Credendo Client Memo Snap-back of international sanctions regime against Iran April 2017

Transcription

1 Introduction Credendo Client Memo Snap-back of international sanctions regime against Iran April 2017 Upon implementation of the Joint Comprehensive Plan of Action ( JCPOA ) on 16 January 2016 ( Implementation Day ), the P5+1 (China; France, Russia, the UK, the US + Germany) took actions to lift certain sanctions measures against Iran. In particular, the U.S., among other actions, removed over 400 Iranian individuals and entities from the OFAC list of Specially Designated Nationals and Blocked Persons ( SDN List ) (although such parties remain subject to OFAC restriction, and in some cases blocking, as persons in Iran and/or owned or controlled by the Iranian Government). The U.S. also lifted most secondary sanctions relating to dealings by non-us persons with Iran and issued a limited general authorization (General License H) that permits foreign entities that are owned or controlled by a U.S. Person to engage in Iran-related transactions subject to certain restrictions. Furthermore, US sanctions relief was effected through statutory waivers, pursuant to which President Obama ceased enforcement of certain congressionally mandated nuclear-related sanctions targeting various sectors of Iran s economy (energy, shipping, ship-building and financial sectors). Such waivers are not permanent, but rather require periodic renewal every 4-6 months and are up for renewal in May-June Many businesses are conditioning their decisions to invest in Iran on the Trump administration s renewal of such waivers. A failure to renew these statutory waivers would not constitute a repudiation of the JCPOA, however Iran may claim a violation of the JCPOA. On Implementation Day, the EU also lifted all its economic and financial sanctions taken in connection with the Iranian nuclear programme. For further details on the activities permitted under the EU sanctions regime following implementation day, please consult the summary table attached as Annex 1 to this memo. 1. What is snapback? The JCPOA provides for international sanctions against Iran to snap-back in the event of a significant non-performance by Iran of its commitments under the JCPOA and after having exhausted all recourse possibilities under the dispute resolution mechanism provided for by the JCPOA. > Snapback procedure It should be noted that snapback is not an automatic mechanism. Indeed, if the P5+1 believe that Iran is not respecting its commitments under the JCPOA, the issue could be referred to the Joint Commission of the JCPOA. The Joint Commission would try to solve the issue through the dispute resolution mechanism described in the JCPOA within 30 days. If at the end of the process, the P5+1 believe that the issue still has not been resolved to its satisfaction, it can notify the UN Security Council that it believes the issue constitutes significant non-performance of Iran s obligations under the JCPOA.

2 The UN Security Council will vote on a resolution to continue the sanctions lifting. A veto by a permanent member will therefore mean that sanctions are reinstated. The whole process will take approximately 65 days. In the event of snap-back, UN sanctions will remain for another ten years. This system will be in place for an additional five years after the initial 10-year agreement comes to a close, so in total for 15 years. In such an event, the EU would implement the snap-back with a decision by the Council of the European Union, based on a recommendation by the High Representative of the European Union for Foreign Affairs and Security Policy, France, Germany and the United Kingdom. Such a decision will reintroduce all the EU sanctions taken in connection with the Iranian nuclear programme that have been suspended and/or terminated. It would also enable for wind-down of activities undertaken legally prior to snapback. Details about the period of time allowed for the execution of prior contracts will be specified in the legal acts providing for the reintroduction of EU sanctions. 1 Following such resolution, the US would also be in a position to take unilateral action to re-impose its secondary sanctions and reinsert on OFAC s debarment lists the entities that were removed with the JCPOA. The US will however grant non-us, non-iranian persons with a 180 day period to wind down operations in or business involving Iran that was consistent with the US sanctions lifting under the JCPOA and undertaken pursuant to a written contract or written agreement entered into prior to snapback No retroactive effect of sanctions following snap-back > International sanctions regime Clause 37 of the JCPOA provides that: these provisions would not apply with retroactive effect to contracts signed between any party and Iran or Iranian individuals and entities prior to the date of application, provided that the activities contemplated under and execution of such contracts are consistent with this JCPOA and the previous and current UN Security Council resolutions. This is reflected in applicable EU and US law concerning sanctions against Iran. > EU sanctions regime The Whereas (7) of EU Council Regulation 18 October 2015 provides that: In case of reintroduction of Union restrictive measures, adequate protection for the execution of contracts concluded in accordance with the JCPOA while sanctions relief was in force will be provided consistent with previous provisions when sanctions were originally imposed. > US sanctions regime OFAC, in its latest amendments to its FACs on sanctions against Iran 3 on 21 December 2016 has indicated that: 1 European External Action Service Information Note on EU sanctions to be lifted under the Joint Comprehensive Plan of Action (JCPOA) of 23 January 2016 ( EEAS Info Note ), available at 2 Parapgrah 2, M5 of the Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions Under the Joint Comprehensive Plan of Action (JCPOA) on Implementation Day ( OFAC FAQ ) 3 OFAC FAQ as defined above

