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Focus on Iran European Union, Switzerland, and the United States Relax Sanctions Targeting Iran on “Implementation Day”; Canadian Sanctions Under Review Under the To the casual observer, the measures adopted on Implementation Day may give the impression that Iran is now “open for business.” While the EU and other European states have dramatically reduced their restrictions on trade with Iran, it is important to note that many important US sanctions targeting Iran remain in force. Before engaging in any new activities involving Iran or Iranian parties, companies should carefully consider the limitations and restrictions on Iran-related dealings that remain in place after Implementation Day. Below we provide additional information about the changes adopted by the EU, the US Government, and the Swiss Government on Implementation Day. We also provide comments on the current status of Canadian sanctions targeting Iran. Finally, we outline the significant compliance risks that continue to arise from doing business with Iran. On Implementation Day, the EU took steps to significantly relax its restrictions on doing business with Iran. Below we provide a brief summary of the sanctions relief instituted by the EU on Implementation Day. More detailed guidance can be found in the related 1. De-Listing of Designated Parties The EU has de-listed over 400 blacklisted Iranian people and entities that will now be able to do business with the EU. Certain entities and individuals remain listed under EU sanctions, including a number of banks, namely Ansar Bank, Bank Saderat Iran, Bank Saderat PLC, and Mehr Bank. The removal of restrictions on certain persons, entities, and bodies that were currently subject to asset freezes will also result in the releasing of funds currently frozen in accounts around the globe. Speculation as to the amount of funds that will be released ranges from US$ 29 billion (as quoted by the Central Bank of Iran (“CBI”)) to US$ 50 billion (as quoted by the US Treasury) to as high as US$ 100 billion (as speculated by critics of the JCPOA). 2. Relaxation of Product Controls Prior to Implementation Day, supplying dual-use items, nuclear items, and military items, as well as certain oil, gas, and petrochemicals products, was prohibited. Post-Implementation Day, Regulation 2015/1681 provides, inter alia, that:
3. Removal of Funds Transfer Controls Additionally, Regulation 2015/1861 removes fund transfer controls on Iran, including prohibitions on the transfer of funds to or from financial institutions in Iran, the opening of representative offices or bank accounts in Iran, the sale or purchase of public bonds from Iran, and the provision of insurance or reinsurance to Iran and its government (Article 1(15)). The obligation to make a prior notification or to obtain prior authorization before funds transfers over certain amounts to or from Iran has also been removed. However, while the funds transfer reporting requirements have been removed under EU law, EU banks may not yet feel confident in dealing with funds originating from Iran given the possibility of violating the remaining US sanctions against Iran that are discussed in further detail below. Accordingly, companies will need to assess the payment routes before supplying any goods or services and consider including conditionality language in the contracts such that performance would be subject to them being able to identify a bank that will receive payments from Iran. Although not a party to the JCPOA, the Swiss Government announced on October 21, 2015 that Swiss sanctions against Iran would be lifted at the same time as those of the UN and the EU. To make this possible, the Federal Council overhauled the Ordinance on Measures against the Islamic Republic of Iran. This new ordinance came into force on Implementation Day. Most notably, this ordinance repealed the Swiss Government’s funds transfer controls. The remaining restrictions against Iran are based on the corresponding UN and EU measures. They concern trade and services involving arms, delivery systems, and equipment which may be used for internal repression and surveillance. Trade in nuclear goods and nuclear-related dual-use goods are subject to licensing, and financial and travel restrictions remain in place for a limited number of individuals and firms. Further restrictions concern, in particular, technical services for Iranian cargo aircraft and the fulfilment of certain claims. In contrast to the broader sanctions relief described above, the steps taken by the US Government on Implementation Day to relax sanctions targeting Iran are markedly narrow in scope. This is because the US Government primarily relaxed its nuclear-related secondary sanctions (i.e., sanctions that generally target specified conduct involving Iran that occurs entirely outside of US jurisdiction). These measures have only a limited impact on the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (“ITSR”), and other restrictions affecting parties who are “US persons” (i.e., US citizens or permanent residents (wherever located or employed), entities organized under the laws of the United States (including foreign branches), and persons located in the United States). Below we provide a brief summary of the sanctions relief the United States adopted on Implementation Day. More detailed information can be found in the related 1. Relaxation of Nuclear-Related Secondary Sanctions On Implementation Day, the US Government relaxed a number of nuclear-related secondary sanctions by waiving certain statutory sanctions authorities, issuing an Importantly, this relaxation does not remove all restrictions on non-US persons. For instance, it continues to be sanctionable for non-US persons to knowingly provide significant financial, material, technological, or other support to, or goods or services in support of, any activity or transaction on behalf of or for the benefit of any Iranian person on the SDN List. In addition, non-US banks will continue to have potential risks under the Iranian Financial Sanctions Regulations, 31 C.F.R. Part 561, for knowingly facilitating a significant financial transaction or providing significant financial services for Iranian SDNs or any other person on the SDN List designated in connection with the Iranian Revolutionary Guard Corps (“IRGC”), Iran’s proliferation of weapons of mass destruction (“WMDs”), or Iran’s support for international terrorism. 