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Snap back of the US sanctions against Iran: impact on businesses in the Middle East

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On 8 May 2018 the President of the United States announced his decision to re-impose nuclear-related sanctions against Iran. 

By way of reminder, the US and the EU sanctions programme against Iran were lifted by the Joint Comprehensive Plan of Action (JCPOA) on its Implementation Date of 16 January 2016. Following the US President’s announcement, the EU participants confirmed their commitment to the JCPOA and have since indicated that they would rely on the “blocking statute” to minimize the impact of the US sanctions on EU companies.

Who will be affected by the snap back of the sanctions?

The US will re-impose secondary sanctions, i.e. sanctions that apply to non-US companies and individuals. The primary sanctions directed at US entities remained in place throughout the entire period the JCPOA has been in place. This means that businesses based outside of the US will be those most affected by the snap back of the US Iran sanctions programme. Therefore, the sanctions described below are mostly secondary sanctions unless indicated otherwise.

What sanctions will snap back and when?

Sanctions snapping back on 6 August 2018

On 6 August 2018 (after 90-day wind-down period), the US government will re-impose sanctions relating to:

>  Purchase or acquisition of US dollar banknotes by the Government of Iran;

>  Iran’s trade in gold or precious metals;

>  Trade to or from Iran of graphite, raw, or semi-finished metals such as aluminium and steel, coal and software for integrating industrial processes;

>  Significant transactions related to the purchase or sale of Iranian Rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in Iranian Rials;

>  Purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and

>  Iran’s automotive sector.

In addition, by 6 August 2018 the US government will revoke authorizations under US primary sanctions regarding Iran for the importation of the Iranian-origin carpets and foodstuffs to the US and certain licenses related to export or re-export to Iran of commercial passenger aircraft and related parts and services as well as certain contingent contracts.

Sanctions snapping back on 4 November 2018

On 4 November 2018 (after 180-day wind-down period) the US government will re-impose sanctions relating to:

>  Iran’s port operators, and shipping and shipbuilding sectors, including sanctions imposed on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, or their affiliates;

>  Petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran;

>  Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions;

>  Provision of specialized financial messaging services to the Central Bank of Iran and other Iranian financial institutions;

>  Provision of underwriting services, insurance, or reinsurance; and

>  Iran’s energy sector.

In addition, as soon as administratively possible, the US government will revoke General License H which authorised certain trade with Iran by US owned or controlled entities as well as certain other licenses and replace them with specific wind-down authorizations effective during the 180 days wind-down period.

Blacklisted entities

Finally, no later than 5 November 2018, the US government will re-impose sanctions on persons removed from the List of Specially Designated Nationals and Blocked Persons (SDN List) and/or other lists maintained by the US government at the JCPOA Implementation Date. It is possible that further entities may also be added to the SDN list. Persons subject to secondary sanctions will have a notation of “Additional Sanctions Information – Subject to Secondary Sanctions” in their SDN List entry.

What can businesses do during the wind-down period?

The US government advises overseas businesses to use these time periods to wind-down their activities involving Iran that will become sanctioned at the end of the applicable wind-down period.

The grandfathering provisions state that in the event that a foreign business is owed payment after conclusion of the wind-down period for goods or services fully provided or delivered to an Iranian counterparty before the end of the applicable wind-down period under a written contract entered into prior 8 May 2018, and such activities were consistent with the US sanctions applicable at the time, the US government will allow the foreign business to receive payment from the Iranian entity pursuant to the terms of the agreement. However, any such payment cannot involve US persons or the US financial system unless specifically authorised.

Will there be any changes under the EU regime?

The EU governments have indicated their intention to adhere to the JCPOA. Therefore, no further sanctions will be introduced by the EU at this time. However, many EU entities have ties with the US and will have to comply with the applicable US secondary sanctions. EU businesses will also continue to be affected by the US primary sanctions where required by their US business partners (e.g. reinsurance placed by the EU insurance companies with US entities).

EU officials have indicated their intention to revive the “blocking statute” that would prohibit companies within their jurisdictions from complying with the US secondary sanctions against Iran. The “blocking statute” in question is the Council Regulation (EC) No. 2271/96 of 22 November 1996 was introduced to protect EU businesses against the effects of the extra-territorial application of legislation adopted by a third country. It remains to be seen how it will be implemented in this scenario and whether it will be effective in facilitating trade with Iran.

What impact will this have specifically on companies in the Middle East?

Companies that are based in the Middle East will be exposed to secondary sanctions just like any other non-US company. Many companies based in this region have continued to experience difficulties in trading with Iran during the JCPOA period. This has been due in large part to the reluctance of banks to process financial transactions that relate to business with Iran, even in circumstances where the business activity was not subject to any sanctions. It is expected that options for payments in and out of Iran will now become even more limited.

Furthermore, those EU entities that have been able to engage in business with Iran since the Implementation Date of the JCPOA, will now have to re-evaluate their participation in such activities and this will have an impact on their partners and business counterparties in the Middle East. The EU entities would be placed in a particularly sensitive position if the EU adopts the blocking legislation to counteract the effect of the US legislation and will have to navigate the two competing sanctions regimes carefully.

Companies based in the Middle East should evaluate whether any existing business that they have with Iran will be sanctioned following the snap-back and take the necessary steps to ensure compliance.

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