Author: Mike Wakefield is a Partner at Galadari Advocates & Legal Consultants
Background – Current Sanctions
The economic sanctions imposed on Iran since 1979 by the UN, the US and the EU have had a profound effect on Iran’s economy and global position.
US sanctions are divided into Primary and Secondary both of which are set out in the Iranian Transactions and Sanctions Regulations and are administered by the US treasury’s Department of Foreign Asset Control.
These focus on nuclear non-proliferation and the Primary sanctions prohibit US persons and entities owned or controlled by US persons from trading in, or with Iran and certain Iranians and companies. Secondary sanctions are extraterritorial and relate to key economic areas, such as oil and gas, insurance, logistics, and shipping.
The EU sanctions relate to nuclear activities by Iran and prohibit citizens from trading in key economic areas (e.g. anything to do with military goods; dealing in certain materials and commodities; human rights issues; and trading with certain Iranian individuals and companies).
There are a number of sanctions which have been suspended involving non US and EU citizens and which relate to the export of crude oil and petrochemicals; cars; and gold trading.
Timetable for Lifting Sanctions
It should be noted that the lifting of sanctions against Iran isn’t a formality.
The timetable for their lifting and the breadth of their relaxation is “goal-oriented” and dependent on Iran satisfying its obligations under the Joint Comprehensive Plan of Action (“JCPoA”), which was agreed on 14 July 2015, known as “Finalization Day”. “Adoption Day” took place on 18 October 2015, 90 days after Finalization Day when the parties to the JCPoA commenced making the arrangements and preparations for the implementation of their respective obligations.
“Implementation Day” where the sanctions relief takes effect only occurs when the International Atomic Energy Agency verifies that Iran has complied with its nuclear non-proliferation obligations under the JCPoA.
Two future key dates in the timetable are “Transition Day”, which is eight years from Adoption Day, when the US and EU must take action to terminate suspended sanctions according to their obligations under the JCPoA; and “UNSCR Termination Day” (UN Security Council Resolution) which is 10 years from Adoption Day, when the UN terminates suspended sanctions and the EU terminates its remaining nuclear-related sanctions.
Failure by Iran to comply with its obligations under the JCPoA could result in the re-imposition, or “snap back”, of sanctions, hence why parties intending to trade in Iran need to take steps to protect themselves and their commercial interests.
Anticipated changes
The following relief is anticipated:
• Removal of Iranian and other nationals that are blacklisted by various bodies;
• Lifting certain sanctions against banks and financial institutions; oil and gas and associated companies; and individuals working in insurance and reinsurance; shipping and transport; and
• The US will license entities owned or controlled by US persons to do such business that is contemplated under the JCPoA but it is expected that the number of activities capable of being licensed will be kept very narrow.
What won’t change?
The following sanctions will not be lifted:
• US Primary Sanctions applicable to US persons and companies; export and re-export of controlled items; and the prohibition on US Dollar transactions;
• US Secondary Sanctions prohibiting the dealing with certain Iranian individuals; and
• EU Sanctions on dealing in military hardware and human rights sanctions.
Companies wishing to resume trade with Iran
The message generally is proceed positively but with caution in case “snap back” sanctions are imposed. A prudent approach may include:
• Seeking specialist legal advice before starting to trade with Iran or Iranian companies to ensure a clear understanding of how the remaining sanctions and the changes may affect a business;
• Doing comprehensive due diligence on all parties that it is intended to trade with;
• Developing a risk identification and mitigation strategy;
• Establishing if there are any undisclosed ownership issues, or connections with blacklisted persons;
• Depending on the nature of the business it is intended to transact, additional research may be beneficial. As a guide, transactions covered previously in the energy, projects and renewables; or banking and insurance sectors deserve special attention; and
• Consulting with their respective regulatory bodies (for instance in the UK the Foreign and Commonwealth Office and Export Control Organization) to obtain the most up to date information on what they can do and if necessary, obtaining the relevant licences to trade with Iranian counterparts.
Snap back provisions and penalties
Businesses will need to monitor closely Iran’s adherence to the JCPoA in case “snap back” sanctions are imposed. Failure to do so, (by analogy with penalties imposed for “sanction-busting” historically), could result in the imposition of significant fines and possible imprisonment for people involved.
The coming months are likely to be interesting and as opportunities to trade with Iran grow, being watchful is the key to success.