2. Removal of Parties from the SDN List, FSE List, and NS-ISA List The US Government also removed the individuals and entities specified in Despite their removal from these restricted party lists, individuals and entities meeting the ITSR’s definitions of the “Government of Iran” or an “Iranian financial institution” remain persons whose property and interests in property are blocked as to US persons pursuant to Executive Order 13599 and the ITSR. Accordingly, US persons continue to be broadly prohibited from engaging in transactions or dealings with such persons unless the transactions are otherwise exempt or authorized by OFAC. As a means of assisting in compliance with this requirement, OFAC published a new 3. Activities by Non-US Persons that are Owned or Controlled by a US Person OFAC issued General License H also authorizes US persons to engage in certain activities necessary to allow owned/controlled non-US entities to engage in transactions involving Iran that are authorized by the general license. This authorization for US persons extends to establishing or altering corporate policies and procedures and making certain “automated” and “globally integrated” business support systems (i.e., any computer, accounting, e-mail, telecommunications, or other business support system, platform, database, application, or server) available to owned/controlled non-US entities. The OFAC Guidance notes that, with the exception of the authorized activities in General License H, the prohibition on “facilitation” by US persons under the ITSR remains in place. Some aspects of the scope of authorized US-person activity related to the initial establishment or alteration of corporate policies and procedures remain unclear. For instance, the extent to which US persons may be involved in making business (as opposed to compliance) determinations related to owned/controlled non-US entities starting Iran-related business is unknown, as is the point at which the still-applicable “facilitation” prohibition applies to US persons in this context. 4. Other US Authorizations Statement of Licensing Policy for Activities Related to the Export/Reexport to Iran of Commercial Passenger Aircraft and Related Parts and Services OFAC also issued a
Such transactions may not involve SDNs. In addition, exports/reexports to parties listed on the Department of Commerce’s
General License Authorizing the Importation into the United States of Iranian-Origin Carpets and Foodstuffs
Finally, OFAC issued a The Government of Canada announced on January 26, 2016 that it would begin to lift some sanctions on Iran. For the time being, however, comprehensive economic sanctions remain in place. Canada imposes sanctions under the Special Economic Measures Act and has also enacted into domestic law the UN Security Council Resolutions on Iran under the United Nations Act. In his comments announcing that sanctions would be lifted, Foreign Affairs Minister Stéphane Dion indicated that the UN has asked countries to lift sanctions put in place in accordance with the UN Security Council Resolutions on Iran and that Canada would lift its sanctions “in accordance with our allies,” who are keeping sanctions in place to limit Iran’s capability to be involved in nuclear military activities. While the Minister’s comments suggest that significant changes will be forthcoming with respect to Canada’s relations with Iran, until the government takes further action to amend or repeal the sanctions currently in place, companies should continue ensuring compliance with the Canadian sanctions on Iran. Despite the measures undertaken on Implementation Day, companies continue to face risks when entering into transactions involving Iran or Iranian parties. These risks include the following: 1. Continuing Restrictions under the ITSR Risk As noted above, the vast majority of restrictions on US Persons, including those provided in the ITSR, remain in effect even after Implementation Day. As such, with limited exceptions, US persons remain broadly prohibited from engaging in transactions or dealings, directly or indirectly, with Iran or the Government of Iran. These prohibitions continue to apply to facilitation by US persons of non-US persons engaging in transactions otherwise targeted by the ITSR (except to the extent authorized in General License H). In addition, non-US persons remain prohibited from knowingly engaging in conduct that seeks to evade US restrictions on transactions or dealings with Iran or that causes the export of goods or services from the United States to Iran. The clearing of US-dollar transactions involving Iran through the US financial system, including foreign branches of US financial institutions, also specifically remains prohibited. Compliance Steps Companies considering doing business with Iran should carefully analyze whether their activities would involve US persons or activities that are subject to US jurisdiction and determine whether such activities are authorized under US sanctions. US-based or -headquartered companies with owned/controlled non-US entities should first determine which initial policies, procedures, and delegations of authority need to be changed for such non-US entities to engage in Iran-related business and implement such changes systematically. In addition, US companies should confirm whether their service providers (e.g., banks, insurance companies, shippers, suppliers) are willing to engage in Iran-related business. 2. Lingering US Secondary Sanctions Risk Although many provisions of the US secondary sanctions regime were removed on Implementation Day, several remain in force. As such, US persons and non-US persons could potentially be subject to secondary sanctions for, inter alia:
