UK: IRAN Sanctions Update: EU Suspends Certain Sanctions For Six Months- January 2014

Last Updated: 31 January 2014
Article by Michelle Linderman, Jonathan Reese and James Rose

Introduction

In this update, we set out the latest developments regarding the EU sanctions against Iran.

At the end of November 2013, the P5+1 (United States, United Kingdom, Germany, France, Russia and China) reached an agreement with Iran whereby Iran would curb its nuclear program in return for a reversible suspension of certain trade restrictions against it under the EU and US sanctions regimes. The suspension shall apply for an initial period of six months but is contingent upon Iran's continued compliance with the November agreement.

International Atomic Energy Agency inspectors have now confirmed that Iran has complied with its initial obligations under the November agreement and, from 20 January 2014, the EU has suspended certain sanctions including, as set out further below, the (re)insurance and transportation of Iranian crude oil, the trade of gold and precious metals, and the transportation, purchase and (re)insurance of Iranian petrochemicals.

EU Council Regulation of 20 January 2014 (the "20 January Regulation") amends the main sanctions restrictions against Iran contained in Regulation 267/2012 (the "Regulation"), with those amendments to be effective until 19 July 2014. Negotiations over a long term agreement on Iran's nuclear program are expected to continue and it may be that the suspension of sanctions will be extended and/or expanded in the future. For the moment, however, any parties considering business permitted by the suspension of sanctions should ensure that their trades can be completed within the six month window.

The changes made by the 20 January Regulation are as follows:

Petroleum products

The 20 January Regulation partly suspends Article 11(1)(c) of the Regulation which prohibits the transportation of crude oil or petroleum products if they originate in Iran or are being exported from Iran to any other country. The suspension applies specifically to the products listed in Annex XI to the Regulation, namely, it permits the transportation of "Petroleum oils and oils obtained from bituminous minerals, crude" with HS Code 2709 00, which therefore includes crude oil (hereafter "Petroleum and Crude Oils"). The 20 January Regulation also partly suspends the prohibition at Article 11(1)(d) of the Regulation which prohibits the direct or indirect provision of financing or financial assistance, including financial derivatives and insurance or re-insurance related to the import, purchase or transport of Iranian Petroleum and Crude Oils.

Purchasing Iranian Petroleum and Crude Oils and/or importing them into the EU is still prohibited under EU sanctions, as is the purchase, transportation, importation and/or (re)insurance of the petroleum products listed in Annex IV to the Regulation which are not also listed in Annex XI (petroleum coke, for example).

Even where trades are permitted by the suspension of EU sanctions, it remains important to consider the impact of extraterritorial US sanctions. Whilst we are not qualified to advise on US law and US law is not covered by this update, we understand that extraterritorial US sanctions will apply to the transportation of Iranian Petroleum and Crude Oils unless the destination is a country that has been granted an NDAA waiver (currently China, India, Japan, Republic of Korea, Taiwan and Turkey). As such, whilst the EU sanctions may permit the carriage of crude oil to non-EU countries, this may be somewhat limited by the impact of the US sanctions given that many persons, including insurers, will be subject to the prohibitions under the US sanctions. It will therefore be necessary to establish the scope of coverage in any particular factual scenario concerning the trade of Iranian oil and whether it would be permissible for the entities/insurers involved to undertake that transaction in light of the overlapping regimes.

Petrochemical productsArticle 1(2) of the 20 January Regulation suspends the prohibitions under Article 13(1) of the Regulation meaning that the purchase, transportation and importation into the EU of petrochemical products from Iran or which originated in Iran is permissible, as is the provision of related financing and (re)insurance.

The 20 January Regulation also allows Member State authorities to release or make available funds or economic resources to the Iranian Ministry of Petroleum after having determined that those funds or economic resources are necessary for the execution of contracts for the import or purchase of petrochemical products.

The restriction on making vessels designed for the transport or storage of oil and petrochemical products available to non-sanctioned Iranian persons, or for the transport or storage of Iranian oil and petrochemical products, is also suspended.

Those subject to EU jurisdiction can therefore undertake trade with Iran in petrochemical products until 19 July 2014. If trade in this area is being considered, however, it will be important to ensure compliance with the sanctions that remain in force. For example, it is still prohibited to provide economic resources and funds, directly or indirectly, to a sanctioned person and there are still restrictions on the transfer of funds to and from Iranian persons. Due diligence, therefore, should always be exercised.

Gold, precious metals and diamondsArticle 1(3) of the 20 January Regulation suspends the prohibition on the direct or indirect sale, supply, transfer or export of gold, precious metals and diamonds to or from the Government of Iran, its public bodies, corporations and agencies or any person, entity or body acting on their behalf or at their direction and/or controlled by them. The provision of related insurance and/or re-insurance is also suspended.

Authorisation for payments to Iran

The 20 January Regulation increases the thresholds above which permissible payments to Iran require prior notification or authorisation.

Transfers between EU and Iranian banks or credit and financial institutions now require prior notification or authorisation as follows:

  • Transfers due on transactions regarding foodstuffs, healthcare, medical equipment, or for agricultural or humanitarian purposes, below €1,000,000 or equivalent, and transfers due on transactions regarding personal remittances, below €400,000 or equivalent, shall be carried out without any prior authorisation.
  • Transfers due on transactions regarding foodstuffs, healthcare, medical equipment, or for agricultural or humanitarian purposes, equal to or above €1,000,000 or equivalent, and transfers due on transactions regarding personal remittances, equal to or above €400,000 or equivalent, shall require prior authorisation of the competent authority of the Member State concerned.
  • Any other transfer equal to or above €100,000 or equivalent shall require prior authorisation of the competent authority of the Member State concerned.

Transfers that aren't made through banks or credit and financial institutions subject to EU jurisdiction now require prior notification or authorisation as follows:

  • Transfers due on transactions regarding foodstuffs, healthcare, medical equipment, or for agricultural or humanitarian purposes shall be carried out without any prior authorisation. However, if the transfer is equal to or above €10,000 or equivalent it shall be notified in advance in writing to the Member State concerned.
  • Any other transfer below €400,000 or equivalent shall be carried out without prior authorisation; however, the transfer shall be notified in advance in writing to the Member State concerned if equal to or above €10,000 or equivalent.
  • Any other transfer equal to or above €400,000 or equivalent shall require prior authorisation of the competent authority of the Member State concerned.

Whilst the sanctions do permit certain transactions, as a matter of policy some banks and counterparties have previously been reluctant to participate in permissible trade with Iran. This is unlikely to change as a result of the 20 January Regulation and therefore it is important to bear in mind that any trade involving Iran may still be subject to significant practical problems.

Comment

Whilst the sanctions have been eased by the EU and the US in certain areas, there are still comprehensive frameworks of sanctions in place that restrict trade with Iran and that must be complied with.

Further, it must be remembered that the suspension will only be in place for an initial six month period until 19 July 2014. Any contracts which are only permissible as a result of the suspensions must be executed within this timeframe. If the suspended sanctions are re-introduced, then there is no guarantee that there will be a grace period for contracts that overrun the six month period.

Both the EU and the US have been at pains to emphasise that the current suspension of sanctions is reversible and that in the event of non-compliance by Iran with its obligations under the November agreement, it is possible that the suspended sanctions could be reintroduced at short notice. Anyone hoping to take advantage of the temporary suspension of sanctions against Iran should ensure that they are adequately protected by the inclusion of suitable clauses in contracts, both in relation to the sanctions that remain in force and also in the event that the suspended sanctions are re-imposed (whether on 20 July 2014 or otherwise).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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