On 22 December 2012, the EU implemented additional sanctions measures on Iran, notably introducing additional product and sector specific controls on the movement of certain goods to and from Iran, and tightening existing funds transfer controls that apply to transactions with Iranian persons. These new measures present further compliance hurdles for those who continue to do business with Iran.
Recent Developments
The EU agreed a package of new sanctions measures on 15 October 2012, further extending its already extensive suite of restrictive measures on Iran. These new measures were implemented by way of Council Regulation (EU) No. 1263/2012 (the "Regulation") and apply from 23 December 2012. The Regulation amends Council Regulation (EU) No. 267/2012, which gives effect to the existing EU sanctions regime on Iran.
As outlined in our recent client alert, the key new measures include:
• a tightening of the existing controls on transfers of funds to and from Iranian persons, imposing broader restrictions on transactions between EU and Iranian financial institutions;
• an extension of the products covered by the existing controls on the supply of key oil and gas equipment to Iran;
• new product and sector specific prohibitions on:
– the sale, supply, transfer or export to Iran of graphite and certain base metals in raw or semi-processed form, and related technical and financial assistance;
– the purchase, import or transport of natural gas that originates in Iran or has been exported from Iran, and related technical and financial assistance;
– the sale, supply, transfer or export to Iran of specified key naval equipment and technology, and related technical and financial assistance;
– the provision of shipping services in respect of oil tankers, cargo vessels and other ships flying the Iranian flag or owned or controlled by an Iranian person, including classification services, design, construction and repair, and the making available of vessels designed for the transport of oil or petrochemical products to any Iranian person;
– the sale, supply, transfer or export to Iran of Enterprise Resource Planning (ERP) software specifically designed for use in the nuclear, military, gas, oil, navy, aviation, financial or construction industries, and related technical and financial assistance; and
• a further expansion of the list of entities, organisations and individuals subject to designated person controls under the EU Iran sanctions regime.
Changes to Funds Transfer Controls
The Regulation implements changes to the existing controls on transfers of funds to and from Iranian persons. Under the existing controls, those arranging transfers to or from Iranian persons are required to submit a prior notification to the competent authority (HM Treasury in the UK) for transfers of sums exceeding EUR 10,000 and to seek prior authorisation for transfers of sums of EUR 40,000 and above. For transfers relating to foodstuffs, healthcare, medical equipment or for agricultural or humanitarian purposes, there is only an obligation to submit prior notification for transfers exceeding EUR 10,000.
These controls remain in place. However, the threshold for prior notification has been very slightly amended to cover sums equal to or above EUR 10,000, as opposed to exceeding EUR 10,000. In addition, and more significantly, the Regulation tightens the existing controls by imposing stricter requirements on transfers between, on the one hand, credit and financial institutions subject to the jurisdictional scope of the EU sanctions regime and, on the other hand, credit and financial institutions and bureaux de change domiciled in Iran and branches and subsidiaries thereof (wherever located), as well as those not domiciled in Iran but controlled by Iranian persons. Where such transactions involve a sum of EUR 10,000 or more, they are no longer subject to prior notification requirements, but instead prior authorisation from the competent authority must be obtained. Such authorisation may only be granted in limited circumstances (including, but not limited to, transfers relating to a specific trade contract not prohibited by the EU sanctions regime, or regarding foodstuffs, healthcare, medical equipment or for agricultural or humanitarian purposes).
One additional point to note is that transfers relating to foodstuffs, medical equipment or agricultural or humanitarian purposes, and which involve an EU and an Iranian financial institution, are now subject to prior notification where the sum is equal to or above EUR 10,000 but below EUR 100,000, and prior authorisation where of a sum of EUR 100,000 or more.
A more detailed explanation of these changes is included in our previous client alert.
These controls are in addition to the unilateral measures adopted by the UK in November 2011 prohibiting all transactions and business relationships between UK credit and financial institutions and their Iranian counterparts (as to which, see our November 2011 client alert).
Extension of Controls on Oil and Gas Equipment
Under the existing EU sanctions regime on Iran, it is prohibited to supply key oil and gas equipment, as specified in Annex VI to Council Regulation (EU) No. 267/2012, to an Iranian person or for use in Iran. The Regulation extends the scope of these controls to also include products listed in a new Annex VIA, which includes various pipes, tubes, casing and containers controlled by reference to their customs tariff classification. Depending on the date of their agreement, certain pre-existing contracts will continue to be exempt from this prohibition provided they are notified to the competent EU Member State authority at least 20 working days prior to engagement in the transactons and executed by 15 April 2013.
Supply of Graphite and Metals
The Regulation introduces a prohibition on the supply, sale, transfer or export to Iran or any Iranian person of graphite and raw or semi-processed metals and related technical or financial assistance. This prohibition extends to many base metals in unwrought, semi-processed (for example, as powder, wire, rods, cables) or waste/scrap form, including, inter alia, iron, steel, copper, nickel, aluminium, calcium, lead, magnesium, tin, titanium, zinc and zirconium. The specific products included within the scope of this prohibition are again defined by reference to their customs tariff classification. The Regulation includes a carve-out for the execution, by 15 April 2013, of contracts concluded before 22 December 2013 or ancillary contracts necessary for the execution of such contracts.
