Sanctions - Iran
Extensive sanctions have been in place for a number of years. It was announced on 14 July 2015 that the E3/EU+3 powers and Iran had reached a diplomatic agreement whereby multilateral and national sanctions will be lifted once certain verifiable steps in relation to Iran's nuclear programme have been implemented, in accordance with the terms of the Joint Comprehensive Plan of Action (JCPOA).
So-called "Implementation Day" under the JCPOA occurred on 16 January 2016 and many nuclear-related sanctions against Iran were lifted accordingly. However, President Trump announced on 8 May 2018 that the United States will terminate its participation in the JCPOA and will re-impose the sanctions that were lifted in January 2016 under the agreement. Parties which had been on the SDN list but were removed as part of the JCPOA will again become SDNs. More details can be found in the United States section below.
The other partners to the agreement – France, Germany, the UK, China and Russia – have made efforts to maintain the agreement without the participation of the United States, but the re-imposition of U.S. secondary sanctions has severe ramifications on the ability of non-US entities to continue trading with Iran. The sanctions previously imposed by the European Union have not been re-imposed.
The majority of EU sanctions against Iran as set out in Regulation 267/2012 and subsequent amendments have been lifted. Further details can be found in Regulation 2015/1861 and the EU has also produced an Information Note which includes some FAQs. Members are strongly advised to consider these in detail if considering trading to Iran.
Activities which are now permissible and of particular interest to the Club and its Members include:
- Transportation of Iranian crude, petroleum products, petrochemicals and natural gas
- Supply and carriage of certain equipment for the oil and gas industry and naval equipment
- Provision of insurance services to Iranian persons
- Provision of bunkering, ship supply and other services relating to Iranian-controlled tonnage
- Supply of oil transport and storage vessels to Iranian persons
- Transferring funds to and from Iran
- Sale, supply, transfer or export of certain graphite and raw or semi-finished metals*
*NB: as per Article 15a of Regulation 2015/1861 prior authorisation from the relevant Competent Authority is required for the "sale, supply, transfer or export" and related services including transport for the materials listed in Annex VIIB of that Regulation. A copy of the list can be found here Appendix VIIB for ease of reference. For shipments originating in the EU it is the cargo shipper who must obtain the authorisation (the carrier does not need to seek additional authorisation). For shipments from outside the EU, where the carrier is subject to EU sanctions (see below) then that carrier must obtain authorisation to carry the goods, but where such shipments are carried by non-EU vessels no authorisation is required.
A total embargo remains in place against the supply to Iran of arms as listed in the EU's Common Military List, missile technology, equipment which might be used for internal repression and equipment for monitoring telecommunications.
Prior authorisation from the relevant Competent Authority is required for the supply to Iran of certain nuclear materials, some dual-use goods and technology which could contribute to enrichment activities, enterprise resource planning software for use in the nuclear and military sectors, and certain graphite and raw or semi-finished metals (as noted above).
Although numerous individuals and entities have been removed from the EU's asset-freeze list (including many of the major Iranian oil and gas companies and banks) some remain on that list. It remains prohibited to make funds or economic resources available to those parties. Please see the important section on SDNs below.
EU sanctions apply in the following circumstances:
(a) within the territory of the Union, including its airspace;
(b) on board any aircraft or any vessel under the jurisdiction of a Member State;
(c) to any person inside or outside the territory of the Union who is a national of a Member State;
(d) to any legal person, entity or body, inside or outside the territory of the Union, which is incorporated or constituted under the law of a Member State;
(e) to any legal person, entity or body in respect of any business done in whole or in part within the Union.
In an effort to breath life into the JCPOA, the EU implemented Regulation 1100/2018 in August 2018 which extended the applicability of a previous so-called Blocking Regulation 2271/1996 to now include Iran. This has the effect of requiring all EU entities not to comply with US secondary sanctions. This potentially places shipowners and insurers in an obvious dilemma and the Regulation allows for an EU entity which believes that compliance with the Blocking Regulation will seriously damage their interests to apply to for an exemption from the Regualtion under Article 5. Full details, including the text of the Regulations and guidance notes issued by the EU, can be found in Notice to Members No.7 2018/2019, which EU Members looking to trade to Iran are advised to read.
