U.S. Sanctions Updates to December 2011
U.S. STATE DEPARTMENT GUIDANCE ON CISADA - FEBRUARY 2011
THE U.S. State Department has released guidance on the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 ("CISADA"). The Guidance, together with a short commentary prepared by law firm EREN, appears below.
U.S. STATE DEPARTMENT ENFORCMENT OF CISADA - 23 MAY 2011
On 23 May 2011, President Barack Obama signed Executive Order 13574 Authorising The Implementation of Certain Sanctions Set Forth in the Iran Sanctions Act of 1996, as amended by CISADA. In brief, this Order teams up the US State Department and the Treasury Department to impose and enforce CISADA sanctions on US and non-US entities engaging in activities that support Iran's ability to refine or import refined petroleum products. This change is significant because the Treasury Department, with its long history and experience of sanctions enforcement, is believed to be better equipped than the State Department to enforce CISADA, especially in tracking the movement of money into and out of Iran. The Secretary of State is empowered to impose a variety of sanctions which range in severity, from a statutory list, ranging from designation as an SDN to barring sanctioned persons and entities from US government contracts.
Up until 24 May 2011, the State Department had only imposed sanctions against two entities under CISADA, Bearusneft, a state-owned Belarusion energy company, and NaftIran Intertrade Company. On 24 May 2011, seven additional companies found themselves subject to sanctions under CISADA ( State Department Fact Sheet ). Four of these companies, Petrochemical Commercial Company aka PCCI (Jersey), Royal Oyster Group (UAE), Speedy Ship aka Sepahan Oil Company (UAE/Iran) and Associated Shipbrokering (Monaco) have had severe sanctions imposed against them, including not just designation on the OFAC Specially Designated Nationals (SDN) List, but also a bar on conducting foreign currency exchanges through the US financial system, a bar on US banking transactions, and a block on all of their assets located in the US.
Two others, Tanker Pacific (Singapore) and Ofer Brothers Group (Israel) have not been designated as SDNs, but are barred from obtaining financing or loan facilities through the Export-Import Bank of the United States, from obtaining loans or credits over US$10 million from US financial institutions in any 12 month period, and from obtaining any controlled US-origin goods requiring US export licences.
Finally, Petroleos de Venezuela ("PDVSA") has also avoided designation as an SDN, but is barred from competing for US government procurement contracts, obtaining financing or loan facilities through the Export-Import Bank of the United States, and from obtaining any controlled US-origin goods requiring US export licences.
US STATE DEPARTMENT GUIDELINES ABOUT THE PROVISION OF GOODS AND SERVICES, INCLUDING INSURANCE, TO ENTITIES THAT SHIP REFINED PETROLEUM PRODUCTS TO IRAN - 23 MAY 2011
These Guidelines can be accessed via the below link.
Guidelines about the Provision of Goods and Services Including Insurance, to Entities That Ship Refined Petroleum to Iran
The Guidelines set out examples of activities that could be sanctionable under CISADA, and these include
Product and Chemical Tankers
· Use of a ship, controlled by ownership or charter agreement, to provide shipping services to supply Iran with gasoline, diesel, jet fuel, or aviation gasoline.
· Charter of a ship to another company that is using the ship to supply Iran with gasoline, diesel, jet fuel, or aviation gasoline. The ship owner may still have engaged in sanctionable activity even if it does not have full control of the ship under the charter agreement.
· Facilitation (e.g., by brokering) of the provision of a ship, either by sale or charter, to a company for the transportation of refined petroleum products to Iran. Brokers are considered to be facilitating or "providing" the goods or services that they have sourced for clients. In the case of a ship sale or provision of insurance, the broker is considered to have provided the entire value of the goods or services.
· Provision of insurance to a company for the transportation of refined petroleum products to Iran, if the insurance premiums are above threshold amounts. Insurance can include cargo insurance, P&I insurance, hull insurance, and contract frustration insurance.
· Facilitation (e.g., by brokering) of the provision of insurance for the transportation of refined petroleum products to Iran.
Bulk Cargo
· Use of a ship, controlled by ownership or charter agreement, to provide shipping services for the purpose of supplying goods to be used to maintain or expand Iran’s refineries, such as refinery equipment.
· Facilitation (e.g., by brokering) of the provision of cargo or insurance to a company for the purpose of supplying goods or to facilitate the transportation of goods to maintain or expand Iran’s refineries.
· Provision of insurance to a company for the transportation of goods to maintain or expand Iran’s refineries.
Constructive knowledge that the activity in question is associated with the shipment of refined petroleum products to Iran (or non-petroleum goods that can be used to maintain or enhance Iranian refineries) may be sufficient to constitute a breach; “Knowingly” includes whether the company or person should have known in the circumstances that they were providing a prohibited service to Iran.
