Insight

Updated

INSIGHT: Iran Sanctions

Introduction

Latest changes & additions

Update May 2018

On 8 May 2018 President Trump announced his decision to end the US participation in the JCPOA. It is apparent from the OFAC FAQs issued on the same date that the administration will restore sanctions which were in force prior to Implementation Day on 16 January 2016, reversing the relief agreed to by the previous administration in the JCPOA. This includes the restoration of secondary sanctions against non-US entities, and targeting of Iranian shipowners and ships, transactions involving crude oil, petroleum products and petrochemicals and relisting over 400 entities individuals and ships on the SDN List. There will be a wind-down period which, for most shipping related sanctions, will expire on 4 November 2018.

See Alert published on 10 May 2018 for more information.

The remaining parties to the JCPOA (France, Germany, UK, EU, Russia and China) have pledged to support the Agreement.

The snap back of US sanctions will have a major effect on shippowners and their insurers and Skuld and the IG are closely monitoring developments.

The comments below and elsewhere in INSIGHT should be read in the light of this important development.

Articles related to the May update:

ReedSmith
Sanctions and Iran: President Trump's 8 May 2018 announcement and what this means for non-US shipping
15 May 2018

Freehill Hogan & Mahar
US withdraws from Iran nuclear deal secondary sanctions against Iran re-imposed
14 May 2018

Clyde & Co
The JCPOA: The New US Position is Now Clear . . . Sort of
10 May 2018

ReedSmith
Trump pulls out of Iran nuclear deal: Sanctions reimposed
10 May 2018

Gibson Dunn
The Trump Administration Pulls the Plug on the Iran Nuclear Agreement
9 May 2018

HFW
Sanctions Update: US sanctions on Iran
8 May


 

On 16 January 2016 International Atomic Energy Agency verified implementation by Iran of the nuclear-related measures under the JCPOA and the "Implementation Day" was announced.

In practice it means that most of the sanctions imposed by the EU on Iran are now lifted, see Council Decision (CFSP) 2016/37 as well as "secondary sanctions" imposed by the US, please see US announcement here.

The continuing primary sanctions against US reinsurers created a risk of a potential shortfall on the International Group's reinsurance programme. The IG arranged "fall-back" cover as a short term solution (see IG Circulars published on 19 March 2016 and 14 April 2016). The removal of US domiciled reinsurers from the IG programme from 20 February 2017 removed the need for fall-back cover. Resolving the risk of reinsurance shortfall was greatly assisted by "General License H" although the future of this license is in doubt in the light of the announcement by Trump administration on 8 May 2018 that general Licence H would be revoked by 4 November 2018.

Main changes in the EU sanctions:

  • Prohibition on trading with Iran in dual-use equipment, precious and other listed metals, diamonds and graphite replaced with prior authorisation
  • Prohibition on transactions relating to Iranian oil & gas industry and related services; provision of bunkering and supply services to Iranian vessels and software has been removed
  • Prohibition on providing insurance and reinsurance in Iran and to Iranian persons has been removed
  • Prohibition on fund transfers to and from Iran has been removed
  • Most of the listed companies and persons under Iran sanctions are de-listed (from ca. 93 people and 467 entities to 29 and 94 respectively)

Please note that listings under anti-terrorism and human-rights sanctions will remain in force as well as arms embargo.

Main changes in the US sanctions:

  • "Secondary sanctions" on Iran primarily targeting non-US persons conducting business with Iran, including energy, banking, shipbuilding and shipping sanctions are removed
  • Primary sanction for US persons and companies remain in place (including USD clearance, provision of US origin goods). Exemptions apply to few areas such as food, medicine and the aviation sector
  • Anti-terrorism, human rights sanctions as well as arms embargo remain in place

As noted at the top of this page, the removal of secondary sanctions will be removed in accordance with Trump's announcement on 8 May 2018.

US domestic law also required the President to certify Iran's compliance with the JCPOA at 90 day intervals.

The EU and US reserved the right to "snap back" sanctions on Iran if Iran is found to have violated its obligations under JCPOA.

