EU Iran Sanctions Update

EU COUNCIL REGULATION 359/2011 - 14 APRIL 2011

EU Council Regulation 359/2011 came into effect on 14th April 2011 in all Member States. It creates a new asset freezing regime complementing the existing EU financial sanctions in respect of Iran under EU Council Regulation 961/2010.  Regulation 359/2011 imposes asset freezing measures on individuals specifically identified as being responsible for human rights violations in Iran.  The UK Treasury has issued a Financial Sanctions Notice setting out its interpretation of EU Regulation 359/2011.

UK S.I. 2011 NO. 1129 "THE IRAN (ASSET-FREEZING) REGULATIONS 2011 - 14 APRIL 2011

In the UK Statutory Instrument 2011 No. 1129 "The Iran (Asset-Freezing) Regulations 2011" criminalises any breach by a UK national or bodies incorporated or constituted under the law of any part of the UK, of EU Regulation 359/2011.  Penalties include fines and imprisonment of up to two years.

EU IMPLEMENTING REGULATION 503/2011 - 24 MAY 2011

The European Council has amended Annex VIII to EU Regulation 961/2010 with effect from 24 May 2011.  The amendments take the form of the addition of five individuals and one hundred and eleven companies for the purposes of the asset freeze measures because of their alleged involvement in nuclear or ballistic missiles activities, and the updating of the identifying information of four existing entries.

It is notable that many of the newly listed entities are domiciled outside of Iran, including Germany, Isle of Man, Hong Kong, Malta, Cyprus, United Arab Emirates, Belarus, Malaysia and Switzerland.

HM TREASURY GUIDANCE NOTE ON REGULATION 961/2010 - 27 OCTBOER 2011

HM Treasury has published a Guidance Note on frequently asked questions concerning the implementation of Article 21 of EU Regulation 961/2010.  Article 21 imposes restrictions on funds transferred to and from Iranian entities: prior notice must be given of transactions over Euro 10,000 or equivalent to the competent authority of an EU Member State (in the case of the UK this is HM Treasury), and prior authorisation must be received for transactions of or over Euro 40,000 or equivalent in another currency.

The HM Treasury Guidance Note sets out advice on a variety of issues ranging from the timing of notification and authorisation requests to how to recognise and deal with linked transactions.  There is also a section dealing with due diligence requirements which will be of particular interest to members who might have need to determine if an "Iranian person" is involved in a particular transaction, or whether a particular entity is "owned or controlled" by an Iranian person, entity or body.

A copy of the Guidance Note can be downloaded from the link below. 

EU IMPLEMENTING REGULATION 1245/2011 - 1 DECEMBER 2011

With effect from 2^nd December 2011 the European Council has updated and amended the list of Iranian persons, entities and bodies designated for asset freeze as set out in Annex VIII to EU Regulation 961/2010. A further 37 individuals and 143 entities have been added to the list, largely comprising persons and entities deemed to be associated with Islamic Republic of Iran Shipping Lines ( IRISL) and the Islamic Revolutionary Guards Corps (IRGC).

A copy of the Regulation and a related H.M.Treasury Financial Sanctions Notification can be found below.

E.U. COUNCIL DECISION 0012/35/CFSP – 23 JANUARY 2012

The EU has taken steps to extend substantially the existing EU sanctions programme. This EU Decision is binding on the governments of Member States only and requires implementing legislation to bind individuals/entities within Member States. EU Regulations 54/2012 and 56/2012 dated 23 January 2012 implement the extended asset freeze measures set out in the Decision; the other measures in the EU Council Decision will be implemented by Regulation to follow.

EU Council Decision 0012/35/CFSP contains a range of measures, the most relevant to shipping being:

• an asset freeze on further entities and individuals, including the Central Bank of Iran and Bank Tejarat, as well as Tidewater Middle East Co (which operates 7 Iranian ports managing about 90pct of Iran’s container operations) (implemented by EU Regulation 54/2012);
• a ban on the import, purchase, or transport of Iranian crude oil, petroleum products and petrochemical products (Articles 3a 1 and 3b 1);
• a ban on the provision directly or indirectly, of financing or financial assistance, as well as insurance and reinsurance, related to the import, purchase, or transport of Iranian crude oil, petroleum products and petrochemical products (Articles 3a 2 and 3b 2);

In the light of these developments, entities should consider very carefully their position in respect of existing and proposed new contracts involving Iran’s energy and petrochemical industry. Once implemented, the ban on the provision of insurance in the Decision will apply to the Club, which is subject to EU jurisdiction, even if any Member engaged in the transport of Iranian crude oil, petroleum products or petrochemical products, is not subject to EU jurisdiction. The Club will therefore not be in a position to provide insurance for liabilities arising from such prohibited trade or activity, in particular where a ship is employed by the Member in a carriage, trade or on a voyage which will in any way howsoever expose the Club to the risk of being or becoming subject to any sanction, prohibition or adverse action. Further, the Club Rules provide for the restriction and/or cessation of cover in such circumstances, see Rules 17ii, 24i, 32iv and 35 vi and vii.