Import of Iranian Natural Gas
The Regulation prohibits the purchase, transport or import of natural gas which originates in Iran or has been exported from Iran, as well as the provision, directly or indirectly, of related services including brokering services, financing or financial assistance, insurance, re-insurance and insurance brokering. It is also prohibited to swap natural gas which originates in Iran or has been exported from Iran in exchange for natural gas streams of different origin. These prohibitions do not apply to natural gas that has been exported from a country other than Iran when the exported gas has been combined with gas originating in Iran within the infrastructure of the exporting country. For the purposes of these new measures, the term "natural gas" is defined by reference to specific customs tariff classification headings and includes natural gas in liquefied or gaseous state, natural gas condensates, propane and butanes.
Supply of Naval Equipment
The sale, supply, transfer or export of specifically listed naval equipment (such as turbines, engines, propellors, navigational instruments and related parts and machinery) to Iran or any Iranian person is prohibited. The new measure does not apply to the execution, until 15 February 2013, of contracts concluded before 22 December 2013, or to vessels forced into an Iranian port or Iranian territorial waters under force majeure.
Provision of Shipping Services
The Regulation introduces several controls on the provision of services in respect of vessels flying the Iranian flag or owned or controlled by Iranian persons. These include prohibitions on:
• the supervision of or participation in the design, construction or repair of such vessels and their parts and related technical or financial assistance, as well as inspection, testing and certification of marine equipment and the supervision of their installation on board and related system integration;
• the provision of ship classification services of any kind; and
• the carrying out of ship surveys, inspections, audits and visits, and the issuance, renewal or endorsement of relevant certificates and documents of compliance with marine rules and regulations.
The above prohibitions will apply from 15 January 2013.
In addition, the Regulation prohibits the making available of vessels designed for the transport and storage of oil and petrochemical products to any Iranian person, or to any other person for the purpose of transporting or storing such products that are of Iranian origin or were exported from Iran (subject to a pre-existing contract exemption).
Supply of ERP Software
The Regulation prohibits the sale, supply, transfer or export to Iran of ERP software designed specifically for use in the nuclear, military, gas, oil, navy, aviation, financial and construction industries. The Regulation clarifies that, for these purposes, ERP software includes software used for financial accounting, management accounting, human resources, manufacturing, supply chain management, project management, customer relationship management, data services or access control.
Expansion of Designated Persons List
The list of Iranian entities, organisations and individuals designated as EU sanctions targets has been expanded by Council Regulation (EU) No. 1264/2012, with effect from 22 December 2012.
The new designations include one additional individual, Mr Babak Zanjani, owner of the UAE-based Sorinet Group, and 18 additional entities, including several National Iranian Oil Refining and Distribution Company (NIORDC) affiliates, the Iran Aluminium Company (IRALCO), the Malaysia-based First Islamic Investment Bank (part of the Sorinet Group), Hong Kong-based Hong Kong Intertrade Company Ltd, Switzerland-based Petro Suisse, the Moallem Insurance Company (the main insurer of the Islamic Republic of Iran Shipping Lines (IRISL)), and several research bodies.
It is now prohibited to make available, directly or indirectly, any funds or economic resources to or for the benefit of the above persons. These persons are also subject to an EU asset freeze.
Recommended Actions
These new measures further increase the complexity for those seeking to continue to do business with Iran. In light of increasing political sensitivity and the risk of enforcement by EU Member State authorities, businesses must take the following steps before engaging in dealings involving Iran:
• screen (and regularly re-screen) counterparties, end-users, banks and other third parties potentially benefiting from the transaction to verify that they are not on (and are not owned or controlled by someone on) the expanded list of designated persons;
• consider the application of controls on the transfer of funds to or from an Iranian person, bearing in mind the enhanced prior authorisation requirements relating to transactions involving EU and Iranian banks; and
• assess whether any products or technology being purchased or supplied fall within the scope of any product or sector-specified controls that apply to Iran, including the new controls introduced on 23 December 2012.
If you have any queries, please contact a member of Baker & McKenzie's International Trade Practice Group.
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Other Baker & McKenzie Client Alerts issued since 2010 regarding sanctions against Iran:
United Nations, European Union, and United States Significantly Extend Sanctions Against Iran
President Signs New Iran Sanctions Bill
Significant Extension of EU Sanctions Against Iran
U.S. Treasury Department Issues New Iranian Financial Sanctions Regulations
Canada Unveils New Trade Sanctions Against Iran
EU Publishes Draft Regulation on New Iran Sanctions
Japan's Sanctions Against Iran: Extension of UNSC Resolution 1929
New Expanded EU Iran Sanctions Come Into Force
U.S. Government Implementation of New Iran Sanctions Legislation
Switzerland Tightens Up Its Sanctions Regime Against Iran
U.S. Government Issues Guidance Regarding New Iran Sanctions Legislation and Publishes Iranian Human Rights Abuses Sanctions Regulations
U.S. Government Imposes Sanctions for Refined Petroleum Product Activities under Amended Iran Sanctions Act and EU Extends Iran Sanctions
FinCEN Imposes New Reporting Requirement on Iranian Financial Transactions
UK Prohibits All Dealings Between UK and Iranian Banks
Administration Announces New Sanctions Against Iran’s Energy Sector and Financial System
Further Round of EU Sanctions Against Iran
U.S. Government Blocks Government of Iran, Central Bank of Iran, and Iranian Financial Institutions
OFAC Reissues Iranian Financial Sanctions Regulations
EU Significantly Extends Sanctions on Iran
U.S. Government Significantly Expands Sanctions Targeting Iran
Non-U.S.Subsidiaries of U.S. Companies Now Subject to U.S. Sanctions Targeting Iran
EU Further Strengthens Sanctions Measures on Iran
OFAC Issues Iranian Transactions and Sanctions Regulations