As US retains its "primary sanctions", US insurers and reinsurers may be unable to meet their obligations and pay a claim with an Iranian nexus. This could apply to both Iranian vessels and any other vessel having a casualty or claim in Iran, or with an Iranian connection. Under our Rules and Terms & Conditions (Rule 32.6, Article 26.1.5 in Owners Fixed T&C; 25.1.6 in the Charterers T&C; 18.2 in Offshore T&C and 35.2 in Yachts T&C), the shortfall from reinsurance is not recoverable - for mutual entries, see IG information above.

Banks have historically adopted a very conservative approach when it comes to Iran and this has continued even after Implementation Day. Many banks refuse as a matter of policy from processing any transactions with any kind of connection to Iran.


Although most economic and financial sanctions have now been lifted, some sanctions will remain in place and are not affected by the nuclear deal. In particular sanctions related to human rights, proliferation and support for terrorism remain in place. It is important to ensure appropriate due diligence measures are undertaken before engaging in any activity. You should consider whether transaction involves a designated person or entity; whether a certain trade product or material is restricted, and how and to whom payments will be made.

Iran will remain a difficult place to do business so if in doubt you should seek legal advice. It is also recommended to consider including a contract clause permitting either suspension or termination of the contract in the event sanctions snap back into place or if new sanctions are imposed.

How individual members will be affected will depend on a wide variety of factors and it is not possible for this website to provide comprehensive or conclusive advice. The intention is to provide some general comments, convenient access to relevant materials and news of latest developments. Members should not act in reliance solely on the information provided here. They must make their own enquiries and take legal advice which can take account of their circumstances.

Members should also note that any loans granted on the security of their vessels are likely to include a requirement that insurance is at all times maintained on conditions acceptable to their bank.

JCPOA

JCPOA - Joint Comprehensive Plan of Action - July 2015

On 14 July 2015, the six states involved in negotiations with Iran (US, Russia, China, UK, France and Germany together with the EU - known initially as "P5+1" and later as "E3/EU+3") announced a diplomatic agreement on a Joint Comprehensive Plan of Action (JCPOA) which opens the way for the restoration of trade activates with Iran by lifting the trade, energy, insurance and banking embargoes that have been incrementally imposed by the EU and US since 2009.

The Plan provides for extensive relief from existing sanctions and details are set out in Annex II of the JCPOA. However, the lifting of sanctions will happen in stages and subject to certain requirements being met. On 18 October 2015 all the parties to JCPOA have formally adopted the deal ("Adoption Day"). Details of the implementation process are contained in Annex V of the JCPOA.

On 16 January 2016 after verification by the International Atomic Energy Agency of nuclear-related measures implemented by Iran, Implementation Day was announced. It means that Iran has met its commitments under the deal and the EU and US lifted the sanctions as agreed under JCPOA.

In practice it means that most of the sanctions imposed by the EU on Iran are now lifted, see Council Decision (CFSP) 2016/37 as well as "secondary sanctions" imposed by the US, please see US announcement here.

For more details on changes in EU and US sanctions see respective tabs "US" and "EU".

It is important to remember that JCPOA contains a snap-back provision, allowing the EU and US to reinstate sanctions related to Iran nuclear program. The snap-back will not be introduced momentarily as JCPOA has an inbuilt Dispute Resolution Mechanism. Sanctions will not apply with retroactive effect. In case of snap-back contracts concluded while relief was in place, will be allowed some time to wind down, however, there will be no grandfathering of contracts enter before snap-back.

The next milestone in JCPOA is Transition Day, which will occur either (a) eight years from Adoption Day (that is to say eight years from 18 October 2015) or (b) upon a report from the IAEA, together with confirmation from the UN Security Council, that all nuclear material in Iran remains in peaceful activities, whichever is earlier. Transition Day will mark the next stage in the easing of sanctions, when further terminations and amendments will be made.

'UN Security Council Resolution (UNSCR) Termination Day' will occur ten years from Adoption Day (that is to say ten years from 18 October 2015), provided that the provisions of previous resolutions have not been reinstated. On this day, all provisions and measures imposed by the UN Security Council will terminate, and the UN Security Council will no longer be seized of the Iran nuclear issue.