In addition the Decision also includes

•  a ban on the sale, supply or transfer of key equipment and technology for the petrochemical industry in Iran, or to Iranian or Iranian-owned enterprises engaged in that industry outside Iran, by nationals of Member States, or from the territories of Member States, or using aircraft or vessels under the jurisdiction of Member States, whether or not originating in their territories (Article 4a 1);
• a ban on technical assistance or training and other services related to key equipment and technology, and financing or financial assistance for any sale, supply, transfer or export of key equipment and technology provided to enterprises in Iran engaged in the Iranian petrochemical industry, or to Iranian or Iranian-owned enterprises engaged in that industry outside Iran (Article 4a 2);
• a ban on the direct or indirect sale, purchase, transportation or brokering of gold, precious metals and diamonds to, from or for the Government of Iran, its public bodies, corporations and  agencies and the Central Bank of Iran (Article 4c);
• a ban on the delivery of newly printed or minted or unissued Iranian denominated banknotes and coinage to or for the benefit of the Central Bank of Iran (Article 4d);
• a ban on granting financial loans or credit to enterprises engaged in the petrochemical industry in Iran or to Iranian-owned enterprises engaged in that industry outside Iran (Article 6a (a));
• a ban on the acquisition or extension of a participation in enterprises in Iran that are engaged in the Iranian petrochemical industry, or to Iranian or Iranian-owned enterprises engaged in that industry outside Iran, including the acquisition in full of such enterprises and the acquisition of shares and securities of a participating nature (Article 6a (b));
• a ban on the creation of joint ventures with enterprises engaged in the petrochemical industry in Iran or subsidiaries or affiliates under their control (Article 6a (c)).

Subject to a few exceptions (see below), the trading and insurance bans take effect from 23 January 2012.

With regard to the prohibition on import, purchase or transport of Iranian crude oil and petroleum products, Article 3c 1 sets out an exemption which applies to the performance until 1 July 2012 of contracts (or ancillary contracts necessary for the execution of such contracts) concluded before 23 January 2012.

With regard to the prohibition on transport of Iranian petrochemical products, Article 3d 1 sets out an exemption which applies to the performance until 1 May 2012 of contracts (or ancillary contracts necessary for the execution of such contracts) concluded before 23 January 2012.

In the case of both prohibitions (crude oil and petroleum products under Article 3a 1 and petrochemical products under Article 3b 1), the exemptions extend to the execution of obligations provided for in contracts concluded before 23 January 2012 or in ancillary contracts necessary for the execution of such obligations where the supply of Iranian crude oil, petroleum products, or petrochemical products, or the proceeds derived from their supply, are for the reimbursement of outstanding amounts with respect to contracts concluded before 23 January 2012 to persons or entities within the territories of Member States or under their jurisdiction, where those contracts specifically provide for such reimbursements.

COUNCIL IMPLEMENTING REGULATION 54/2012 – 23 JANUARY 2012

This Regulation implements the asset freezes contained in the Council Decision, taking the form of the addition of 3 individuals and 9 entities (including the Central Bank of Iran, Bank Tejarat, and Tidewater Middle East Co. which operates 7 Iranian ports managing about 90pct of Iran’s container operations). The asset freezing measures (which originate from Article 16 of EU Regulation 961/2010 of 25 October 2010), provide for the freezing of the funds and economic resources of persons and entities listed in Annexes VII and VIII of that Regulation.

COUNCIL REGULATION 56/2012 – 23 JANAURY 2012

This Regulation provides for derogations, with effect from 24 January 2012, from the asset freezing measures specifically in relation to Central Bank of Iran and Bank Tejarat.

In relation to Central Bank of Iran, the prohibitions in Article 16 of EU Regulation 961/2010 shall not apply to:

(a)

(i) a transfer by or through the Central Bank of Iran of funds or economic resources received and frozen after 24 January 2012;

(ii) a transfer of funds or economic resources to or through the Central Bank of Iran where the transfer is related to a payment by a person or entity not listed in Annexes VII or VIII to Regulation 961/2010 due in connection with a specific trade contract;

provided that the competent authority of the relevant Member State has determined, on a case by case basis, that the payment will not directly or indirectly be received by any other person or entity listed in Annexes VII or VIII; or

(b) a transfer made by or through the Central Bank of Iran of frozen funds or economic resources in order to provide financial institutions within the jurisdiction of EU Member States with liquidity for the financing of trade, provided that the transfer has been authorised by the competent authority of the relevant Member State.