Compliance Steps Regardless of whether a US person will be involved in a transaction, companies engaging in activities in Iran should carefully consider whether their actions remain subject to secondary sanctions. Non-US companies should also determine whether their service providers (e.g., banks, insurance companies, shippers, suppliers) are willing to engage in Iran-related business. 3. Remaining Limitations on Dealings with Restricted Parties Risk The United States and, to a lesser extent, the EU and Switzerland continue to impose sanctions on individuals or entities meeting certain criteria or engaging in certain specified conduct. Such sanctioned activities include, among others, support for terrorism, human rights abuses in Iran or Syria, and WMD proliferation (including ballistic missiles). In fact, on January 17, 2016, the US Treasury Department announced that OFAC had imposed new sanctions on 11 entities and individuals involved in procurement on behalf of Iran’s ballistic missile program. In the Compliance Steps When considering business in Iran, it is important to continue to screen counterparties (including customers, agents, and distributors), as well as their beneficial owners and directors, against all applicable restricted party lists to ensure that they are not designated. 4. Continuing Controls on Military and Dual-Use Exports and Reexports to Iran Risk The EU, Switzerland, and the United States continue to maintain arms embargos and other export controls restricting the flow of military and dual-use goods to Iran. Notably, US controls such as those provided in the EAR and the ITSR can apply to shipments of goods, technology, and software to Iran from outside of the United States if the items are subject to US jurisdiction (including, in some cases, if they incorporate certain amounts of US origin content). Compliance Steps Companies exporting or reexporting goods to Iran should determine what, if any, governmental authorizations are required to carry out these transactions. If any of the items were manufactured using US origin content or are otherwise subject to US jurisdiction, US controls must be considered even if the items will not be exported from the United States. 5. Ongoing Reporting Requirements for US Issuers Risk The JCPOA’s sanctions relief does not directly alter the disclosure requirements applicable to companies publicly traded in the United States that are already required to file annual or quarterly reports under Section 13(a) of the Securities Exchange Act of 1934, as amended, for certain specifically identified dealings or transactions primarily related to Iran. This disclosure requirement applies to the activities of US and non-US issuers and to activities of their US and non-US affiliates. That said, activities by a US issuers’ owned/controlled non-US entities are not subject to disclosure if these activities are within the scope of General License H. Additionally, the JCPOA does not affect the efforts of the SEC’s Office of Global Security Risk to conduct periodic inquiries to issuers to ensure they have made adequate disclosures regarding potential dealings or transactions involving Iran and other “state sponsors of terrorism.” Compliance Steps Publicly traded companies should continue to file annual and quarterly reports for dealings or transactions related to Iran as required under Section 13(a) of the Securities Exchange Act of 1934. 6. Snapback Risk As provided under the JCPOA’s so-called “snapback” provisions, the EU and the United States have reserved the right to reinstate sanctions against Iran in the event that Iran is found to have violated its obligations under the JCPOA. OFAC noted in its FAQs that the US Government has made a commitment against retroactively imposing sanctions targeting legitimate activities undertaken after Implementation Day. However, if sanctions were to be imposed again under the snapback provisions, contracts entered into before the snapback are unlikely to be “grandfathered.” Compliance Steps Companies entering into agreements as part of their dealings with Iran should consider options to mitigate the contractual risks that could arise if sanctions were to “snap back” into place, such as clauses providing the right to terminate the agreement in the event that sanctions are reintroduced. Following Implementation Day, the next milestone set out under the JCPOA is Transition Day, which will be 8 years from July 2015, or the date on which the IAEA confirms that Iran’s nuclear material remains peaceful. On Transition Day, the EU and the US Government will terminate or modify their remaining nuclear-related sanctions against Iran. Provided that the resolutions and sanctions against Iran are not reinstated, the JCPOA will terminate 10 years from July 2015 on what will be known as Termination Day.
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The foregoing is intended only to provide a general summary of recent developments regarding sanctions targeting Iran. If you have any questions or if you require advice on any specific transactions or plans, please contact one of the members of Baker & McKenzie’s International Trade Practice Group. * * *
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Other Baker & McKenzie Client Alerts issued since 2010 regarding sanctions against Iran:
EU Implements Additional Sanctions on Iran U.S. Congress Enacts Additional Sanctions Targeting Iran EU Further Strengthens Sanctions Measures on Iran
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