IRANIAN SANCTIONS – a six month review

On 2 June 2016 the governments of the US, EU, UK, France and Germany issued a joint statement confirming that there are now extensive economic opportunities for companies and financial institutions to do business in Iran. The EU is actively exploring areas of cooperation with Iran, including the use of export credits to facilitate trade, project financing and investment.

The message is clear, trade with Iran is both permitted and encouraged but it comes with a warning. For those investing compliance with applicable laws, including those relating to sanctions is essential. Further for Iran to achieve its own economic ambitions it is being encouraged to create an economic environment that is conducive to international investment and in particular to comply with recommendations relating to money laundering and terrorist financing.

The move forward

Following confirmation from the International Atomic Energy Agency that Iran had complied with its part of the Joint Comprehensive Plan of Action (JCPOA) a range of sanctions originally implemented in response to Iran’s nuclear program were lifted on 16 January 2016. Although this opened up the Iranian market some sanctions remain in force and that has made companies understandably cautious about what they can do and what remains prohibited.

The impression given by the recent inter-government joint statement is that misconceptions and lack of information remains a barrier to companies exploring business opportunities in Iran. This is perhaps not surprising given that doing business with countries affected by sanctions involves being in waters that need to be navigated with care. Below we provide a brief summary of the current position regarding Iranian sanctions and activities it is now possible for companies to engage in.

Current position

The starting point is that business with Iran and Iranian nationals is permitted unless specifically forbidden. Before sanctions were lifted on 16 January 2016, the sanctions regime implemented by the UN, EU and US was extensive which made any trade with Iran difficult. With sanctions lifted EU nationals and companies may once again engage in the following trades/activities with Iran (For Norway, see statute on changes in the statute on sanctions and measures against Iran, effective 16 January 2016. For the UN, see UN Security Council resolution 2231 and for EU, see Council Decision (CFSP) 2015/1863 with related legislation).

  • Financial, banking and insurance activities
  • Oil, gas and petrochemical activities
  • Shipping, shipbuilding and transport
  • Gold, other precious metals, banknotes and coinage
  • Certain metals (remains subject to authorisation regime)
  • Software (some software remains subject to authorisation regime if the use is for military/nuclear application)

In addition many persons or entities have been de-listed although some remain on the sanctions list. It is therefore important to consult the updated lists when considering a business relationship with Iranian nationals or companies to ensure that they are a permitted person.
The sanctions that were implemented for reasons other than to prevent the development of Iran’s nuclear programme remain in force. In particular there remains in place:

  • an arms embargo
  • sanctions relating to missile technology
  • prohibitions against the transfer of nuclear related materials and activities
  • restrictions on relationships with certain listed individuals and entities
  • an authorisation regime covering certain software and metals

Depending on the type of business being considered it may be difficult to determine whether a business opportunity is now permitted or whether it is still subject to the restrictions that remain in force. The classic example of this being dual use technology and equipment which could have both civilian and military applications.

Reasons for caution

There are a number of reasons as to why companies may approach opportunities in Iran with some caution. The Iranian banking system has been badly affected by sanctions and the political climate as a result of recent elections in Iran has created some uncertainty.

What concerns many thinking about doing business in Iran is the risk of “snap-back”, that is that the previous sanctions are snapped back into place. This understandably creates uncertainty as to whether long term investment is viable. Although the JCPOA specifically states that snap back will not have retroactive effect, in practice difficulties may be faced where subcontracts are not placed prior to snap back or financiers insist that further involvement in Iran must be discontinued. All contracts entered into with Iranian counterparties, which may fall under sanctions regime were they to be re-imposed, should contain clauses that excuse non-performance resulting from sanctions. Force majeure provisions in these circumstances are unlikely to provide adequate protection.

The US sanctions regime also deserves a brief mention as the situation there differs vastly from the situation in the EU. The United States continues to prohibit any US person doing business in Iran, with some very specific exceptions (most notably the sale of passenger aircraft). However, the JCPOA contains a carve out which allows for non-US subsidiaries of US companies to do business in Iran (The US Department of the Treasury has in compliance with this issued a general license for such non-US subsidiaries. See: Iranian Transactions and Sanctions Regulations 31 C.F.R. Part 560 GENERAL LICENSE H.). Their involvement is contingent on ensuring that no US nationals are involved in such transactions even though conducted on behalf of the non-US subsidiary.

It should also be noted that the retention of primary sanctions by the US means that it remains prohibited also for foreign financial institutions to clear USD denominated transactions through US financial institutions. Payment under contracts entered into with Iran or Iranian companies should therefore be made in currencies other than USD.

Finally corruption remains a challenge for anyone doing business in Iran given current legislation introduced by many countries, including Norway, EU, UK and US, concerning bribery and corruption. Any company doing business with Iran must ensure that it has in place a robust and effective policy to ensuring full compliance with any bribery and corruption legislation and the means to extract itself from any contract where there is a risk of non-compliance. 

 

FACTS /

On 14 July 2015 the P5+1, the EU and Iran reached an agreement (JCPOA) where Iran committed itself to reduce its nuclear enrichment capabilities in exchange for sanctions relief. On 16 January 2016, the IAEA confirmed that Iran had complied with its obligations, which triggered the immediate lifting of the relevant sanctions. In Norway the sanctions relief is put into force by the statute on changes in the statute on sanctions and measures against Iran (16 January 2016).

Sanctions lifted:

  • Financial, banking and insurance activities
  • Oil, gas and petrochemical activities
  • Shipping, shipbuilding and transport
  • Gold, other precious metals, banknotes and coinage
  • Certain metals (remains subject to authorisation regime)
  • Software (some software remains subject to authorization regime if military/nuclear application)

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