Following Implementation Day the US lifted nuclear-related secondary sanctions against Iran. These permitted non-US persons to undertake trade with Iran. As noted above, however, President Trump announced on 8 May 2018 that the United States would unilaterally withdraw from the JCPOA and that secondary sanctions were to be reimposed. The Club issued New Items concerning the announcement on 9 May and 15 May 2018 and the Club’s U.S. attorneys Freehill Hogan & Mahar have provided guidance in a Client Alert, all of which Members are strongly advised to read.
A set of initial FAQs were issued by OFAC in the immediate aftermath of President Trump’s announcement and a copy of which can be found here Frequently Asked Questions. President Trump then issued an Executive Order on 6 August 2018 which essentially re-imposed the secondary sanctions against Iran which were contained in the Executive Orders revoked when the JCPOA was implemented in January 2016. A copy of that Executive order can be found here Reimposing Iran Sanctions and updated FAQs found below. A News Item was published by the Club on 7 August 2018 and Freehill Hogan & Mahar also published a further Client Alert.
Sanctions were consequently reimposed against the following as of 6 August 2018:
- The purchase or acquisition of U.S. dollar banknotes by the Government of Iran
- Iran’s trade in gold or precious metals
- The direct or indirect sale, supply, or transfer 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 the Iranian rial
- The purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt, and
- Transactions with Iran’s automotive sector
However, the carriage to or from Iran of graphite, raw, or semi-finished metals such as aluminium and steel, coal, and software for integrating industrial processes was permissible prior to 8 May 2019 if:
- The cargo is not subject of a medium for barter, swap, or any other exchange or transaction.
- it is not listed as an asset of the Government for purposes of the national balance sheet.
- The cargo is not to be used in connection with the energy, shipping, or shipbuilding sectors of Iran or any sector of the Iranian economy determined to be controlled directly or indirectly by Iran’s Revolutionary Guard Corps; or if the material is resold, retransferred, or otherwise supplied to an end-user in one of these sectors.
- The cargo is not sold, supplied or transferred to or from a person/entity on the SDN list, or resold, retransferred, or otherwise supplied to such a person.
- The cargo is not determined to be used in connection with the nuclear, military or ballistic missile programs of Iran, or resold, retransferred or otherwise supplied for one of these programs.
But by an Executive Order dated 8 May 2019 President Trump extended Iran secondary sanctions to encompass the iron, steel, aluminium and copper sectors of the Iranian economy and which effectively prohibits, inter alia, a "significant" transaction for:
- The sale, supply, or transfer to Iran of significant goods or services used in connection with the iron, steel, aluminium, or copper sectors of Iran, and
- The purchase, acquisition, sale, transport, or marketing of iron, iron products, aluminium, aluminium products, steel, steel products, copper, or copper products from Iran.
Details can be found in our News item of 9 May 2019 and which includes a Client Alert on this topic from Freehill Hogan & Mahar.
These prohibitions had been subject to a wind-down period of 90 days for contracts concluded prior to 8 May but this grace period ended on 6 August 2019. For details please see our News Item of 12 August 2019.
In further FAQs (available here) OFAC have confirmed that the Executive Order includes a prohibition on the carriage of iron ore and similar commodities. They also sought to clarify the factors which OFAC will take into consideration when deciding whether any transaction is significant. Like previous such explanations however this does not provide any firm guidance on exactly what is significant or not and each case will continue to be judged on its own merits by taking a number of factors into account.
Sanctions were also reimposed against the following as of 5 November 2018:
- Iran’s port operators, and shipping and shipbuilding sectors, including 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 under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA);
- The provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010 (CISADA);
- The provision of underwriting services, insurance, or reinsurance; and
- Iran’s energy sector.
If Members are continuing to trade with Iran with cargoes which are not currently subject to sanctions (such as food, agricultural commodities, medicines and humanitarian goods), they are reminded that it is prohibited for non-US persons to deal with any entity which remains on the US list of Specially Designated Nationals (please see below) and to engage in conduct that seeks to evade continuing US sanctions.
Members should also note that the continuing US primary sanctions not only prevent US-owned or controlled tonnage from trading to Iran and US-based insurers and reinsurers from involvement in claims concerning Iran or Iranian entities (see the "Club Cover" section below), importantly it also prevents US banks from handling any financial transaction which involves Iran. Any trade to or from Iran or which involves Iranian entities must consequently be structured so that all transactions are made in a currency other than US Dollars. Endeavouring to mask the fact that a payment in US Dollars is linked with an Iranian transaction in an effort to induce a US bank into handling the transaction will be a breach of sanctions.
