Doing Business with Iran: The EU Sanctions Regime

Transcription

1 Doing Business with Iran: The EU Sanctions Regime Chamber of Commerce of Hasselt 30 March 2017 Guy Soussan and Jack Hayes

2 Overview of Presentation 1. Basic overview of EU economic sanctions 2. EU sanctions relief 3. Compliance programme considerations 2

3 EU Economic Sanctions: Basic Overview 3

4 Countries Subject to EU Restrictive Measures Afghanistan Al Qaeda and ISIL (Da'esh) Belarus Bosnia and Herzegovina Burma Burundi Central African Republic China Democractic Republic of Congo Cote d Ivoire Egypt Eritrea Republic Of Guinea (Conakry) Guinea-Bissau Haiti IRAN Iraq Ivory Coast Democratic People s Republic of Korea Lebanon Liberia Libya Moldova Myanmar North Korea Russian Federation Serbia and Montenegro Somalia South Sudan Sudan Syria Terrorist Groups (Foreign Terrorist Organisations) Tunisia Ukraine USA (United States of America) Yemen Yugoslavia (Serbia and Montenegro) Zimbabwe 4

5 EU Sanctions are Deemed Smart Sanctions No sanctions on a country wide basis Target listed individuals and companies Target a sector of activity at large Target certain specific transactions 5

6 EU Sanctions: a Wide Range of Restrictive Measures Restrictions on admission (visa ban) Trade restrictions: embargo on arms, embargo/controls on certain goods and technology (e.g. dual-use items, luxury goods, forestry/mining equipment, crude oil and petrochemical products, diamonds), prohibition of procurement of certain goods and technology Trade-related measures: ban/control on provision of certain services, e.g. technical assistance, brokering, financial assistance, investment Trade-related measures: inspection of cargo and prior information requirement 6

7 EU Financial Sanctions Not a general ban on financial services but can include measures such as: Freezing of funds and economic resources Restrictions on transfers of funds Provision of financial services, including insurance Prohibition to provide financing/financial assistance Restrictions on access to capital markets Restrictions on access to other financing Technical assistance related to financial services Brokering 7

8 An EU Competence to Adopt Sanctions Legal instruments Council Decisions set out principles and are binding on Member States, not industry Council Regulations are directly applicable and are binding on industry European Commission Guidance and EU Best Practices Papers Review of legality of sanctions by European Court of Justice 8

9 Role of the Member States In the adoption of sanctions Approval of EU measures within Council Implementing legislative powers Adoption of additional national measures (listing) In the enforcement of sanctions National guidance Granting licenses/exemptions, as applicable Fixation of penalties (effective and dissuasive) Infringement actions 9

10 Who Must Comply with EU Sanctions? Any entity incorporated in an EU Member State and its EU and non-eu branches Any entity incorporated outside the EU, but only in respect of business conducted in the EU Any national resident in the EU, irrespective of nationality Any EU national even if resident outside the EU 10

11 Overlap with Other Foreign Countries Sanctions Countries sanctions where EU companies are doing business Foreign subsidiaries of EU companies can remain subject to EU sanctions if transactions involve the EU parent the subsidiary is not independent (i.e., actively run from the EU) Countries sanctions despite the absence of local business (e.g. the US) 11

12 Iran 12

13 The Iran Deal Highlights Joint Comprehensive Plan of Action (JCPOA) of July 14, 2015 Participants: the US, UK, Germany, France, Russia, China and Iran Provides some limited sanctions relief in exchange for Iran ending its military nuclear program Iran has met its commitments on Implementation Day January 16, 2016 Ultimate legal ending of sanctions will be on Termination Day by October

14 EU Sanctions Relief Overview EU Legal framework to implement JCPOA at EU level Council Decision (CFSP) 015/863 Council Regulation (EU) 2015/1861 Council Implementing Regulation (EU) 2015/1862 Binding 28 Member States and directly applicable Benefit of the relief for: EU companies and their non-eu branches EU nationals wherever located Non-EU nationals resident in the EU Enforcement at national level 14

15 Pre-JCPOA EU Sanctions Regime Sanctions targeting trade and projects in Iran Economic resources to designated persons and entities Oil, gas and petrochemical sectors Shipping and transport Dual use goods and technology Others Sanctions targeting the financial services industry Freezing of funds and economic resources Transfers of funds from and to Iran Provision of financial services, including insurance Trade financing and financial assistance Access to capital markets Brokering of financial services 15

16 Post-JCPOA EU Regime A New Dawn for EU Businesses Significant delisting of persons and entities Trade and investments in oil, gas and petrochemical sectors Shipping, shipbuilding and transport services Exports of metals, software and EU dual use goods and technology 16

17 EU and National Support for Market Reentry The commitment to lift sanctions was fulfilled on Implementation Day, January 16, 2016, and as a result, there are now extensive economic opportunities for companies and financial institutions in Europe and around the world to do business in Iran. The interest of the international community is to ensure that the JCPOA works for all participants, including by delivering benefit to the Iranian people. This includes reengagement of European banks and businesses in Iran. Joint Statement by France, the UK, Germany and the High Representative of the EU Brussels, May 19,

18 Oil, Gas and Petrochemical Sector Relief Import, purchase or transport of Iranian crude oil and petroleum products, gas and petrochemicals Sale, supply, transfer or export of oil, gas and petrochemical equipment, technology and technical assistance granting of financial loans or credits to any Iranian person engaged in oil, gas and petrochemical sectors 18

