Urgent Update EU and US Iran Sanctions 28 January 2014
URGENT UPDATE 28 JANUARY 2014 - US/EU Iran sanctions - six month suspension of certain trade and related insurance prohibitions
An initial summary of the EU and US sanctions relief measures relating to certain “Permitted Trades”1 with Iran pursuant to the Joint Plan of Action (“JPA”), was published by the Club on 21st January 2014 and can be accessed from this link. The International Group (“IG”) has continued to engage with the relevant US and EU authorities regarding the intended operation of the suspension of the various trade and insurance sanctions. This update provides further clarification received since the Club’s initial summary was published.
1) Provision of Insurance during the period 20 January to 20 July 2014 ( the “JPA Period” )
In relation to the US implementation of the suspension measures as they apply to insurance, the IG has sought clarification of the extent to which clubs, which may provide insurance cover to members during the JPA Period in relation to the Permitted Trades, will be able to respond to liabilities arising during the JPA Period, but which may not be crystallised or presented until after 20 July 2014. The US Office of Foreign Assets Control (OFAC) has advised that it is not presently able to confirm whether the insurance cover provided in respect of liabilities arising during the JPA Period will be able to respond after 20 July 2014.
In the circumstances, members should proceed on the basis that beyond 20 July 2014 (or any extension of the initial JPA Period), clubs will not be able to respond to any claims presented in respect of liabilities arising during the 20 January/20 July 2014 suspension period. This has the effect of rendering the current suspension of sanctions on insurance cover and in particular P&I cover, of very limited effect.
The Club has previously issued a Risk Alert2 on the risks of provision of security in relation to activities involving Iran. There is a significant risk that the Club would be unable to arrange payment pursuant to any such guarantee obligations since it might not find a bank willing to process the transaction. The position accordingly remains that the Club is most unlikely to be able to provide security to Iranian claimants in the event of a claim arising from a Member trading to/from Iran. Members thus face the risk of delay if vessels are arrested or detained in Iran. Given that it is not yet clear whether insurance cover can respond for liabilities after 20 July 2014, Members should also assume that the Club will not be able to provide security in respect of claims arising as a consequence of a member’s participation in Permitted Trades, or indeed any other trades involving Iran.
Given the above, Members are strongly recommended to exercise extreme caution if intending to enter into contracts relating to Permitted Trades, which are permissible for a limited period (up to 20 July 2014) by virtue of the US/EU six-month suspension of prohibitions, since at present it is not possible to confirm that insurance cover will respond for liabilities arising during the JPA Period but manifesting after 20 July 2014. In the meantime the IG will continue its efforts to obtain clarification of this issue.
Members are also warned that the suspended sanctions may potentially be re-imposed before 20 July 2014 if it is felt that Iran has not met its commitments under the JPA. The US Government has publicly stated that it retains the authority to revoke the limited sanctions relief at any time in these circumstances. Members are reminded of the need to take legal advice, including on the incorporation of appropriate protective clauses in their contracts, to avoid being obliged to perform contracts if the relaxation measures are revoked on or before 20 July 2014, to ensure that they/their insurers are not exposed to the risk of sanctions.
2) Extent of EU Relaxation of Sanctions in Respect of Crude Oil and Petroleum Products
The European Commission has confirmed that the relaxation of transportation and insurance/reinsurance prohibitions in respect of oil and petroleum products under Articles 11 1 (c) and (d) of EU Regulation 267/2012 is limited to the products falling within HS Code 2709 00 listed in Annex 1 to Regulation 2014/42, namely “petroleum oils and oils obtained from bituminous mineral, crude”. Transportation of petroleum products listed in Annex IV of Regulation 267/2012 with HS Codes 2710, 2712, 2713, 2714, and 2715 00 00, and associated insurance/reinsurance remains prohibited. The Commission has also advised that whilst the Regulation cannot specifically list Iran’s existing customers, the Regulation must be read in the context of the JPA. In view of this, the safest course of action pending further clarification is to assume that the EU relaxation applies only to transportation of the specified products to the six NDAA waiver countries (India, China, Japan, South Korea, Taiwan and Turkey).