In respect of underwriting, insurance and reinsurance services, sanctions may be avoided if the Secretary of State determines that the company has exercised due diligence in establishing and enforcing policies and procedures to guard against providing insurance or reinsurance amounting to sanctionable activities.
Commentators in the US predict that the latest developments could be the beginning of a series of CISADA-enforcement actions against non-Iranian shipping companies involved in the trade of refined petroleum products to Iran. Given these developments, companies in the shipping industry should take stock of any business relationships with the recently sanctioned entities, and consider their legal obligations and rights in relation to the continuation or termination of contracts with them.
U.S. TREASURY DESIGNATION OF TIDEWATER MIDDLE EAST CO. AND IRAN AIR - 23 JUNE 2011
The US Treasury has designated Tidewater Middle East Co ("Tidewater") and Iran Air pursuant to powers vested under Executive Order 13382 (dated 1 July 2005), as part of continuing efforts by the US aimed at preventing Iran from developing nuclear weapons. Tidewater is the operator of seven ports in Iran, managing around 90% of Iran's container operations. The operations are believed to include:
Bandar Abbas (Shahid Rajae Container Terminal)
Bandar Imam Khomeini Grain Terminal
Bandar Anzali
Khorramshahr Port (one terminal)
Assaluyeh Port
Aprin Port
Amir Abad Port Complex
According to the same press release Tidewater is owned by the Islamic Revolutionary Guards Corp (IRGC), and Tidewater facilities have been used by IRGC in facilitating the Government of Iran's weapons trade.
The designation of Tidewater means that Tidewater’s assets and other property within US jurisdiction (in the United States or within the possession or control of a US person) are blocked (frozen). This means that all funds transfers through the United States or the US financial system which are to, from, through, or that otherwise benefit or involve Tidewater will also be blocked. Additionally, US persons are prohibited from engaging in transactions and activities with or involving Tidewater.
In practice, all shipowners and operators will find it impossible to make payments to Tidewater, whether directly or indirectly, in US dollars. Non-US banks, and those dealing with alternative currencies, are increasingly wary of handling anything to do with Iran for fear of falling foul of US law. For instance, under the Iranian Financial Sanctions Regulations (s. 561.201(a)), which came into effect in August 2010, the US Treasury has authority to prohibit, or impose strict conditions on, foreign financial institutions access to the US financial system if they facilitate significant transactions or provide significant financial services for designated entities such as IRGC, or its agents or affiliates, such as Tidewater.
For non-US businesses, to whom the US sanctions do not directly apply, continuing to have dealings with a sanctioned entity such as Tidewater may nevertheless impact on their wider ability to trade with the U.S. Major container vessel operators are expected to suspend their operations involving Iran, given that they will not want to find themselves on the wrong side of the US and potentially unable to carry on trade involving the US or US dollars.
From a European perspective, Tidewater is not a designated entity under either the EU non-proliferation or human rights designations. However, IRGC is, and so if Tidewater is owned or controlled by IRGC then that is sufficient for Tidewater to be included under IRGC's listing for the purposes of asset freeze.
US DESIGNATION OF IRANIAN SHIPPING FRONTING COMPANIES - 27 OCTOBER 2011
The US Treasury has announced the designation of six companies registered in Panama that are alleged to be fronting companies for Islamic Republic of Iran Shipping Lines (IRISL), Hafiz Darya Shipping Company (HDS Lines), and/or Soroush Sarzamin Asatir Ship Management Company (SSA), each of whom is a designated entity. The US Treasury has also amended the entry on the Specially Designated Nationals and Blocked Persons (SDN) List for SSA to include a new alias for that company, and updated information relating to the renaming of 14 other vessels already identified as being IRISL vessels.
Further background information relating to the new designations and amendments can be found in a Treasury Note dated 27 October 2011, a copy of which can be downloaded from the link below entitled "US DESIGNATION OF SIX IRISL FRONTS 27 OCT 2011".
ADDITIONAL U.S. ECONOMIC SANCTIONS WITH RESPECT TO IRAN - 21 NOVEMBER 2011
In their Economic Sanctions Update of 23 November 2011 Eren Lawyers, an economic sanctions law boutique in Washington, DC have prepared an explanatory summary of the most recent developments on sanctions imposed by the U.S. against Iran, including the issuance of Executive Order 13590, the designation of further entities and individuals under Executive Order 13382, and the identification of Iran as a jurisdiction of "Primary Money Laundering Concern" under Section 311 of the U.S.A. Patriot Act.