Within this timeframe, the E3/EU+3 (or the P5+1) will meet at the ministerial level every two years, or earlier if needed, in order to review and address progress and to adopt appropriate decisions.

 

United Nations (UN)

On 20 July 2015 the Security Council unanimously adopted Resolution 2231/2015 endorcing the JCPOA.

Resolutions 1696 (2006), 1737 (2007), 18093 (2008), 1835 (2008), 1029 (2010) and 2224 (2015) are now recalled but can be reinstated in the event commitments under JCPOA are not complied with.

Resolution 2231 (2015) shall terminate ten years from Adoption Day, i.e. on October 18, 2025 when UN Security Council will conclude consideration of the Iranian nuclear issue.

More information can be found here.

 

EU

As a party to JCPOA, EU is following the schedule outlined in the agreement. On 16 January 2016 ("Implementation Day") EU has announced lifting of sanctions in consistency with Annex V of the JCPOA - see Joint statement by EU High Representative and Iranian Foreign Minister. In spite of President Trump's refusal in October 2017 to certify Iran's compliance with the JCPOA as required under US domestic law, the EU has made clear its determination to stand by the Agreement as demonstrated by this statement published on 16 October 2017.

EU also issued Council Decision (CFSP) 2016/37 confirming that Decision (CFSP) 2015/1863Decision (CFSP) 2015/1862 and Decision (CFSP) 2015/1861 apply from 16 January 2016.

In practice it means that the following is now permitted:

  • Transactions relating to Iranian oil and gas industry and related services (including provision of vessels, P&I insurance)
  • Provision of insurance and reinsurance in Iran and to Iranian persons (including the Government of Iran)
  • Provision of bunkering, technology, repair and classification services to Iranian-owned or Iranian-contracted vessels
  • Fund transfers to and from Iran (without any prior notification or authorisation)
  • Provision of guarantees to Iranian entities
  • Most of the listed companies and persons under Iran sanctions are de-listed

Prior authorisation is still required from the competent authority of the relevant EU Member State for:

  • The sale, supply, transfer or export of:
    - Goods and technology for military, missile, nuclear use or that could contribute to nuclear activities - listed in Annexes I or II of Council Regulation 267/2012
    - Software designed specifically for use in Iran's nuclear or military industries - listed in Annex VIIA of Council Regulation 267/2012
    - Graphite and raw or semi-finished metals listed in Annex VIIB of Council Regulation 267/2012
    whether or not originating in the EU, to any Iranian person/entity or for use in Iran
  • The purchase, import or transport from Iran of goods and technology listed in Annexes I or II of Council Regulation 267/2012, whether or not originating in Iran
  • The provision of (i) technical assistance or brokering services and (ii) financing or financial assistance, related to:
    - Goods and technology listed in Annex I or II Council Regulation 267/2012
    - Software listed in Annex VII Council Regulation 267/2012
    - Graphite and raw or semi-finished metals listed in Annex VIIB Council Regulation 267/2012
    to any Iranian person/entity or for use in Iran
  • Before entering into any arrangement with an Iranian person/entity or any person/entity acting on their behalf or at their direction that would enable them to participate in or increase its participation in commercial activities involving
    (i) uranium mining,
    (ii) production or use of nuclear materials listed in Part 1 of the Nuclear Suppliers Group list (set out in Regulation 1861) or
    (iii) technologies listed in Annex II Council Regulation 267/2012

Please note that certain sanctions related to arms embargo, nuclear-related activities, anti-terrorism and human rights violations are still in place:

  • The sale, supply, transfer or export to Iran, of all military goods and technology
  • The sale, supply, transfer or export of missile-related goods and technology and provision of bunkering or any other servicing of vessels carrying cargo as listed in Annex III of Council Regulation (EU) 267/2012
  • The import from Iran of military and missile-related goods and technology
  • Investment in Iranian enterprises engaged in manufacture of military goods, and a ban on investment by an Iranian person in a commercial activity related to production or use of missile-related goods
  • Measures concerning inspection of cargoes to and from Iran and those relating to provision of bunkering and ship supply services for items that remain prohibited are still in place
  • The sale, supply, transfer or export of equipment which might be used for internal repression as listed in Annex III of Council Regulation (EU) 264/2012

In addition, restrictive measures remain in place against individuals and entities who remain listed in Council Regulation 267/2012 and in Council Regulation 264/2012, as well as under EU terrorism and other EU sanctions regimes.