The Commission has further advised that Member States will continue to implement and enforce the Regulation rigorously during the six month period from 20 January 2014, and warned that breaking or circumventing sanctions remains a high risk activity.
Members are advised to seek their own legal advice before fixing a voyage or contracting with entities or persons in Iran and to continue to exercise due diligence with respect to their trading counterparties, bearing in mind that in any event the Club’s sanctions rules will operate to exclude cover if a sanctionable voyage or activity is performed.
3) Extent of US Relaxation of Sanctions In Respect of Crude Oil and Petroleum Products
US State and Treasury Officials have been asked to confirm whether US sanctions relief concerning crude oil exports applies more broadly to petroleum and petroleum products, given the wording in the US Guidance. The Guidance quotes the text of the JPA which refers to purchase of current average amounts of crude oil, but the text of the three specific measures relating to relaxation of Correspondent or Payable-through Account Sanctions, Blocking Sanctions and Menu-based Sanctions, all use the term “exports of petroleum and petroleum products” from Iran to the six current customer (NDAA waiver) countries. This is inconsistent with the JPA wording which only refers to crude oil. US State and Treasury Department officials stress that sanctions relief is narrow and limited, and have indicated that, broadly, the purpose of the sanctions relief described in the Guidance is simply to allow the six countries that are currently receiving Iranian crude oil to continue to do so at the same levels. Until further clarification or guidance is published, it would be prudent to assume that the US sanctions relief applies only to exports of Iranian crude oil to the six NDAA waiver countries.
4) NITC/ NIOC
The European Commission has confirmed that it has not suspended or delisted any entity or person that was designated prior to or after the entry into force of Regulation 2014/42/EU and advised that industry should continue checking the List of Designated Sanctions Targets as part of normal due diligence and risk mitigation procedures. If or when designated sanctions targets are delisted they will be published in the normal way through amended Regulation annexes. Accordingly the EU designation of NITC and NIOC, and the asset freezing measures, remain fully in place. This means that persons /entities subject to EU regulation continue to be prohibited from transacting with NITC and NIOC. This contrasts with the US position set out in the Guidance, which appears to provide limited relief from sanctions for non –US persons who engage in transactions involving NIOC and NITC in relation to Iran’s export of crude oil. Further clarification of this apparent conflict between the EU and US measures is being sought.
Conclusion
The implementation of the first stage of the JPA is reason for cautious optimism that a comprehensive agreement with Iran can be reached, but at the same time it gives rise to difficult issues of interpretation, not all of which are likely to be resolved quickly. Further updates will be provided to Members as and when various issues are clarified. However it is important to bear in mind that many sanctions restrictions remain in force in both the US and EU, both of whom emphasise that remaining sanctions will continue to be rigorously, enforced. Caution should still be exercised, and legal advice taken, before embarking on any new business involving Iran or Iranian counterparties.
1. U.S Permitted Trades: I. Iran’s Export of Petrochemicals and Any Associated Services; II Iran’s Auto Industry and any Associated Services; III Gold and Other Precious Metals To or From Iran and any Associated Services; IV Supply of spare parts for the safety of Iranian civil aviation and associated services; V Iran’s Export of Crude Oil to China, India, Japan, the Republic of Korea, Taiwan and Turkey; VI Facilitation of Humanitarian and Certain Other Transactions.
E.U. Permitted Trades: I Provision of insurance and transport in relation to Iranian crude oil sales to Iran’s current customers; II Import, purchase and transport of Iranian petrochemicals and related services; III provision of vessels to enable storage/ transport of Iranian crude oil and petrochemical products ; trade in gold and precious metals (but not diamonds) with the Iranian government; its public bodies, the Central Bank of Iran; thresholds for authorising financial transactions to/from Iran increased tenfold.
2. Risk Alert 21 Iran, Sanctions and the Provision of Security
