On 15 October 2012, further restrictive measures were announced by the EU against Iran. They are to be found in the European Council Decision 2012/635/CFSP.
The only measures to become binding immediately are the additions to the asset freeze list, via Regulation 945/2012. An implementing regulation is required to make the other measures binding on companies and individuals. The timing of that implementing regulation is unclear - it could be weeks or even months. It may be that the EU is firing a "warning shot across the bows" and hoping to encourage Iran to return to the negotiating table if they wish to avoid the new provisions actually coming into force.
Unless you are involved in transactions in goods and services which will now be prohibited (detailed below), or have dealings with persons or entities added to the asset freeze list, it is unlikely that you will be significantly impacted by the new measures, although those involved in the banking, shipping and insurance industries must carefully understand their new obligations.
Indeed, for those continuing to trade, it is the challenge to find a bank willing to accept payments from Iran (in circumstances where the bank is permitted to do so) which remains critical. This is a commercial and political issue rather than a legal one.
By way of an example, under the Financial Restrictions (Iran) Order 2011, no UK bank may have dealings with an Iranian bank subject to a number of exceptions. One of those exceptions relates to medicine. However, we are yet to find a UK bank willing to accept payments from an Iranian bank in relation to the sale of medicine to Iran. A UK bank may legitimately receive payment from an Iranian bank not listed on the asset freeze list but still chooses not to do so. Therefore, although the Decision states that EU banks may be authorised to receive payments from Iranian banks in relation to an export of medicine (or other contracts not specifically prohibited), we consider it will be difficult if not impossible to find an EU bank willing to do so.
One further individual and 34 additional entities (mainly in the oil and gas sector) have been added to the list of persons and entities which are subject to the asset freeze. These include National Iranian Oil Company (NIOC), National Iranian Drilling Company (NIDC), Iranian Oil Terminals Company (IOTC), Naftiran Intertrade Company (NICO), National Iranian Tanker Company (NITC), National Iranian Gas Company (NIGC), Petropars Limited, the Iranian Ministry of Energy and the Iranian Ministry of Petroleum. A full list can be obtained from us upon request via our contact details below.
Any company or individual with ongoing commitments with one of these companies or Ministries should immediately seek legal advice. No funds or economic resources may be made available to them and all funds and economic resources belonging to, owned, held, or controlled by them must be frozen.
Interestingly, a number of individuals have been removed from the list. We are seeing an increase in challenges requiring removal being brought by persons and entities listed.
Once implemented, the new measures in the Decision will prohibit:
For the newly prohibited products referenced at (b) - (d) above, technical assistance and training, financing and financial assistance "and other services" may not be provided.
With regards to the construction of new tankers ((g) above), prohibitions are limited only to technical assistance, financing or financial assistance.
These provisions may impact those who have already shipped products but who are contractually required to provide ongoing training, support or post delivery services.
The use of the words "and other services" with regards to the products referenced at (b) - (d) above is possibly designed to prevent any assistance whatsoever - and this may potentially cover shipping and insurance services. The implementing regulation may provide clarity.
Specific legal advice should be sought in order to check what further work you may perform and whether you may avail yourselves of the "grandfathering" provisions.
The prohibitions on the provision of insurance, reinsurance (and brokering services related thereto) relate only to the prohibitions on Iranian natural gas although advice should be sought as to whether the references to "other services" in remaining provisions might catch such activities.
The transport of Iranian natural gas is prohibited. It is also prohibited for vessels under the jurisdiction of a Member State to be used to ship graphite, and raw or semifinished metals such as aluminium and steel. Finally, for all such products which will become prohibited to be exported to Iran, you must not "transfer" such products to Iran. Whilst "transfer" may have a different definition to the definition of "transport" this may well include being involved in any manner with a shipment.
These new measures will certainly require robust systems to be implemented by those involved in the shipping industry.
Transactions between EU banks and Iranian banks are prohibited unless authorised in advance by the relevant Member State.
The precise manner of authorisation is not fully detailed. Further, although it appears that trading in non prohibited products will be authorised, it is not yet clear what discretion each Member State will have.
The payment thresholds for notifying and seeking authorisation from the relevant Member State have been lowered but it is unclear exactly how the new provisions will sit with current obligations on entities and persons other than banks who receive or make payments to or from banks outside the EU.
