In the second half of 2010, both the European Union and the United States imposed far-reaching sanctions against Iran. The measures on both sides of the Atlantic are considerably broader than the United Nations Security Council Resolution 1929 (2010), on which they are based and have had significant impact on all business activities with Iran.
Strict controls and enforcement actions have brought about a real need for caution on the part of businesses as EU and US authorities have made clear that they do not tolerate violation of the rules. In the UK, for instance, two instances of infringement were firmly sanctioned last October. In one case, a Lancashire businessman was jailed for eight months and ordered to pay £30,000 costs for knowingly exporting controlled goods and in particular the supply of radiation detection equipment to Iran without an export license. The other cases involved a former British Royal Marine who was sentenced to two-and-a-half-years imprisonment for knowingly exporting controlled goods after attempting to supply high-tech sniper scopes to Iran. In November last year, the Belgium Ministry of Energy announced the investigation of two firms over allegations of illegally exporting weapon grade nuclear material to Iran. In the United States, recent enforcement actions include charges by the Office of Foreign Assets Control (OFAC) against Barclays Bank PLC pertaining to prohibited banking transactions provided to proscribed parties in Iran (among other countries). Barclays ultimately agreed to settle charges and pay the US government US$176 million and adopt various compliance measures. In another case, OFAC imposed a civil fine of US$36,000 against a subsidiary of Aon Energy for facilitating payments of premiums on certain insurance services associated with a petroleum project on Kharg Island in Iran.
While compliance with the EU and US rules alone already imposes a significant burden on businesses, the simultaneous application of both sets of rules to one and the same business activity can become an insurmountable challenge and create understandable confusion.
This article therefore attempts to provide some clarity by summarizing the main provisions of both sanction regimes and outlining relevant parallels and differences in a comparison table.
The EU system
The current EU sanctions against Iran are set out in Council Decision 2010/413/CFSP1 and Council Regulation 961/20102.
The restrictions include an arms embargo3 as well as the prohibition to sell, supply, transfer or export, directly or indirectly, to Iran the dual-use goods and technology listed in Annex I to Regulation 961/2010 (reflecting Annex I to the EU dual-use Regulation 4 428/2009, except for certain Category 5 goods), Annex II (items related to Iran’s nuclear program) and Annex III (internal repression). It is also prohibited to purchase, import or transport these items from Iran or provide related brokering services or technical and financial assistance.
Prior authorization is required for the sale, supply, transfer or export of additional items related to Iran’s nuclear program, listed in Annex IV, and for brokering services or technical and financial assistance related to these items.
Regulation 961/2010 also prohibits the sale, supply or transfer of equipment and technology listed in Annex VI to Iran’s oil and gas industry as well as the provision of related brokering services or technical and financial assistance. 5
Furthermore, there are restrictions on establishing financial and corporate links with certain entities in Iran. Making available any funds or economic resources 6 to or for the benefit of designated persons and entities listed in Annexes VII and VIII is prohibited. Imports from and exports to Iran are subject to pre-arrival and pre-departure information requirements. Financial transactions require prior authorization if more than €40,000 and prior notification if between €10,000 and €40,000. 7
Member States are obliged to establish a penalty system for violations of the embargo rules. In addition to the specific sanction rules the general export controls for military and dual-use goods apply.
The US System
The current US sanctions against Iran are set out in the Iranian Transactions Regulations (ITR) and Iranian Financial Sanctions Regulations, which are administered by OFAC, and the Iran and Libya Sanctions Act of 1996, as amended by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA) signed into law on July 1, 2010. 8
The ITR establish a comprehensive trade and investment embargo against Iran. The ITR apply broadly to US persons, which is defined to include US citizens, permanent resident aliens, entities organized under the laws of the United States (including foreign branches) and persons physically located within the United States. The ITR broadly prohibit virtually all transactions with Iran by US persons and facilitation by US persons of transactions between non- US persons and Iran. In addition, in limited circumstances, an OFAC license is required for re-exports even by non- US persons of US-origin goods, technology or services to Iran or the government of Iran.
US sanctions under the Iran and Libya Sanctions Act and CISADA apply broadly to US and non-US persons, including financial institutions, insurers, underwriters, guarantors and any other business organizations; any foreign subsidiary, parent or affiliate of such business organizations; and any other nongovernmental entity, organization or group. Among other things, these sanctions prohibit non-US persons (individuals and entities) from making certain investments in Iran’s petroleum resources sectors or providing goods or services that assist Iran to import or produce refined petroleum products.
The legislation requires that the President impose on persons found to engage in sanctionable conduct three or more sanctions selected from a menu of nine sanctions, which includes denial of Export-Import Bank loans, credits or credit guarantees for US exports to the sanctioned entity; denial of US bank loans exceeding US$10 million in one year; and a prohibition on any arm of the US government making any procurement from the entity. In addition, CISADA extended the penalty provisions of the International Emergency Economic Powers Act (IEEPA) to apply to violations of the ITR’s import and export provisions. These include civil penalties of up to US$250,000 per transaction or twice the amount of the transaction, whichever is greater, as well as criminal penalties (for willful violations) including a fine of up to US$1 million and/or imprisonment of up to 20 years.
In addition to the foregoing economic sanctions, the United States has imposed an extensive arms embargo on Iran. The US has a policy of denial for requests for licenses and other authorizations for the export or import of defense articles or defense services destined for or originating in Iran. Even if a license is granted, articles for export may not be shipped on a vessel, aircraft or other means of conveyance that is owned or operated by, or leased to or from, Iran.
Exports or re-exports of most dual-use items (including technology and software) on the Commerce Control List (CCL) to Iran require a license from Bureau of Industry and Security (BIS) (or OFAC). The United States maintains however a general policy of denial for most license applications other than for humanitarian transactions or for transactions related to the safety of civil aviation and safe operation of US-origin aircraft, and there are no license exceptions available. Also, re-exports to Iran of foreign-made commodities, software or technology incorporating controlled US content valued at more than 10 percent of their total value are subject to a licensing requirement under the Export Administration Regulations (EAR).
Further information on the EU and US sanctions is set out in the comparison table below:
Click here to see table