Further guidance on EU measures can be found in the Information Note on EU sanctions.

The UK Treasury maintains a Consolidated List of parties subject to sanctions under EU and other Regulations. The List can be found here and is the most convenient way of checking whether individuals or entities are named in EU Regulations. The List is regularly amended and it is essential that members include as part of their risk assessment a check of the up to date Consolidated List. It is also important to note that the restrictions apply to funds and economic resources "belonging to, owned, held or controlled by" by listed persons or entities. The restrictions therefore may apply if assets are owned by an entity which is not on the list but are nonetheless under the control of a listed person or entity.

 

US

As noted at the top of this page President Trump has announced that US participation in the JCPOA will cease.

In pursuance of the tougher US policy towards Iran, the Administration has designated the Islamic Revolutionary Guard Corps (IRGC) and four other entities.

On 16 October 2017, the EU issued a statement confirming its determination to stand by the JCPOA. While expressing concerns about ballistic missiles and increasing tensions in the region, the EU reiterated that these should be addressed outside the JCPOA.

On 2 August 2017 President Trump signed into law the "Countering America's Adversaries Through Sanctions Act" (CAATSA).

CAATSA did not introduce significant changes to the Iran sanctions program, focusing on sanctions targeting Iran's ballistic missile and weapons of mass destruction programs (and any support to it) and further enforcement of sanctions against Islamic Revolutionary Guard Corps. CAATSA also limited the President's ability to waive sanctions against Iran.

On Implementation Day (16 January 2016) US met its commitments under JCPOA by lifting "secondary sanctions" (i.e. against non-US persons). The sanctions lifted by the US on Implementation Day were with respect to:

  • Purchase, acquisition, transport of Iranian gas, petroleum, petroleum and petrochemical products as well as services related to development of petroleum resources of Iran, production of refined petroleum products in Iran
  • Financial, material, technological or other support as well as goods and services for any activity within energy, shipping and shipbuilding sector of Iran (including National Iranian Oil Company, the Naftiran Intertrade Company, National Iranian Tanker Company)
  • Sale, supply or transfer to and from Iran of precious metals or specified metals such as aluminium, steel, coal (unless linked to military or nuclear use)
  • Insurance, re-insurance, brokering, transportation, financial services required for the above activities (including to NIOC, NITC and IRISL or their affiliates)
  • Transactions with Iranian banks, including the Central Bank of Iran and in Iranian currency as well as Iranian financial instruments
  • Provision of port, bunkering, inspection, classification, lease and other services for Iranian vessels
    NB! Tidewater, a port operating company on the SDN List that is owned by Iran's Islamic Revolutionary Guard Corps (IRGC), remains on the SDN List after Implementation Day, and transactions by U.S. and non-U.S persons with Tidewater continue to be sanctionable.

US persons remain prohibited from engaging in any business with Iran with the exception of:

  1. export, re-export, sale, lease or transfer of commercial passenger aircraft and related services exclusively for civil use
  2. US controlled or owned foreign entities that are licensed under General License H (see more info below) to engage in activities consistent with JCPOA
  3. Import of Iranian-origin carpets and foodstuffs

In practice it means that US origin goods (10% or more of US origin) cannot be directly or indirectly traded to Iran and transactions in US dollars for any Iran-related business is prohibited.

Secondary sanctions continue to apply to trade in graphite, raw and semi-finished materials where these will be used in connection with the military or ballistic missile program of Iran or if the materials have potential nuclear end-use, unless approval is received in accordance with procedures set out in the JCPOA.

Certain persons and entities (including but not limited to company linked to IRGC and some Iranian banks) remain on the SDN list and any transactions with them remain prohibited both for US and non-US persons.

Sanctions related to support for terrorism, human rights abuse in Syria and otherwise, ballistic missile programs remain in force, meaning that new sanctions and listing can be added.

