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Sanctions against Iran eased

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Clyde & Co logoThe first stage of the Geneva Joint Plan of Action (JPOA),  agreed by Iran and the P5+1 on 24 November 2013, came  into effect on 20 January 2014 following co-ordinated  action by the EU and US.

The first stage is to last 6 months, renewable for a further 6 months
by mutual consent, and is intended to provide the conditions to enable
further discussions between Iran and P5+1 to take place with a view to
reaching a comprehensive solution on Iran’s nuclear development and
the dismantling of the sanctions regime against Iran. During this
period Iran is required to undertake a number of voluntary measures
towards rolling back and limiting its nuclear capabilities and in return the
P5+1 will also undertake a number of voluntary measures amounting to
“modest sanctions relief”. (Please see our update of 24 November 2013)
This modest relief was implemented on 20 January 2014 by an amendment
to EU Regulation 267/2012 and by the release by the US of “key documents
to begin implementation” of the JPOA.

Relief from EU sanctions
The amending Regulation (2014/42/EU) provides limited relief from EU sanctions as follows:
Crude oil and petroleum products – Article 11 of Regulation 267/2012
– Suspension of the prohibition against transporting certain crude oil or
petroleum products of Iranian origin or that are exported from Iran
– Suspension of the prohibition against providing insurance and
reinsurance in respect of the import, purchase or transport of
certain crude oil or petroleum products of Iranian origin or that
are exported from Iran
– The prohibited products are set out in detail in Annex IV of Regulation
267/2012. The products which are subject to these suspensions
are set out in a new Annex XI but are limited to “petroleum oils and
bituminous minerals, crude”. Annex XI does not include any of the
other products listed in Annex IV, including petroleum oils obtained
from bituminous materials other than crude, bitumen and asphalt,
petroleum coke, petroleum jelly and paraffin wax. Technically,
therefore, there is no suspension of the prohibition on transporting or
insuring the import, purchase or transport of these products
– Furthermore, the amending Regulation does not affect
paragraphs 1(a) or (b) of Article 11 and so the import of Iranian crude
oil or petroleum products into the EU, or the purchase by persons
subject to Regulation 267/2012 of Iranian crude oil or petrole

Petrochemical products – Article 13 of Regulation 267/2012
– Suspension of all of the prohibitions relating to the import, purchase,
transport or insurance of petrochemical products set out in
Article 13 and Annex V of Regulation 267/2012

Gold and precious metals – Article 15 of Regulation 267/2012
– Suspension of the prohibitions relating to the supply, transfer
or export or purchase, import or transport of certain gold and precious
metals products
– The products which are subject to these suspensions are set out in a
new Annex XII. They include all the previously prohibited items,
such as gold and platinum, with the exception of diamonds which are,
therefore, still subject to prohibitions

Freezing of funds and economic resources – Article 28
– A further derogation from the prohibition upon making funds and
economic resources available to designated persons, permitting the
competent authorities to authorise the release of economic resources/
funds to the Ministry of Petroleum if they have determined that
those funds are necessary for the performance of contracts for the
import, purchase or transport of petrochemical products

Restrictions on transfers of funds and on financial services – Articles
30 and 30a
– A tenfold increase in the thresholds or notification and authorisation of
transfers of funds

Vessels designed for the storage of oil/petrochemical products – Article 37b
– Suspension of the prohibition against making vessels designed for
the transport or storage of oil and petrochemical products available
to an Iranian person, entity or body or any other person, entity or body
unless the provider of the vessel has taken appropriate action to prevent
the vessel from being used to carry or store Iranian origin or Iranian
exported petrochemical products or oil.

It is important to remember, however, that there are many
restrictions in Regulation 267/2012 that remain in force. In addition to
those highlighted above in relation to petroleum products and the
supply of diamonds, there are still prohibitions against the provision
of insurance to Iranian persons and prohibitions on the supply of
key equipment and technology in the oil, gas and petrochemical
industry, key naval equipment and technology, as well as enterprise
software, raw and semi finished metals and natural gas. Iranian credit
and financial institutions are still subject to the restrictions contained
at Article 30 which restrict them from dealing with EU credit and financial
institutions and they are still prevented from utilising the SWIFT
messaging system.

Relief from US Sanctions
The “key documents to begin implementation” of the JPOA released
by the US on 20 January include: (1) Guidance Relating to the Provision of
Certain Temporary Sanctions Relief in Order to Implement the Joint Plan
of Action (Guidance Document),
(2) a Statement of Licensing Policy on Activities Relating to the Safety
of Iran’s Civil Aviation Industry (Licensing Policy Statement), and (3)
Frequently Asked Questions (FAQs).

In implementing the JPOA, the Guidance Document explains that
sanctions are being eased regarding:
– Trade in Iranian petrochemical products
– The sale, supply, or transfer to Iran of goods or services use
in connection with the Iranian automotive sector
– Trade to or from Iran of gold and other precious metals
In general, “associated services” ordinarily incident to the above
activities – including insurance, transportation, and financial services
– are also permitted.

However, certain limitations remain in place:
(1) “US Persons” — including US citizens, US-incorporated companies, and US-owned foreign
companies – remain prohibited from involvement in most such transactions;
(2) the transactions must begin and end during the “JPOA Period, ” i.e.,
January 20, 2014 to July 20, 2014;
(3) sanctions may still be imposed if the transactions are conducted
with or involve certain Specially Designated Nationals (SDNs).

The Guidance Document also provides that the US will allow China,
India, Japan, the Republic of Korea, Taiwan, and Turkey to maintain
their current average level of imports of Iranian crude, and it exempts
from sanctions certain instalment payments to Iran. According to
the FAQs, the instalments involve scheduled payments to Iran totalling
USD 4.2 billion to be paid by foreign financial institutions with which the
US will make specific arrangements.

The Licensing Policy Statement establishes a “favorable licensing
policy regime” to permit licensing of transactions to ensure the safe
operation of Iranian commercial passenger aircraft. Notably, the
Licensing Policy Statement states that specific licenses issued pursuant
thereto will expire on July 20, 2014, and that all related activities must be
completed by that date.

Finally, the Guidance states that mechanisms will be established
to further facilitate the purchase of, and payment for, the export of
food, agricultural commodities, medicine, and medical devices to
Iran, to facilitate Iran’s payments of UN obligations, and for payment for
medical expenses incurred abroad by Iranian citizens and payments of
governmental tuition assistance for Iranian students studying abroad.

The implementation of the first stage of the JPOA is reason for cautious
optimism that a comprehensive agreement can be reached, but it is
important not to underestimate the serious difficulties which lie ahead in
the negotiations between Iran and the P5+1.

The limited sanctions relief that forms part of the first stage of the
JPOA provides the opportunity for some increased trade with Iran.
However, many restrictions remain in force in both the US and EU and
these are capable of extraterritorial application. In particular, there
are still EU and US restrictions on dealings with Iranian credit
and financial institutions and on investment in Iran’s oil and gas sector.
The overlapping nature of these extraterritorial restrictions make
them particularly complex. Caution should still be exercised, and legal
advice taken, before embarking on new business with Iran.

Further information:
Viewers that would like further information  on any issue raised in this update
please get in touch with any of the  key contacts listed on our sanctions
microsite, sanctions.clydeco.com  or contact:
Anousheh Bromfield London  E: anousheh.bromfield@clydeco.com
Douglas MaagNew York E: douglas.maag@clydeco.us
Patrick Murphy Dubai E: patrick.murphy@clydeco.com

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