In relation to Bank Tejarat, the prohibitions shall not prevent Bank Tejarat, for a period of two months from 24 January 2012, from making a payment from funds or economic resources received and frozen after 24 January 2012 or from receiving a payment, provided that:

(a) such payment is due in connection with a specific trade contract; and

(b) the competent authority of the relevant Member State (i.e. HM Treasury for the UK) has determined, on a case by case basis, that the payment will not directly or indirectly be received by any other person or entity listed in Annexes VII or VIII.

In order to benefit from these exemptions, it would be necessary to apply for a specific licence from the competent authority of the relevant Member State.

Reed Smith LLP has kindly given permission for their Client Alert on this subject (which also covers the latest US sanctions against Iran and latest EU sanctions against Syria) to be made available via this website.  This can be viewed and downloaded from the link below, together with copies of Council Decision 2012/35/CFSP, EU Implementing Regulation 54/2012, and EU Regulation 56/2012, and an HMT Financial Sanctions Notice commenting on the latest EU measures regarding Iran.

EU COUNCIL REGULATION 267/2012 CONCERNING RESTRICTIVE MEASURES AGAINST IRAN AND REPEALING EU REGULATION 961/2010

EU Council Decision 0012/35/CFSP dated 23 January 2012 contained a range of measures expanding the scope of sanctions in respect of Iran. Commentary on the Decision was discussed in Club Circulars B. 567 and L. 176 to which Members are referred.

The issues of most concern to the Club and its Members are:

• A ban on the import, purchase, or transport of Iranian crude oil, petroleum products and petrochemical products; and
• A ban on the provision, directly or indirectly, of financing or financial assistance, as well as insurance or reinsurance, related to those activities.

Articles 11 to 14 of the Regulation set out the above prohibitions, such that to those persons to whom the Regulation applies, it is prohibited to import, purchase or transport crude oil, petroleum products and petrochemical products if they originate in Iran, or have been exported from Iran. Lists of crude oil and petroleum products referred to in Article 11 and petrochemical products referred to in Article 13 are set out in Annexes IV and V of the Regulation respectively.  It is also prohibited to provide, directly or indirectly, financing or financial assistance, including financial derivatives, as well as insurance and reinsurance related to the import, purchase or transport of crude oil, petroleum products and petrochemical products. The Club is subject to this latter prohibition.

Under Articles 12(1) and 14(1), the prohibitions do not apply to the execution until 1 July 2012 of trade contracts concluded before 23 January 2012 where they involve crude oil and petroleum products, and until 1 May 2012 of trade contracts concluded before 23 January 2012 where they involve petrochemical products, nor do the prohibitions apply to “ancillary contracts necessary for the execution of such contracts”. Ancillary contracts may include certain insurance contracts although those contracts would need to be necessary for the execution of the underlying trade contract. It is not clear whether, for example, a Member’s Hull and Machinery policy would qualify under this exemption. Members subject to the Regulation and seeking to perform a trade or ancillary contract to which this exemption applies are required to notify, at least 20 days in advance, the activity or transaction to the competent authority within their Member State.

Articles 12(2) and 14(2) also provide a short grace period prior to the entry into force of the prohibitions relating to the provision of insurance and reinsurance, and state that in respect of third party liability insurance and environmental liability insurance and reinsurance, the prohibitions on the provision of insurance/reinsurance in relation to the import, purchase or transport of Iranian crude oil and petroleum products shall apply only from 1st July 2012, and from 1st May 2012 in relation to petrochemical products. It is not necessary in this case for the underlying trade contract to be concluded before 23 January. It is important to note that this grace period applies ONLY to third party liability insurance and environmental liability insurance and reinsurance, which will include P&I insurance, but will NOT apply to other types of insurance. The Club can continue to provide P&I insurance to its Members conducting otherwise lawful trade involving the transport of crude oil, petroleum products and petrochemical products originating in or being exported from Iran, but only until the 1^st July 2012 (1^st May for petrochemical products), following which the provision of insurance will be prohibited. However Rule 24(i) b will exclude recovery for liabilities arising out or consequent upon a ship being employed in an unlawful trade, for example in respect of Members subject to EU jurisdiction, there may be no recovery for liabilities incurred if they arise out of or are consequent upon the execution a trade contract involving a prohibited trade entered into after 23^rd January 2012.

Further updates on the impact of the Regulation will be posted as necessary but in the meantime if Members have any questions they are advised to contact the Club for further advice.