19 Shipping, Shipbuilding and Transport Sectors Relief Sale, supply transfer or export of naval equipment and technology for ship building Design, construction or participation in construction of cargo vessels and oil tankers for Iran Provision of fuel, engineering and maintenance services to Iranian cargo aircrafts Access to EU airports of cargo flights operated by Iranians or originating in Iran End of EU inspection/seizure of cargos to and from Iran with regard to non-prohibited items 19

20 Metals and Software Export of metals is permitted Sale, supply and export of certain graphite and raw or semi-finished metals for use in Iran subject to authorization regime and on case-by-case basis Sale, supply and export of Enterprise Resource Planning software designed for use in military/nuclear industries in Iran subject to authorization regime 20

21 Export of Dual-Use Goods to Iran Subject to prior authorization under EU Dual-Use Regulation License to be granted by the Member State of export Validity of the license throughout the EU 21

22 Post-JCPOA EU Regime A New Dawn for EU Financial Services Freedom of transfer of funds without notification/ authorization End to freezing of funds of delisted persons and entities Opening of local branches and subsidiaries Correspondent banking relationships with Iranian banks Message services via SWIFT Financial support to trade allowed (export credit/ guaranties/ insurance) 22

23 Freezing of Funds and Economic Resources to Designated Persons and Entities Funds: financial assets and benefits of every kind includes, cash, checks, claims on money, deposits, interests, right of set off, bills of lading Economic resources: assets of every kind, whether tangible or intangible, movable or immovable, which are not funds but which may be used to obtain funds, goods or services Belonging to owned, held or controlled by listed persons Authorization of release of funds or economic resources under certain conditions 23

24 Delisting of Designated Natural or Legal Persons In 2015 up to 121 listed persons and 432 listed entities Significant removal of certain specified persons (up to 400) Release of funds currently frozen 24

25 But Listing of Some Persons and Entities Remains In relation to nuclear proliferation human right violations terrorism Listing includes some Iranian banks and the Islamic Revolutionary Guards Corp, ( IRGC ) Listing is not static Also concerns unlisted entities which they own or control 25

26 The EU Concept of Designated Natural or Legal Persons EU persons and entities cannot provide economic resources and are required to freeze any property belonging to them that come under their control The EU defines as Designated Natural or Legal Persons ( DP): (I) Persons or entities explicitly listed in Annexes to EU Regulations (II) Entities with a total ownership of 50% or more by those designated (III) Entities they control or those acting on their behalf Note: (II) and (III) are not expressly listed 26

27 Designation of Persons and Entities which are Owned and Controlled Difficulty of identification beyond straight shareholding EU guidance on non-listed owned or controlled entities Exceptions available on a case-by-case basis Non exhaustive list of criteria e.g.: the relevance of the sector of activity of the non-listed entity for the listed entity the characteristics of the funds or economic resources and their practical use for the listed entity 27

28 Examples of Designated Person/Entity 28

29 Reintroduction of EU Sanctions - Snapback EU sanctions are suspended and not deleted Non performance by Iran of its JCPOA commitments Decision by the Council No retroactive effect execution of contract maintained until effective time of reintroduction of sanctions 29

30 EU Challenges for Market Re-entry Reluctance of EU financial services sector to engage again with Iran Note a number of Iranian banks remain listed EU sanctions regime is merely suspended - Possibility of snapback/reintroduction of sanctions in the event of Iran s significant non-performance Note grandfathering of contracts concluded before reintroduction of sanctions but period of time allowed for execution of prior contracts to be specified at time of reintroduction Need to maintain strict counterparty due diligence entities owned by Iranian Revolutionary Guard remain subject to sanctions Other Iranian persons in connection with human right violations 30

31 Navigating EU and US Suspension Relief Extent of relief varies greatly between the EU and the US variance on delisted persons and entities by EU and the US implications of snapback clearance of transactions by EU and US financial institutions Impact on European business activity EU subsidiaries of US groups export of goods involving /services/technology of US origin no support from US financial institutions and no-us dollar denominated transactions 31

32 Compliance Program Considerations 32

33 Possible Approaches to Compliance De-Risking Self-imposed limitations on potential business Very common today Goes beyond what is required under the law Can involve more simple compliance assessment Can result in loss of legitimate business; upset customers Nuanced Compliance Engagement with countries subject to sanctions to the extent permitted Requires complete and nuanced understanding of the law More complicated compliance mechanisms Well-trained experts to assess compliance decisions Can provide for market opportunities 33

34 Identifying and Managing the Risks Due diligence/ screening prior to transaction Training of employees Policies and procedures introduced on risk-sensitive basis Monitoring and reporting systems Appropriate record keeping 34

35 Counterparty Risk Mitigation Obtain certification/ representations/ warranties from counterparties Require effective screening Review option to terminate or suspend contracts Assess compliance by major clients Build compliance terms into contractual arrangements 35

36 Contractual Sanctions Clause Does not replace due diligence Intended purpose of sanction clause Implement statutory prohibition into contract Clarity on legal positions regarding contractual effect of economic sanctions to avoid legal disputes Inherent limitations may not be accepted by counter-parties and may not cover all of them different forms with varying degree of legal certainty enforcement affected by the choice of law/jurisdiction of the contract concerned 36

37 Contact Details Guy Soussan Jack R. Hayes Steptoe & Johnson LLP Avenue Louise Brussels Steptoe & Johnson LLP 1330 Connecticut Ave., NW Washington, DC