Specially Designated Nationals (SDNs)
Whilst some entities remain on the EU SDN list, the reimposition of US secondary sanctions has seen a large number of parties placed back on the US SDN list. Members should therefore ensure that they check all the parties to a transaction - e.g. charterer, shipper, physical supplier (if different), consignee, receiver (if different), local agents, banks and cargo insurers (where known) - against those lists before undertaking any trade with Iran or involving Iranian entities. Trading with SDNs may expose Members to severe penalties for breaching sanctions including the possible loss of insurance cover.The port operator Tidewater Middle East remains on the SDN list and Members should avoid using ports, terminals or berths owned and operated in Iran by this company. The US authorities have confirmed however that they do not consider the port of Bandar Abbas to be controlled by Tidewater Middle East and non-US persons can use this port so long as the trade does not involve any SDNs (see OFAC FAQ E2).
The EU list can be checked via the UK Treasury website.
The US list can be checked via the OFAC's Sanctions List Search webpage.
Club cover is available to Members undertaking legitimate, non-sanctioned trades to Iran and which do not involve SDNs. Members are reminded however that under Rule 19 of Class 1 there is unlikely to be cover available for any activity which is in breach of sanctions since that would be deemed to be imprudent or unlawful trading, or which exposes the Club to adverse action.
Members should also note that, as described above, the continuing US primary sanctions means that US insurers and reinsurers are unable to pay claims in respect of a trade involving Iran absent special permission from OFAC to do so. Members should not count on that permission being forthcoming. The International Group has repeatedly made it concerns known to OFAC about the primary US sanctions measures affecting US insurers and reinsurers and efforts continue to seek solutions.
The Club's Rule 8(4) of Class 1 stipulates that the Club is not liable to reimburse Members for any sums which are not recoverable by the Club from the IG Pool and/or reinsurers because of sanctions. All other IG Clubs have similar rules. The relevant parts of Rules 19 and 8(4) are set out on our main sanctions webpage.
Any shortfall in reinsurance recoveries will consequently be the responsibility of the Member and this should be borne in mind when deciding whether or not to trade to Iran. Further details can be found in Notice to Members No.19 2015/2016. On the IG Pool, the American Club has confirmed that they should be able to contribute their share of any Pool claim involving Iranian interests in most circumstances. For very large claims which impact upon the IG's Group Excess Loss ("GXL") programme, any reinsurance shortfalls due to sanctions which relate to certificated risks (i.e. those where the Club has issued a "blue card") may be re-pooled with the other IG Clubs, but currently any shortfalls which relate to non-certificated risks would fall back on to the Member concerned.
The Club may also be unable to pay claims or to provide security in relation to an incident in Iran. Even if the trade is legitimate with no SDN involvement and the payment is in a non-Dollar currency, many banks are refusing to undertake any transactions whatsoever which have an Iranian nexus.
These issues are set out in more detail the Club's Notice to Members No.11 2018/2019 and any Member considering trading to Iran is very strongly advised to read this Notice and to bear in mind that the Club may be severely constrained in its ability to assist if the vessel has an incident whilst in Iranian waters.
Both Bahrain and Saudi Arabia have announced restrictions on vessels trading to and from their ports and Iran. Bahraini flagged vessels are prohibited from calling in Iran and Iranian flagged vessels from calling in Bahrain. Vessels flying any other flag may not proceed to Bahrain directly after calling in Iran and will need specific clearance from the Bahraini authorities to call in Bahrain where one of her last three port calls includes an Iranian port. Further details can be found in the Club's relevant News Item.
For Saudi Arabia, Iranian-flagged vessels and vessels of any other flag carrying Iranian cargo are not permitted to call at Saudi ports, and no Iranian cargo may be transhipped in Saudi waters.
Members considering entering into contracts involving trading to or from Iran or involving Iranian entities are advised to incorporate language into their contracts providing for termination at short notice in the event of sanctions being reintroduced or a party becoming a SDN. Suitable clauses can be found on our main sanctions webpage.
The information provided by the Club and in particular through its website is not and is not intended to be exhaustive. Every effort is made to ensure the accuracy of the information provided. However this cannot be guaranteed given that sanctions measures are subject to alteration by Governmental organisations at short notice.
Further the information on this site is not, and should not be relied upon as, independent legal advice. Members are strongly advised to undertake due diligence before fixing any business to or from a sanctioned country in order to ensure that neither the prospective cargo nor the parties to the planned venture are sanctioned. The Club is willing to assist Members where possible but they may nevertheless wish to take independent legal advice.