May 17, 2017
By: Anna Sayre, Legal Content Writer, SanctionsAlert.com
Since the international community decided to implement a plan to reduce sanctions against Iran, formally known as the Joint Comprehensive Plan of Action (JCPOA), on January 16, 2016 (“Implementation Day”), the European and U.S. regimes have become increasingly misaligned. Not surprisingly, this has led to compliance officers and other professionals having to navigate extremely treacherous waters. In a recent poll conducted by Sanctions Alert, when attendees were asked what the prospects are that U.S. sanctions will be eased in the near future, almost 90% of those polled indicated that this was either “Unlikely” or “Very Unlikely”.
This increasing confusion resulting from varying international rules regarding Iran places an onus on the importance of examining the unique differences between the European and U.S. Iranian sanctions regimes and makes it all the more paramount to understand what a compliance officer can do to stay fully compliant in in both areas of the world.In a recent webinar at sanctionsalert.com, Babak Hoghooghi, Counsel at Berliner Corcoran & Rowe in D.C., and Nadiya Nychay, Partner at Dentons in Brussels, discussed both the European and U.S. sanctions programs against Iran, how they differ, and how professionals can make their best effort to stay compliant.
U.S. sanctions on Iran before and after Implementation Day
Mr. Hoghooghi starts by outlining the various historical sanctions that have existed against Iran since the mid 1980s. These are made up of primary sanctions, relating to U.S. persons, secondary sanctions, relating to non-U.S. persons, and targeted sanctions, which target specific listed individuals or entities.As such, it is not necessary to be a U.S. citizen nor even present within the U.S. in order to fall under the U.S. Iranian sanctions regime. Imposition of the majority of these sanctions have stemmed from the U.S. motivation to protect against terrorist activities, violations of human rights, or the creation of weapons of mass destruction.
Following the JCPOA, the U.S. has indeed eased its sanctions regime against Iran, yet most of these changes center on secondary sanctions. Almost all secondary sanctions have been removed by the JCPOA, as well as many of those sanctions that relate to obstruction of trade and hindrance to the Iranian economy. Remaining restrictions still include: export of U.S. origin goods to Iran, use of U.S. institutions for transactions related to Iran, and any dealings with the IRGC or other listed SDNs.
Following Implementation Day, U.S. persons are still broadly barred from conducting business with the Iranian government or Iranian companies. Specifically prohibited activities include:
- Engaging in any transactions in which the Government of Iran or an OFAC listed Specially Designated National (SDN) has an interest;
- Export of goods and services, software, or technology to Iran, whether or not they originate in the U.S.;
- Import of Iranian origin goods and services, whether those goods have been manufactured in Iran or simply entered the Iranian market;
- Make new investments in Iran, whether by funds or credit; and
- Facilitating, or provide any assistance whatsoever for, prohibited transactions.
In short, as long as a US person has reason to know that goods/services will end up in Iran or are for the benefit of Iran, this sort of activity remains strictly prohibited.
The exceptions are few, but include:
- humanitarian grounds, such as export of food, medicine, and basic medical supplies,
- personal communication, such as devices and software for chatting and social networking; as well as phones/laptops.
Since Implementation Day, the JCPOA has provided three additional exceptions, which include:
- the export of commercial passenger aircraft equipment for civil aviation (which is still limited by the need for a license);
- the engagement of non-U.S. subsidiaries of U.S. persons in Iran transactions subject to certain limitations; and
- the import of certain goods into the U.S, such as foodstuffs and Iranian carpets.
“The bottom line,” says Mr Hoghooghi, “is that general licenses are there but compliance procedures, training and oversight are very critical.” “When in doubt, always go to OFAC and seek clarification”, he advises.
Continuing Challenges of doing business with Iran under U.S. rules
Sanctions compliance aside, many challenges remain for those who seek to do business with Iran. There are political risks, both as a result of potential corruption in Iran and the new Trump administration in the U.S., a possibility of ‘snap-back’ if Iran fails to adhere to all of its nuclear obligations under the JCPOA, and to some extend there still exists a stigma of doing business with Iran that could hurt a business’s reputation.
The Trump administration appears to be confrontational regarding the JCPOA, however, the details of its policies remain very unclear.
The Jurisdiction of EU Sanctions
The U.S. rules on Iran stand in stark contrast to the changes implemented by the EU.
Ms. Nychay starts by explaining the scope of EU jurisdiction. EU rules on Iran apply to any individual or business: within EU territory, any EU national or business incorporated in a Member State, anyone on board an aircraft or vessel under the jurisdiction of a Member State, or any business done in whole or in part within the EU. The latter category can be the most complicated to navigate, especially if for example, a business procures a vessel in the EU, which is manufactured in China and eventually intended for sale in Iran, EU jurisdiction would be extended to cover that vessel. These situations, however, are decided on a case-by-case basis. Though EU law is consistent, each Member State implements EU lawsin their own way, making the outcome of a case also potentially dependent on whether the case is heard in France, the U.K., Poland, or another Member State.
EU Sanctions on Iran: what has been lifted and what remains?
Following Implementation Day, prohibitions on Iran were lifted, namely those involving trade and finance, such as: oil & gas, SWIFT transactions, software and technology, shipping and transport, precious metals, and some asset freezes.It should be noted that only some individuals have been delisted, therefore, it is still wise to monitor these lists regularly.
There are still some EU sanctions that continue to have effect, which can be broken up into two categories.
- Those dealing with the cultivation of nuclear or military programs, such as arms and missile technology as well as asset freezes on some key individuals and entities.
- Those relating to human rights standards and a number of listed individuals and entities related to Da’esh and Al’Qaeda.
The result is the facilitation of foreign investment and the bolstering of Iran’s economy while, at the same time, maintaining a strong stance on human rights and anti-terrorism.
This, of course, stands in contrast to the US who, despite also encouraging trade in Iran and boosting of the Iranian economy, still maintains much stricter restrictions in relation to persons engaged in dealings with Iran.
How to stay compliant with EU Sanctions on Iran
Ms. Nychay provides a few recommendations on how professionals can make sure to stay compliant.
- Always live up to the strictest standard. If a transaction happens to have a U.S. and E.U. nexus, then try to adopt the stricter U.S. standard;
- Monitor and screen all counter parties to a transaction, by checking all applicable lists and regulations (such as EU Regulation 267, 833, and OFAC’s SDN List);
- Do not process USD denominated payments through the U.S. financial systems as they are almost sure to not be cleared; and
- Ring-fence any U.S. persons within the company from business being done with Iran.
Ms. Nychay reminds us that the U.K. is moving towards a U.S.-style of sanctions enforcement, which will affect financial sanctions going forward. The U.K. will now impose civil penalties for sanctions violations as well as a fine equaling the greater of £1 million or 50% of the value of the transaction. In addition, the U.K. has eased its standard of proof to a “balance of probabilities” and extended its jurisdiction to all transaction with a “U.K. nexus”.
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