By: Anna Sayre, reporter SanctionsAlert.com
Date: May 20, 2016
On January 16, 2016, the U.S. and the European Union implemented a plan to reduce sanctions against Iran. Now known as “Implementation Day,” it follows the Joint Comprehensive Plan of Action (JCPOA), of July 14, 2015 among the US, Russia, China, France, the UK, Germany (known as “P5+1”) and Iran. Under the JCPOA, the Iranian government agrees to significantly reduce its nuclear program in exchange for a relative easing of sanctions imposed by the United Nations, EU, and United States.
This new sanctions regime displays many changes in what is allowed and prohibited when dealing with Iran or in goods and services bound for Iran. In a recent webinar at sanctionsalert.com, Babak Hoghooghi, an attorney at Berliner, Corcoran & Rowe in Washington, DC and Nadiya Nychay, an attorney at Dentons in Brussels, analyzed the changes that were affected by Implementation Day in the US and EU, and the areas that should be taken into account and potential risks involved when doing business with Iran.
US sanctions before and after Implementation Day
Hoghooghi outlined the various sanctions programs that have been imposed against Iran in recent decades. Generally, they included primary sanctions, relating to U.S. persons, and secondary sanctions, relating to non-US persons. Most of the sanctions were motivated by US interest in protecting against terrorism, violations of human rights, or the creation and proliferation of weapons of mass destruction.
Following the JCPOA, the US eased its sanctions against Iran, but most of these changes centered on secondary sanctions. Almost all secondary sanctions have been removed by the JCPOA, as well as many sanctions that relate to obstruction of trade or that are seen as hindering the Iranian economy. These include readmission of SWIFT transactions, transactions with the Central Bank of Iran, and trading in Iranian currency, software and technology, gold and other precious metals.
Despite this reduction, however, most US persons are still barred from conducting business with the Iranian government or Iranian companies. This applies to all goods and services whether they originate in the US or not. In short, as long as a US person has reason to know that goods and services will reach Iran or are for the benefit of Iran, this type of activity remains strictly prohibited. The exceptions are few, but include: humanitarian grounds, such as export of medicine and medical supplies, personal communication, such as devices for chatting and social networking; phones and laptops, as well as the export of commercial passenger aircraft equipment for civil aviation (which is still limited by the requirement of a license).
This stands in stark contrast to the changes implemented by the EU.
Implementation Day’s effect on EU sanctions
Prior to the JCPOA, Ms. Nychay pointed out, EU sanctions focused on five key areas: oil & gas investment, banking transactions, nuclear and military programs, trading in precious metals and human rights. After Implementation Day, many of these prohibitions were lifted, including those involving trade and investment such as, oil & gas, SWIFT transactions, and trading in precious metals. Those involving cultivation of nuclear or military programs as well as maintaining human rights standards remain untouched. This facilitated foreign investment and bolstered Iran’s economy while maintaining a strong stance on human rights and anti- terrorism.
EU persons may now transfer funds to Iran, such as by SWIFT, open Iranian offices and bank accounts, provide insurance and grant loans to Iran, trade in Iranian crude oils, chemicals and precious metals, as well as supply and transfer equipment and technology to Iran. There are a few notable exceptions to this wide net, such as dual use items, trading in nuclear proliferation, and the sale of precious metals. The EU seeks to encourage trade in Iran by implementation of this new softened sanctions regime. Its member states, such as the UK, have been very supportive of this goal. UK Foreign Secretary Philip Hammond recently said, “I hope British businesses seize the opportunities available to them through the phased lifting of sanctions on Iran.”
This stands in contrast to the US which, despite encouraging trade with Iran and boosting the Iranian economy, still maintains stricter restrictions on persons engaged in commerce with Iran.
How changes affect compliance and due diligence
Although the US and EU have eased their sanctions policy against Iran, the new regimes have, at the same time, also become more complex and idiosyncratic. Following Implementation Day, there will be more investors who are anxious to trade and conduct business in Iran and with Iranian companies. This new influx of commerce could have strong implications for compliance and due diligence United States, British and other Western countries that ease restrictions with Iran. This highlights the need for more robust compliance and know your customer procedures by financial institutions and non-financial businesses.
It is likely that compliance units must now be more diligent in assessing client transactions with Iran to determine which are allowed and which are prohibited. It will be important for them to understand the nuances of the JCPOA and how it pertains to changes in US and EU sanctions regimes.
Because Iran has a great commerce potential and is rich in natural resources, it’s opportunity for growth in commerce is limitless.