International Trade & Regulatory – Export Controls & Sanctions - Iran Sanctions Special (part I)
Being compliant with export control and sanctions legislation is of great importance for companies engaged in international trade as violation of this legislation can lead to severe penalties as well as reputational damage. Companies should therefore be well aware of the risks related to export control and sanctions and take measures to mitigate these risks.
Please find set out below some interesting recent developments concerning EU and U.S. export controls and sanctions.
United States re-imposition of sanctions on Iran – US withdraws from Iran nuclear deal and re-imposes sanctions on Iran after wind down period
On 8 May 2018, President Trump announced the withdrawal of the US from the Joint Comprehensive Plan of Action (“JCPOA”). The President further directed the US to begin re-imposing the sanctions on Iran that were lifted by the JCPOA, after wind-down periods.
The so-called National Security Presidential Memorandum (“NSPM”) was issued, directing immediate preparations for the re-imposition of all US sanctions on Iran lifted or waived in connection with the JCPOA. For the NSPM please see the following link: https://www.whitehouse.gov/presidential-actions/ceasing-u-s-participation-jcpoa-taking-additional-action-counter-irans-malign-influence-deny-iran-paths-nuclear-weapon/
The sanctions that will be re-imposed on Iran are largely secondary sanctions targeting activities of non-US persons with no connection to the US. The US also will terminate authorizations for the limited activities involving US persons that were permitted under the JCPOA. As an example, OFAC intends to revoke General License H “as soon as is administratively feasible” and issue a revised authorization for the wind down of activities involving Iran previously authorized pursuant to General License H.
Two wind-down periods
The secondary sanctions (targeting activities of non-US persons) will be re-imposed upon the expiry of two wind-down periods:
(1) a 90-day wind-down period that will expire on the 6th of August 2018
After 90 days (6 August 2018), the US will for example re-impose secondary sanctions on Iran’s automotive sector and on the direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes.
(2) a 180-day wind-down period that will expire on the 4th of November 2018
After 180 days (4 November 2018), the US will for example re-impose secondary sanctions on Iran’s petroleum energy sector.
For a full overview of and further information on the above mentioned re-imposed secondary sanctions, please see the frequently asked questions (“guidance”) provided by OFAC in the following link: https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_winddown_faqs.pdf
OFAC guidance Iran sanctions
According to the OFAC guidance, OFAC expects all sanctions that had been lifted under the JCPOA to be “re-imposed and in full effect” after the 4th of November 2018. In addition, by the 5th of November 2018, OFAC will re-impose, “as appropriate,” the sanctions that applied to persons removed from the List of Specially Designated Nationals and Blocked Persons (“SDN List”) under the JCPOA. Non-US persons that engage in certain activities with these re-listed persons after their re-listing could face secondary sanctions exposure.
Depending on the type of business, non-U.S. persons subject to the above secondary sanctions must wind-down their business operations in Iran or within a 90 or 180 days period or else face risk of secondary sanctions. Companies considering engaging in business related to Iran should monitor future developments closely and exercise caution to ensure compliance with all applicable sanctions.
EU response to US re-imposition of sanctions on Iran
As a response to the US re-imposition of sanctions against Iran, the European Commission on 18 May 2018 announced several measures aimed at protecting the interests of EU companies in Iran.
EU Blocking Regulation
First of all, the EU intends to amend its Blocking Regulation (Council Regulation (EC) 2271/96) to protect EU companies from the extraterritorial effects of US secondary sanctions against Iran.This 1996 Blocking Regulation aims to protect against and counteract the effects of certain extra-territorial sanctions. It prohibits EU individuals and companies from taking action to comply with specified foreign sanctions (unless authorization is granted by the European Commission on the basis that non-compliance would seriously damage EU or party interests). It also provides that any foreign judgment or administrative decision giving effect to the specified foreign sanctions shall be unenforceable, and envisages the possibility for persons engaged in international trade, capital movement and related commercial activities between the EU and Iran to recover damages caused by the application of such sanctions.
The Commission will update the list of sanctions in the Annex to the Blocking Regulation to include the re-imposed sanctions on Iran. The EU aims to have the measure in force by the 6th of August, when the first wind-down period of the US sanctions on Iran will expire.
Penalties for breach of the EU Blocking Regulation are a matter of national law of the EU Member States, but must be "effective, proportional and dissuasive". In 1996, when the US tried to penalize EU companies trading with Cuba, the EU forced the US to back down by threatening retaliatory sanctions. To date, there are however no known cases of penalties being imposed for violations of the EU Blocking Regulation. There is general acceptance by EU companies doing business in the US (especially those exposed to the US financial system and US dollar transactions), of the importance of complying with US sanctions.
Other EU measures - re-imposition of US sanctions
The European Commission also announced other measures to mitigate the impact of the re-imposition of US sanctions.
- It will start the process to enable the European Investment Bank (EIB) to finance activities in Iran, allowing it to support EU investment in Iran, in particular by small and medium-sized companies.
- It will continue and strengthen sectoral cooperation with, and assistance to, Iran, including in the energy sector, as a confidence building measure.
- It is encouraging Member States to explore the possibility of one-off bank transfers to the Central Bank of Iran, allowing the Iranian authorities to receive e.g. oil-related revenues, and thus by-passing US sanctions targeting EU entities that are active in oil transactions with Iran.
The European Union underlined that it is fully committed to the continued, full and effective implementation of the Iran nuclear deal (JCPOA), so long as Iran also respects its obligations.
Tim Hesselink - Partner / International Trade & Regulatory