In brief:

  • UAE authorities have the power to shut down businesses and freeze funds/assets of UAE companies which violate United Nations sanctions in the course of doing business with entities in Iran.
  • UAE companies should regularly check their current and future Iranian contracting partners against the list provided by the Committee and Annex I, II and III of Resolution 1929.
  • The banking and shipping industries attract additional scrutiny.

On 9 June 2010, the United Nations Security Council passed, by a vote of 12 to two, with Lebanon abstaining, their fourth round of sanctions against Iran, Resolution 1929 (2010) (the Resolution). Primarily, the Resolution deals with banning Iran from undertaking nuclear and missile investments abroad, purchasing heavy weapons and participating in ballistic missile activities. The Resolution is also likely to create significant burdens and additional red tape for UAE entities engaging in ordinary trade of non-prohibited items/merchandise with Iranian companies.

Resolution 1929, and the three previous related resolutions call upon States to create and apply laws, procedures, regulations, or any other measures each State views as necessary, to "effectively" implement the sanctions contained within the Resolution, such as freezing assets and imposing travel bans. Each State has discretion in determining the necessary steps to take and the consequences of its citizens' non-compliance. At the time of publishing this article, the UAE has not enacted any new laws as a result of the latest round of sanctions or Resolution 1929.

However, the UAE does have several existing laws that contain wording broad enough to give the authorities the power to shut down businesses and freeze the funds/assets of entities which violate the sanctions contained in the resolutions.

In the first week following the passing of Resolution 1929, it has been reported that the UAE authorities shut down over 40 businesses allegedly engaged in violating the Resolution either through money laundering or "strategic dual-use equipment" dealings, ie equipment that can be used for both military and non-military purposes.

The UAE and Iran have an estimated annual trade flow of over US$8 billion, the vast majority of which consists of trade in non-prohibited items and it should be kept in mind that the sanctions are specifically targeted and, therefore, the likelihood of companies which are conducting ordinary trade with Iran being shut down or having their funds and/or assets frozen is relatively low. Nevertheless, companies should be conscious of the practical and legal issues concerning undertaking business with an Iranian entity.

Dealing with a blacklisted entity

In 2006, through Resolution 1737, the UN Security Council established a committee to undertake several tasks including promulgating guidelines, monitoring State activity, particularly in the Gulf region, as well as determining, as necessary, additional items to be prohibited and entities to be blacklisted. UAE companies intending to trade with Iran should, as a first step, become familiar with all the companies blacklisted by any of the four resolutions or subsequently added to the list by the UN Securities Committee on Iran Sanctions (the Committee). Entering into dealings with a blacklisted entity can result in severely negative consequences, the level of which can only be determined by the UAE authorities' view of what measures are needed to "effectively" implement the sanctions and what penalties are appropriate. Additionally, companies which violate the sanctions may find that this effects their business internationally.

Determining whether an Iranian entity is blacklisted prior to entering into contract or dealings is relatively straightforward. The Committee maintains and routinely updates the list of blacklisted Iranian entities. At the time of publishing this article, the list on the Committee's website has not been updated to include the additional entities and individuals included in Resolution 1929, which can be found in Annex I, II and III of the Resolution. Hadef & Partners recommends that UAE companies should regularly check their current and future Iranian contracting partners against the list provided by the Committee and Annex I, II and III of Resolution 1929. Please bear in mind that the Committee will routinely add and may remove names from the list.

Blacklisted subsequent to contracting

Paragraph 15 of Resolution 1737 (2006) provides for an exemption for businesses entitled to receive payments from an Iranian entity that was not blacklisted at the time the contract was entered into but is subsequently blacklisted resulting in its assets and/or funds being frozen. Companies may still recover payments from an Iranian entity even after the Iranian entity is blacklisted as long as the entity was not blacklisted at the time of entering into the contract, the contract is not related to any prohibited item and the payment is not directly or indirectly received by a blacklisted person or entity. However, getting such funds unfrozen may be a time consuming and frustrating exercise.

Shipping

In addition to general trading, Resolution 1929 strongly targets the Iranian shipping and banking industries. All States are called upon to inspect "all cargo to and from Iran, in their territory" and "may request the inspection of vessels on the high seas with the consent of the flag State" if the State conducting the inspection has information that provides "reasonable grounds" to believe the cargo and/or vessel contains prohibited items. However, Resolution 1929 does not define what does and does not constitute "reasonable grounds" for inspection. This lack of clarity may raise some practical issues including possible delays in shipping due to inspection processes, procedures and/or laws enacted to ensure conformity with UN sanctions, as well as any additional issues that may arise as a result of mid-route inspections "on the high seas."

Three entities found to be affiliated with the Islamic Republic of Iran Shipping Line (IRISL) have already been blacklisted in Resolution 1929. In addition, any other entity found to be owned, controlled, or acting on behalf of IRISL will also be blacklisted. This makes the process of determining a suitable shipping company more difficult and further reduces a UAE company's shipping options. Furthermore, Resolution 1929 requires all states to report any information regard IRISL's attempt to evade sanctions through the use of different ship names and/or companies. Therefore, the blacklist of Iranian shipping entities may continue to grow making a routine assessment of the blacklist even more important.

Banking

All states are called upon to prohibit financial institutions from opening branches in Iran as well as to prohibit, in their own territories, the opening of new branches, subsidiaries, or representative offices of Iranian banks. Iranian banks are also prohibited from entering into new joint ventures and correspondent banking relationships, so long as there are "reasonable grounds to believe" that such activities contribute to Iran's nuclear proliferation.

States are further called upon to take appropriate measures, including freezing all funds/assets found within their jurisdiction, if they have "reasonable grounds" to believe that such services, assets or resources could contribute to Iran's nuclear proliferation activities.

In support of this, Circular No 3601/2010 issued by the UAE Central Bank orders all financial institutions to "freeze any accounts, deposits and stop any remittances in the names of (natural/juridical) persons, designated as being involved in Iranian nuclear or ballistic missile activities." However, the circular goes on to state that banks are not to "freeze any account or prevent the receipt of any funds, unless the related named and details conform, exactly, beyond any doubt."

Precautions and additional recommendations

Resolution 1929 is not a broad or far-reaching trade embargo, but instead a set of targeted sanctions against Iranian entities involved in nuclear proliferation and ballistic missile activities. Nevertheless, it is recommended that UAE companies evaluate each Iranian customer, client and transaction on a case-by-case basis as follows:

  • routinely analyse the entities blacklisted by the UN Security Committee on Iranian Sanctions;
  • wind up and conclude all dealings with any Iranian entity currently or later found to be blacklisted;
  • carefully assess the credit worthiness of Iranian customers/clients as they may have difficulty obtaining credit, transferring funds and/or conducting other banking related activities that require cooperation between any Iranian and non-Iranian bank; and
  • evaluate shipping options to take into account the practical effects of Resolution 1929.

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.