The identification of Iran as a jurisdiction of Primary Money Laundering Concern authorises the U.S. Treasury Department to issue regulations requiring additional due diligence measures to be implemented by U.S. banks and financial institutions to prevent indirect access to U.S. correspondent accounts held by foreign banking institutions by or on behalf of Iranian banks. The intention is to discourage the international partners of U.S. banks from engaging in transactions that may involve Iranian banks.
Under Executive Order 13590, and with effect from 21 November 2011, sanctions may be imposed against persons (wherever located) engaging in activities that directly and significantly contribute to Iran’s ability to develop petroleum resources located in Iran (if a single transaction has a fair market value of USD 1m or more or a series of transactions from the same entity have a fair market value of USD 5m or more in a 12 month period), or maintain or expand its domestic production of petrochemical products (if a single transaction has a fair market value of USD 250,000 or more or a series of transactions from the same entity have a fair market value of USD 1m or more in a 12 month period). The Order is thus very widely drawn and it is possible that the provision of maritime transportation services, and related insurances, could contribute to these activities and thus attract sanctions under this Executive Order.
The U.S. State Department has however confirmed that the purchase and lifting of crude oil from Iran should not constitute sanctionable activity. The State Department has also published two fact sheets which state that EO 13590 does not cover the purchase of petroleum products or petrochemical products from Iran, or the shipping of those products from Iran, absent other sanctionable conduct, and that the completion of existing contracts is not sanctionable under EO 13590 . However any contracts that are expanded, renewed or amended after the effective date of the Order could trigger sanctions.
Eren Lawyers have kindly given permission for the Update to be made available via this website and it can be viewed and downloaded from the link below.
U.S. PASSES NEW SANCTIONS ENDANGERING FOREIGN BANKS’ ACCESS TO THE U.S. FINANCIAL SYSTEM - SECTION 1245 NATIONAL DEFENCE AUTHORISATION ACT 2012 - 31 DECEMBER 2011
On 31 December 2011, President Obama signed into law new sanctions against Iran set out in section 1245 of the National Defence Authorisation Act for Fiscal Year 2012 (“NDAA 2012”).
Of relevance to the shipping industry is the requirement, under Section 1245 of NDAA 2012, for the President to sanction foreign (non-U.S.) financial institutions which facilitate significant financial transactions with the Central Bank of Iran or any other designated Iranian bank, particularly with respect to oil transactions. Previous, and relatively recent, U.S. measures, including Executive Order 13590 of 21 November 2011, targeted persons engaging in activities that directly and significantly contribute to Iran’s ability to (i) develop petroleum resources located in Iran, and (ii) maintain or expand its domestic production of petrochemical products. A key development brought about by Section 1245 of NDAA 2012 is that sanctions can apply to parties facilitating the export of oil FROM Iran. The aim of this legislation appears to be to curtail Iran’s earnings from oil revenues.
In a strengthening of existing measures, the new sanctions under the Act require the President to block the property of, and prohibit all transactions in property of Iranian financial institutions, if such property and interests in property are within the US or the possession or control of a US person. (Not all Iranian banks had hitherto been targeted for asset freeze).
With effect from 60 days after enactment, the President is required to prohibit a foreign financial institution from opening or maintaining correspondent accounts with U.S. financial institutions if the foreign bank knowingly conducts or facilitates significant financial transactions with the Central Bank of Iran or other designated Iranian bank. The only exemptions are for transactions involving food, medicine or medical devices to Iran.
There is no definition of what constitutes a “significant” financial transaction. However, NDAA 2012 confers latitude upon the U.S. administration to waive imposition of sanctions:
- Foreign government-owned or -controlled banks (including central banks) would only be subject to sanction if they engage in a financial transaction involving the sale or purchase of petroleum or petroleum products to or from Iran that is conducted or facilitated 180 days after 31st December 2011;
- With respect to transactions involving the purchase of petroleum or petroleum products from Iran, sanctions would only be applied against a foreign financial institution if the President determines that there is sufficient supply of petroleum or petroleum products from countries other than Iran to permit a reduction in volumes purchased from Iran by or through foreign financial institutions - a determination the President must make on a periodic basis.
- Similarly sanctions would not be imposed if the country having primary jurisdiction over the foreign financial institution has significantly reduced its volume of crude oil purchases from Iran.
- The President can waive imposition of sanctions for 120-day periods based on a determination that waiver is vital to national security, subject to reporting requirements to Congress.
In addition to the imposition of the sanctions described above, civil penalties of up to US$250,000, and criminal penalties of US$1 million, and/or imprisonment of up to 20 years, could also be imposed.
We are grateful to Mr Jonathan Epstein of law firm Holland & Knight for permission for their briefing on this subject to be made available via this website, which can be viewed and downloaded from the link below, together with a copy of Section 1245.