Iran Sanctions Implementation Day 16 January 2016
LIFTING OF EU AND US SANCTIONS IN RESPECT OF IRAN FOLLOWING IMPLEMENTATION DAY – 16 JANUARY 2016
Following the announcement on Saturday 16 January 2016 of Implementation Day under the JCPOA, companies will look to take advantage of the business opportunities now available in Iran. Below is a summary of the position in respect of EU and US sanctions measures post-Implementation Day.
EU
The EU has lifted sanctions which have incrementally been imposed on Iran since 2009 which targeted, amongst others, Iran’s oil, gas, petrochemical, shipping, insurance and financial sectors. Whilst sanctions relief has been provided in respect of a large number of trades, there remain restrictions relating to activities, goods and equipment connected with Iran’s nuclear industry, and many dual-use goods. There is also no change to sanctions relating to anti-terrorism, alleged human rights abuses in Iran, and related designations for asset freezes, and restrictions on providing equipment for internal repression, military goods, and associated services.
In addition to the lifting of a number of trade restrictions, asset freeze measures imposed by the EU on a large number of entities were also lifted with effect from 16 January 2016, the effect of which is that it will no longer be prohibited to engage in otherwise lawful transactions with those entities. However, there remain approximately 140 individuals and 170 entities subject to designation under EU Human Rights and Nuclear Proliferation sanctions measures, including Tidewater Middle East, which is thought to still operate some port facilities in Iran, and a number of Iranian banks. Members are advised to continue to exercise due diligence to avoid transacting with designated individuals and entities.
In order to give legal effect to the terms of the JCPOA following Implementation Day, the EU has published Council Decision 37/2016 and Notice 2016/C 15 I/01. Pursuant to these authorities, (and subject to compliance with asset freeze measures) companies subject to EU jurisdiction may now engage in transactions that were previously prohibited in connection with:
purchase, import or transport of crude oil, petroleum products, petrochemical products and natural gas of Iranian origin;
supply to Iran of key equipment and technologies for the Iranian oil and gas industries;
supply to Iran of key naval equipment or technology;
provision of insurance and reinsurance to Iran, its government and public bodies, and Iranian companies;
provision of services to Iranian flagged vessels;
provision of vessels for the transportation and storage of Iranian oil and petrochemical products;
supply to Iran or purchase from Iran of gold, precious metals and diamonds;
supply to Iran of Iranian banknotes and minted coinage;
financing, investing in, or entering into joint ventures with Iranian persons in relation to, Iranian oil, gas and petrochemical industries;
transfers of funds to and from Iranian persons, entities or bodies without the need for prior notification or authorisation;
transactions with Iranian banks;
purchase or sale of Iranian public or public-guaranteed bonds.
The EU prohibitions on dealings by EU persons with Iran in respect of certain specified dual-use goods, graphite and raw and semi-finished metals are also lifted, but again in relation to those EU persons, subject to prior authorisation by the relevant competent authority of the EU Member State.
U.S.
The US measures largely relate to lifting of so-called “secondary sanctions” which are restrictions imposed upon non-US companies and persons against dealing with various sectors of the Iranian Government and economy. The US measures do not remove secondary sanctions imposed on Iran in relation to the alleged support of international terrorist activities or human rights abuses.
The US has lifted asset freeze measures against a large number of individuals and entities. Some designations remain in place, notably Tidewater Middle East, which also remains designated by the EU. The continued designation of Tidewater means that in practice, ship owners and operators will face risks in relation to dealings with Tidewater. At the present time, over 300 individuals and entities remain subject to US asset freeze measures in respect of Iran.
In order to give legal effect to the US measures following Implementation Day, the US has brought into effect a number of waivers, the effect of which is to authorise transactions by non-US persons in respect of:
dealings with Iran’s energy, shipping, and shipbuilding sectors, including with National Iranian Oil Company, National Iranian Tanker Company, and Islamic Republic of Iran Shipping Lines;
direct or indirect sale, supply or transfer to or from Iran of precious metals, graphite, raw or semi-finished metals (save to the extent that such products are for use in connection with Iran’s military or ballistic missile programmes or which have a potential nuclear end-use);
provision of underwriting services, insurance and re-insurance (save where such transactions involves persons subject to US asset freeze);
facilitating financial transactions on behalf of the Government of Iran, certain Iranian financial institutions and any entity owned or controlled by them;
purchase of Iranian sovereign debt or the debt of any Iranian state controlled entity.
US primary sanctions remain in place, which continue to prohibit US persons from engaging in business with Iran, save for a limited number of areas for which exemptions apply (mainly concerning provision of foodstuffs, medical items and Iran’s aviation sector). Importantly, US dollar transactions in connection with Iranian business remain prohibited, the effect of which may be to continue to stifle lawful business conducted by non-US companies.
It should also be noted that under the terms of the JCPOA the EU and US reserve the right to “snap back” sanctions on Iran, if Iran is found to have violated its obligations.
The Club’s Managers continue to recommend that all the usual due diligence be carried out in relation to cargoes carried and its use, and all parties to the trade / transaction. Reliance on statements made by trading partners as to their due diligence will not necessarily provide a defence should trade result in a breach of sanctions.
As matters presently stand, if trade involving Iran results in a breach of sanctions, the Club's sanctions and reinsurance rules would apply in the usual way. The reinsurance rule would operate so as to preclude a Member's recovery from the Club in respect of liabilities which are reinsured but not recovered by the Club by reason of sanctions from any of its reinsurance contracts including but not limited to the Pooling Agreement and the Group Excess Loss Contract. Reinsurance shortfall issues continue to remain problematic in that, notwithstanding the relaxation of US secondary sanctions, US-domiciled reinsurers remain prohibited from paying claims relating to Iran trade. OFAC has issued a general license - General License H (“GL H”) which permits non-US entities owned or controlled by US persons to engage in Iran transactions that would otherwise be prohibited. The licence appears also to allow a US person to alter arrangements between it and a US owned or controlled foreign entity to allow that foreign entity to benefit from the licence, i.e. to respond to an Iranian liability. The Club and International Group are looking carefully at this issue to assess the extent to which it might be possible to lessen the impact of reinsurance shortfalls.
The Managers will publish further updates to assist Members to understand this complex and fast-moving subject. Members are recommended to refer any enquiries regarding Iran sanctions to their usual Club contacts.
In the meantime, copies of the following relevant documents can be downloaded from the links set out below:
EU Decision 37/2016 dated 16 January 2016
EU Regulation 1861 dated 18 October 2015
EU Notice dd 16 January 2016 re. application of Regulation 1861 of 18 OCT 2015
EU Council Decision 1863/2015 dated 18 October 2015
EU Information Note dated 16 January 2016
US Treasury Guidance Note dated 16 January 2016
OFAC FAQ dated 16 January 2016
OFAC General License H dated 16 January 2016
