Be aware of Sanctions Peregrine Storrs-Fox Risk Management Director, TT Club
Despite significant political, legislative and judicial developments in the two months since Hassan Rouhani was elected President of Iran, the current EU and US sanctions against Iran remain by far the most onerous sanctions. Where sanctions in general are complex and require close attention, any business engaging in any trade which has any connection with Iran has to pay particular attention to the onerous restrictions and recognise the significant ‘teeth’ behind the political positioning.
The EU sanctions against Iran first imposed in 2007 were limited to an asset freeze against 10 entities and 12 individuals, plus an embargo on a limited number of items for Iran’s nuclear programmes. After many revisions to the sanctions programme, there is now a lengthy list of overlapping prohibitions and restrictions which makes any trade with or involving Iran highly problematic.
Measures imposed in October 2010 added prohibitions on financing and investing in certain Iranian businesses, including the oil and gas sector, rules applying to all transfers of funds to and from Iranian persons, entities and bodies (even where they do not appear on the asset freeze list), restrictions on EU banks and financial institutions, a ban on the provision of insurance and restrictions on transport.
Yet more restrictions were imposed in March 2012, including prohibitions relating to key equipment for Iran’s oil and gas sector, Iranian crude oil, petroleum and petrochemical products, gold, precious metals and diamonds and Iranian currency, as well as a prohibition on the supply of specialised financial messaging services for clearing banking transactions.
Further measures imposed in December 2012 include restrictions on transfers involving Iranian banks as well as prohibitions relating to key naval equipment and technology, specialist software, Iranian natural gas, graphite, raw and semi-finished metals, services to Iranian ships and the supply of oil and petrochemical tankers.
The list of asset freeze targets was expanded in parallel throughout 2011, 2012 and 2013 with the result that the asset freeze list currently includes over 100 individuals and almost 500 entities.
The US has kept pace with expanding EU sanctions against Iran and has even tended to adopt more onerous restrictions than the EU. US domestic measures effectively amount to a complete prohibition on trade between US persons and Iranian persons other than certain licensed trades, such as foodstuffs, medical supplies and humanitarian aid to Iran. The US domestic measures will of course apply to US transport operators but they will also impact indirectly on non-US transport operators where the company is owned or controlled by a US company, where it employs US nationals as directors, or where it makes US Dollar payments.
In addition to domestic measures, the US has passed numerous pieces of sanctions legislation which have extra-territorial effect, including the Comprehensive Iran Sanctions, Accountability & Divestment Act 2010 (‘CISADA’), the Iran Threat Reduction & Syria Human Rights Act 2012 (‘TRA’) and the Iran Freedom and Counter-Proliferation Act of 2012 (‘IFCA’).
These sanctions affect companies worldwide because of the nature of the penalties for breaching the sanctions, the most significant of which is likely to be exclusion from the US banking system (which in turn would mean that the company could not make or receive any US Dollar payments). US regulators have aggressively enforced the sanctions against Iran, with substantial fines imposed against banks including Standard Chartered, which agreed to pay USD327 million in fines in December 2012.
The measures target Iran’s oil and gas sector, its port operators, shipping and shipbuilding sectors and restrict trade with designated entities (referred to as Specially Designated Nationals, or SDNs) as well as prohibiting the sale and purchase of certain items (including crude oil, petroleum products, metals and coal). There are also measures which specifically target banks, insurers and brokers, with the result that trade with Iran is restricted in a host of different, but overlapping, ways.
In order to ensure compliance with international trade sanctions, a transport operator which engages in any trade which has any connection with Iran needs to check carefully the identity of its counterparties (as well as any other party involved in the transaction, such as port agents and port operators) to ensure that they are not included on any sanctions list, such as the US SDN List.
Transport operators also need to obtain information from their customer about the precise cargo which is being carried, as well as the intended receiver (and ultimate end user), so that they can check that neither the cargo nor the cargo interest are subject to any restrictions.
Transport operators need to consider whether their existing contractual warranties give them adequate protection against the risk that their counterparty is a sanctioned entity, or is trading with sanctioned entities, or is asking them to carry prohibited goods. Suitable warranties are not commonly found in standard trading conditions, nor international carriage regimes; transport operators may need to seek legal advice on suitable additional terms to include in their contracts and ensure that they are effectively incorporated.
If the transport operator is persuaded to engage in legitimate, permitted trade with Iran, such as cargoes of foodstuffs or humanitarian aid to non-designated persons, he should liaise closely with his bank and his insurers to check that all necessary payments can be made, that he will have insurance cover for the voyage, and that, in the event that security needs to be put up or claims paid, this can be done. Banks and insurers will commonly require detailed evidence that there is no risk of a sanctions violation.
Modern supply chains are themselves complex and anyone who suspects that sanctions may impact on their business should take legal advice. However, the following websites contain current and, generally, clear guidance on this intricate aspect of international trade:
We gratefully acknowledge the assistance in the preparation of this article of Daniel Martin of Holman Fenwick Willan LLP
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Risk Management Director, TT Club