Below we provide a brief summary of the reimposed sanctions and the implications thereof.
The recently reimposed U.S. secondary sanctions
Transactions Covered by Secondary Sanctions
With both wind-down periods now complete, the secondary sanctions that were previously waived are now effective. These include sanctions on the purchase or acquisition of US dollars by the Government of Iran; Iran’s trade in gold or precious metals; the sale, supply, or transfer to or from Iran of graphite, raw or semi-finished metals and software for integrating industrial processes; significant transactions related to the purchase/sale of rials; and the purchase, subscription to, or facilitation of the issues of Iranian sovereign debt.
The sanctions also target the automotive sector; shipping and shipbuilding sectors; the energy sector; petroleum-related transactions; transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions; the provision of specialised financial messaging services to the Central Bank of Iran and Iranian financial institutions; and certain underwriting services, insurance and re-insurance.
Specially Designated Nationals
The U.S. government also placed nearly 700 individuals, entities, aircrafts, and vessels on the List of Specially Designated Nationals (“SDN”). Many of these SDNs are subject to secondary sanctions and therefore non-U.S. persons can be penalized for engaging in certain transactions with these SDNs and/or providing them with material support.
General License H
As of November 5, the wind-down period associated with General License H has also ended. Therefore, U.S.-owned or controlled foreign entities are no longer permitted to engage in Iran-related trade, unless an exception applies or they have obtained a specific license. In other words, primary sanctions now fully apply to U.S.-owned or controlled foreign entities.
Agriculture and Medicine
The reimposition of secondary sanctions has not affected the authorizations and exceptions that allow for the sale of agricultural commodities, food, medicine, and medical devices, provided those transactions do not involve SDNs that were designated in connection with Iran’s support for international terrorism and proliferation of weapons of mass destruction. If your transactions for agricultural commodities, food, medicine or medical devices involve a person or entity on the SDN list, it will be necessary to consider the exact legal authority under which the specific SDN was designated in order to accurately determine if the transaction can expose you to secondary sanctions. For non-U.S. companies that continue to engage in non-sanctionable trade, the key will be transporting and otherwise completing the transaction without the involvement of persons designated for their involvement in international terrorism and proliferation of weapons of mass destruction. These SDN listing of these persons and entities will include certain tags, for example, [SDGT] and [NPWMD].
Significant Reduction Exception
In conjunction with the reimposition of secondary sanctions, the Trump administration issued “waivers” to eight countries allowing them to continue their purchase of Iranian oil for 180 days. Thus far these waivers have been issued to China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey. Full compliance with these waivers requires that the trades are strictly bilateral between the country that received the waiver and Iran. Additionally, the trade must be conducted in the currency of the country that received the waiver and the funds are not to be repatriated back to Iran. Lastly, purchases of Iranian oil cannot involve persons or entities designated in connection with Iran’s weapons proliferation or support for terrorism.
What should I do?
In order to avoid breaching the U.S. secondary sanctions, companies that have decided to continue their Iran-related business should exercise extreme caution even when the goods being sold or transported are not themselves sanctionable, and ensure they deploy robust due diligence on all aspects of the trade and all parties involved. In particular, the SDN list is amended frequently and parties that were not previously subject to secondary sanctions may now be listed as such. Regular checks should, therefore, be performed. It is crucial in this context to identify the authorities under which an Iranian counter-party is designated as this governs the extent of the commercial relationship that may safely be entertained.
What about the EU "Blocking" Statute?
As we have previously reported, the EU has emphasised its ongoing commitment to the JCPOA, and has reactivated its so-called “blocking” statute. This piece of legislations seeks to do a number of things, chief among them being that it makes it a breach of EU law to take business decisions about Iran trade where those decisions are based upon compliance, whether directly or indirectly, with the U.S. secondary sanctions. Depending on the particular scenario in which you find yourself these potentially mutually exclusive obligations can be very difficult to balance. It is imperative that any EU company taking decisions about its Iran trade carefully interrogates its exposure not just to US Secondary Sanctions but under the blocking statute as well.
Reed Smith’s Sanctions team and Shipping Group are uniquely well placed to advise on the impact of the re-imposed U.S. sanctions and the EU Blocking Regulation, with highly experienced trade and sanctions lawyers from both the United States and the EU available to you, 24/7. Contact one of the authors listed above, or your usual Reed Smith lawyer, and we will be more than happy to help you navigate the implications of these significant events for your business.
Client Alert 2018-227
