Two recent developments relating to economic sanctions and export controls law may significantly impact businesses. The European and US authorities issued new guidance in relation to Implementation Day, the current phase of the Joint Comprehensive Plan of Action nuclear deal with Iran. European and US authorities have made clear that the Iran nuclear deal does indeed intend to open up business opportunities with Iran and that the ongoing application of some US sanctions should not be overestimated. The second development is the UK's referendum outcome in favour of leaving the EU. This could have significant effects on the status of sanctions and export controls law applicable to the UK
Nuclear deal Iran – new guidance for business
On 19 May 2016, a Joint Statement by France, Germany, the United Kingdom, the United States and the EU was issued related to business with Iran after Implementation Day. Under the Joint Comprehensive Plan of Action (JCPOA), the European Union and the United States lifted economic and financial nuclear-related sanctions on Iran in exchange for Iran's significant reduction of its nuclear program. This commitment to lift sanctions was fulfilled on 16 January 2016 and, as a result, there are now extensive economic opportunities for companies and financial institutions in Europe and around the world to do business in Iran.
The European countries and the US stated jointly: "We will not stand in the way of permitted business activity with Iran, and we will not stand in the way of international firms or financial institutions' engaging with Iran, as long as they follow all applicable laws." They further emphasised that the due diligence required for sanctions compliance is by no means unique to business opportunities in Iran. The intention is to explicitly open the gate towards doing business with Iran, and not to regard the sanctions that remain in place as an unsurpassable obstacle.
In light of this statement and renewed efforts to carry out the JCPOA after 16 January 2016, the US Office of Foreign Assets Control (OFAC), which is responsible for monitoring compliance with the US sanctions regulations, updated its Frequently Asked Questions relating to the lifting of certain US sanctions under the JCPOA on 8 June 2016. This updated publication clarifies several areas, including:
- the regulatory framework applicable to transactions by US financial institutions
- the scope of General License H, an export license allowing US-owned or US-controlled foreign entities to engage in specified transactions
- the determination of when a foreign company is owned or controlled by a US person for the purpose of General License H.
Meanwhile, the Financial Action Task Force (FATF), an intergovernmental organisation that sets standards and promotes measures for combating money laundering and terrorist financing (AML/CFT), has suspended for 12 months, its requirement that member states impose counter-measures on Iran for strategic deficiencies in its AML/CFT regime. In its press release, the FATF welcomed Iran's adoption of and commitment to an action plan addressing the deficiencies in its AML/CFT regime, and stated that it will re-impose the counter-measures if Iran has not demonstrated sufficient progress towards implementing the action plan after 12 months.
This shows that business enterprises are encouraged from several sides to do business in Iran in accordance with the current rules. This is, however, no carte blanche. The current rules provide for measures that justify precaution. When considering doing business in Iran or with Iranian parties, a number of steps need to be taken into account, including:
- conduct a careful screening of persons and entities involved in any transaction and require them to represent that they are neither subject to sanctions, nor owned or controlled by, or acting on behalf of such a party
- provide for the possibility to terminate the contract without liability in case relevant sanctions are re-imposed
- verify whether your financing agreements allow entering into the intended Iran-related activities
- verify whether the products and technology involved are subject to any product-related restrictions and whether your supplier contract allows re-export to Iran
- verify whether any US parties are involved or there is any other US nexus to the contemplated transaction, in order to determine whether additional compliance measures should be taken
- consult your banks about the processing of payments in advance.
Brexit: what does it mean for sanctions and export controls?
The Brexit vote may have considerable consequences for economic sanctions and export controls within the EU. This is because both areas of law are heavily regulated at the EU level. The UK leaving the EU would leave uncertainty and gaps in the application of many sanction and export control laws and regulations, as well as raise questions about their potential replacements. Importantly, it is still unclear when the Brexit will formally take effect. Before any clarity in this matter can be achieved, the UK would have to formally invoke Article 50 of the Treaty on the European Union, which initiates the withdrawal procedure from the EU. From that moment on, it is still unclear how much time the negotiations for the eventual withdrawal would take. There are, however, some potential effects which we recommend taking into account.
Pursuant to the relevant EU Regulations, EU economic sanctions are currently directly? applicable in the UK. After Brexit formally takes effect, the UK may in some cases need to pass new domestic legislation to implement new sanctions measures. As a result, European companies having a UK nexus would have to comply with both EU and UK economic sanctions. Such a scenario would require companies to enhance their compliance programmes in order to address this increasingly complicated set of economic sanctions.
The EU export control regime is, among other things, governed by the Dual Use Regulation, which provides for common EU rules, a common EU control list and harmonised policies for implementation. Under the EU regime, the export of dual-use items (goods, software and technology that can be used for both civilian and military applications) is subject to control, and dual-use items may not leave the EU customs territory without export authorisation. After the Brexit formally takes effect and the UK no longer forms part of the EU customs territory, exports of dual-use items involving the UK will likely require a form of export authorisation. This could be done in the form of a general licence which would apply to all specified exports, but it could also be regulated by an individual, case-by-case authorisation regime. The introduction of export authorisation could have an impact on the complexity and length of export procedures involving the UK.
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.