OFAC has also issued several General Licenses related to JCPOA Implementation. General License H (See Iran General Licence H) authorises certain transactions by foreign entities owned or controlled by a US person. General License H also authorises US persons to establish or alter their corporate policies and procedures to the extent necessary to allow US-owned or controlled foreign entities to engage in transactions involving Iran that are permitted under the general licence. OFAC has published guidance stating General License H is intended to allow senior management, board members and employees of the US parent to be involved in initial decision-making regarding whether to engage in activities with Iran, as well as establish or alter their policies and procedures. At this stage, it is unclear what consequences the tougher Trump policy on Iran will have for General License H.

General License H does not authorise US-owned or controlled foreign entities to engage in any transactions involving:

  1. The direct or indirect export or re-export of goods, technology, or services from the United States (without separate authorisation from OFAC)
  2. Any transfer of funds to, from, or through the US financial system
  3. Any entity on the SDN List or any activity that would be prohibited by non-Iran sanctions administered by OFAC if engaged in by a US person or in the United States
  4. Any military, paramilitary, intelligence, or law enforcement entity of the Government of Iran, or any officials, agents, or affiliates thereof

 


With the primary sanctions against Iran in place and continued effective US trade embargo against Iran, members are therefore strongly advised to evaluate US "involvement" in their transaction, including a check of the SDN List and continue to apply due diligence protocols in respect of trade with Iranian interests.

Useful checklist is published by Holman Fenwick Willan (HFW).

In connection with reaching Implementation Day, US has issued several documents:

 

Charterparties

Consequences for Charter Parties?

A. Sanctions clauses and the snap back provision

BIMCO and INTERTANKO sanctions clauses should remain in charter parties.

However to take care of any snap back provision in the sanction regime the BIMCO Sanctions clause may need to be amended or a new clause added to specifically cater for what happens to the charter party and obligations in the event of a snap back situation.

If members are considering now to do business in Iran and Syria, members should consult lawyers to review any proposed contracts and advise on amended clauses to deal with this and the compliance obligations in general.

B. Payment of hire or freight what currency?

Given the difficulties outlined above that USD may attract, members may wish to explore payment made in a different currency. However this is a commercial matter for members to consider and is also one which an eternal lawyer specialized in sanctions can assist with.

 

Rules and Cover

Insurance

Insurers are no longer prohibited from providing insurance to Iranian companies or from insuring members carrying Iranian oil, gas, petroleum products or petrochemical products. But members absolutely MUST do their own due diligence and the position remains that while Skuld can give guidance ultimate responsibility for compliance rests with members.

Our Rules contain exclusion of liability for liabilities, costs or expenses where payment by the Association or the provision of cover in respect thereof may expose the Association to the risk of being subject to a sanction, prohibition or any adverse action (Rule 30.4.6).

We also continue to exclude the liability of the Association towards the member when there is a shortfall due to an inability to recover reinsurance or pool contributions from other insurers or P&I Clubs which are themselves unable to pay due to sanctions legislation (Rule 32.6). In addition we have a provision giving the Association the right to terminate cover where, in the opinion of the Association, the member has exposed or may expose the Association to the risk of being or becoming subject to a sanction, prohibition, restriction or other adverse action by a state or international organisation or competent authority (Rule 3.3.2a). The same provisions are also included in the Terms & Conditions governing Skuld's fixed premium covers.

Reinsurance

US primary sanctions can cause possible shortfall due to irrecoverable reinsurance contributions from US reinsurers. If there is no liability under an LOU or blue card, as per Rule 32.6 and equivalent in fixed T&Cs, the member will be unable to recover from the Association and the member bears the shortfall. However steps have been taken to avoid this happening.

For mutual entries in order to mitigate the risk, the International Group bought the "fall-back" cover designed to respond to reinsurance recovery shortfalls for 2016/2017 policy year. For details please see IG Circular published on 14 April 2016. For the 2017/18 policy year, the International Group has removed US domiciled insurers from the IG Reinsurance programme so that there was no need to extend the fall-back cover beyond 20 February 2017.

Similarly for fixed premium entries, the reinsurance programme in place from 1 January 2017 does not include US domiciled reinsurers.