may only be given once the Member State in question has determined that the funds or economic resources are required for the execution of contracts for the import or purchase of petrochemical products.
Financial transfers: increase in notification and authorisation thresholds The notification and authorisation thresholds, for permitted financial transfers between EU and Iranian banks and to Iranian persons, are increased tenfold.
Transfers between EU and Iranian financial and credit institutions7
In respect of transfers due on transactions regarding foodstuffs, healthcare, medical equipment, or for agricultural or humanitarian purposes:
- Transfers of below Eur.10,000 or equivalent may be carried out without authorisation or notification.
- Transfers between Eur.10,000 or equivalent and Eur.1 million or equivalent must be notified to the competent Member State authority, but do not require authorisation.
- Transfers equal to or above Eur.1 million or equivalent require the prior authorisation of the competent Member State authority.
In respect of transfers due on transactions regarding personal remittances:
- Transfers below Eur.400,000 or equivalent must be notified to the competent Member State authority, but do not require authorisation.
- Transfers equal to or above Eur.400,000 or equivalent require the prior authorisation of the competent Member State authority.
In respect of any other permitted transfer:
- Transfers of below Eur.10,000 or equivalent do not require prior authorisation or notification.
- Transfers of between Eur.10,000 and Eur.100,000 must be notified to the competent Member State authority, but do not require authorisation.
- Transfers equal to or above Eur.100,000 or equivalent require the prior authorisation of the competent Member State authority.
Transfers of funds to and from Iranian persons8
Transfers due on transactions regarding foodstuffs, healthcare, medical equipment, or for agricultural or humanitarian purposes may be carried out without prior authorisation. The transfer must be notified in advance to the competent Member State authority if it is equal to or above Eur.10,000 or equivalent.
Any other permitted transfer below Eur.400,000 or equivalent may be carried out without any prior authorisation. The transfer must be notified in advance to the competent Member State authority if it is equal to or above Eur.10,000 or equivalent.
Any other permitted transfer equal to or above Eur.400,000 or equivalent requires the prior authorisation of the competent Member State authority.
Transfers of funds below Eur.10,000 or equivalent do not require any prior authorisation or notification.
Making vessels available The prohibition on “making available vessels designed for the transport or storage of oil and petrochemical products”9 has been suspended.10
This prohibition extended to chartering vessels for the transport of such products, where owners did not take sufficient precautions to ensure that the vessel in question would not be used to carry or store oil or petrochemical products originating in or exported from Iran.
The U.S. Position
The U.S. government has introduced measures to temporarily suspend certain sanctions involving Iran’s purchase and sale of gold and other precious metals, Iran’s export of petrochemical products, Iran’s automotive industry, and certain associated services.
As with the E.U., these measures came into force on 20 January 2014, and as matters stand will remain in force until 30 June 2015.
The U.S. is also establishing financial channels to facilitate Iran’s import of certain humanitarian goods, payment of medical expenses incurred by Iranians abroad, payments of Iran’s UN obligations, and payments of US$400 million in governmental tuition assistance for Iranian students abroad.
The U.S. also published a permissive licensing policy regarding certain transactions related to the safety of Iran’s civil aviation industry.
The U.S. has committed to pausing efforts to further reduce Iran’s crude oil experts and to enable Iran to access US$4.2 billion in Restricted Funds in instalments over the course of the six-month period beginning 20 January 2014 and ending 20 July 2014.
The loosening of U.S. sanctions primarily involves the “secondary” U.S. sanctions impacting non-U.S. persons. For the most part, U.S. persons (including U.S. financial institutions, reinsurers, banks and U.S. branches of EU banks) continue to be barred from most Iran trade. This means that even if a trade is permitted under the EU measures, payments in U.S. dollars will still be caught.
Further, the relief announced does not authorise transactions with persons on the U.S Treasury Department’s Office of Foreign Assets Control’s (OFAC) List of Specially Designated Nationals and Blocked Persons (the “SDN List”). However, one notable exception is the petrochemical area; the U.S. has published a white list “Annex” of SDN-listed petrochemical companies with which trade will be permitted without sanctions exposure during the JPOA period.
In the petrochemical area, care must be taken to ensure any trade takes place entirely within the JPOA period (i.e. currently by 30 June 2015), and that the risk of delays or re-imposition of sanctions by the U.S. is accounted for. The relief includes a specific definition of petrochemicals (which does not align exactly with the EU Regulations) so each set of regulations must be closely reviewed before undertaking any petrochemical trading.
What is the effect of the JPOA measures?
The measures introduced by both the EU and U.S. are very specific. Parties cannot take the position that it is legal to conduct any and all business with Iran. It is still essential to thoroughly investigate all trades and transactions.
As indicated above, the measures put in place by the EU and U.S. are not entirely in line with each other. It is important that both regimes are considered. Crucially, U.S. dollar payments in respect of trades permitted by the EU may be caught, as U.S. banks (and U.S. branches of EU banks) are still barred from the majority of trade with Iran.
Only cargoes specifically identified are covered by the suspensions. There have been no amendments to the EU asset freeze list and the U.S. SDN List (subject to the “white list” identified above), and so the list of designated parties, with whom it is effectively prohibited to do business, remains intact.
These relaxed measures are only due to be in place until 30 June 2015. Although previous extensions have been agreed, it should not be assumed that this will continue. If the P5+1 and Iran cannot reach an agreement, the sanctions may well be re-imposed.
The U.S. requires all transactions falling within the eased restrictions to occur and be completed by 30 June 2015. From an EU perspective, all contracts entered into in respect of any of the relaxed measures must be “executed” by that date. Taking a cautious approach, “executed” should be read as the entire performance of the contract being completed by 30 June 2015.
In short, whilst these continuing measures do represent a positive step forward in commercial relations with Iran, they by no means permit all Iranian business and there is still a need for caution.