The references in the Decision referring to "financial entities that are not domiciled in Iran but that are controlled by persons and entities domiciled in Iran" may include money exchanges outside Iran.
The existing EU sanctions measures on Iran impose obligations on those arranging transfers to or from Iranian persons to make a prior notification for sums exceeding EUR 10,000 and to seek prior authorisation for sums of EUR 40,000 and above. For transfers regarding foodstuffs, healthcare, medical equipment or for agricultural or humanitarian purposes, there is only an obligation to submit prior notification for transfers exceeding EUR 10,000.
The Decision requires that:
No authorisation will be required for transactions below EUR 10,000. Please note that it is prohibited to send or receive sums due in tranches which are less than EUR 10,000 in order to avoid the measures.
The new controls are broadly split into two categories: those involving Iranian financial institutions and those that do not.
It is important to recall that the existing funds transfer controls apply not only to the flow of funds to and from Iran, but also to and from Iranian persons. The concept of Iranian persons is broad and includes non-Iranian companies owned or controlled by Iranian persons, entities or bodies. A company with a majority Iranian shareholder will likely be caught by the definition. Likewise, this may also extend to companies with a significant minority Iranian shareholder - depending on the level and nature of control.
The Decision also amends the provisions concerning the freezing of funds and economic resources of the Central Bank of Iran.
When implemented, the provisions are expected to apply in accordance with the usual provisions on jurisdiction i.e. they will apply, inter alia, to transactions by EU nationals, EU companies, entities and bodies, business within the territory of the EU Member States and to the use of vessels or aircraft under the jurisdiction of EU Member States.
You must heed the provisions of the Decision which prohibit the participation, knowingly and intentionally in activities the object or effect of which is to circumvent the prohibitions.
If you are an EU entity or an EU national, you should not novate, assign or otherwise transfer business which is prohibited for you to perform to those who may legitimately perform it. This includes the transfer of business to your non EU subsidiaries or related parties.
Many clients are unsure whether they should negotiate new contracts in relation to products which may or may not end up being placed in the published list of prohibited products. For example, it is unclear which semi-finished steel products will appear on the list yet to be published. On the one hand, clients rightly do not wish to be deprived of finalising deals which may never be prohibited but nor do they wish to finalise deals which they might not be able to perform later on.
As a matter of prudence, it would be unwise to enter into new contracts simply in the hope that the specific product will not be listed. Whilst you may feel frustrated that you are being left "in limbo" you should be grateful that there is at least a lead-in period allowing you to manage your business dealings.
If you do enter into any new contracts then very clear and unambiguous contractual provisions must be inserted in order to ensure exposures are mitigated. Those exposures include ensuring you will not be in breach of the ensuing regulation and protection against contractual damages which you may have to pay to a counterpart with whom you can no longer perform a contract.
We are able to advise on specific queries.
In Washington, leading Congressmen are considering options either for future bills or recommendations to the White House to close loopholes enabling Iran to flag its tankers.
The Congressmen are looking at extra-territorial sanctions, focused on those involved in shipping Iranian crude oil, which are similar to those already in force against Iran's banking sector.
One possibility being looked into would be to deny access to the U.S. to vessels from a registry that is considered to be aiding and abetting Iran.
The same measures are being considered against insurers covering Iranian cargoes and classification societies surveying them.
For a comprehensive view on this subject, please read the excellent 'Compliance Officer Bulletin - Issue 100 October 2012: Sanctions & Export Controls', by Nigel Kushner, who is CEO of W Legal Ltd, a Mayfair based law firm. Nigel is known for his expertise in international trade, including sanctions and export control, topics he regularly lectures on. Acting as part time counsel for many clients, Nigel provides hands on, practical advice, trouble shooting, managing litigation and negotiating complex commercial contracts.
For a comprehensive view on this subject, please read 'Compliance Officer Bulletin - Issue 100 October 2012: Sanctions & Export Controls', by Nigel Kushner, who is CEO of W Legal Ltd, a Mayfair based law firm. Nigel is known for his expertise in international trade, including sanctions and export control, topics he regularly lectures on. Acting as part time counsel for many clients, Nigel provides hands on, practical advice, trouble shooting, managing litigation and negotiating complex commercial contracts.