3 The United States has committed not to retroactively impose sanctions for legitimate activity undertaken after Implementation Day. Transactions conducted after the snapback occurs, however, could be sanctionable to the extent they implicate activity for which sanctions have been reimposed. The JCPOA does not grandfather contracts signed prior to snapback. 4 This means that while legitimate transactions undertaken from the Implementation Day to the snapback day will not be sanctioned retroactively, it will be in violation of sanctions to continue any such transactions which have become sanctionable following the snapback. > Supplier Credit transactions In relation to contracts for the supply of goods and services, OFAC has clarified that: In the event that a non-u.s., non-iranian person is owed payment at the time of snapback for goods or services fully provided or delivered to an Iranian counterparty prior to snapback pursuant to a written contract or written agreement entered into prior to snapback and such activities were consistent with U.S. sanctions in effect at the time of delivery or provision, the U.S. government would allow the non-u.s., non-iranian person to receive payment for those goods or services according to the terms of the written contract or written agreement. 5 > Buyer Credit transactions In relation to the repayment of loans or credits extended to Iranian counterparties prior to snapback, the OFAC has clarified that: If a non-u.s., non-iranian person is owed repayment for loans or credits extended to an Iranian counterparty prior to snapback pursuant to a written contract or written agreement entered into prior to snapback and such activities were consistent with U.S. sanctions in effect at the time the loans or credits were extended, the U.S. government would allow the non-u.s., non-iranian person to receive repayment of the related debt or obligation according to the terms of the written contract or written agreement. This allowance is designed for non-u.s., non-iranian parties to be made whole for debts and obligations owed or due to them for goods or services fully provided or delivered or loans or credit extended to an Iranian party prior to snapback. Any payments would need to be consistent with U.S. sanctions, including that payments could not involve U.S. persons or the U.S. financial system, unless the transactions are exempt from regulation or authorized by OFAC. On this basis, in order to obtain payments under supplier credit and buyer credit transactions entered into with Iranian counterparties prior to snapback, the following criteria must be met: 1. the commercial / financial contract(s) must be in writing; 2. the transaction must have been compliant with sanctions in place prior to the snapback; 3. the goods and service must have been fully provided or delivered. In this respect, it is unclear how the snapback would apply to the contracts relating to goods and services that have been partially delivered; 4. absent a specific exemption or authorisation, payments could not involve U.S. person or the U.S. financial system. 4 M.4 of the OFAC FAQ 5 Paragraph 3, M.5 of the OFAC FAQ

4 > Wind-down period The OFAC has further indicated that: In the event of a JCPOA sanctions snapback, the U.S. government would provide non-u.s., non- Iranian persons a 180-day period to wind down operations in or business involving Iran that was consistent with the U.S. sanctions lifting under the JCPOA and undertaken pursuant to a written contract or written agreement entered into prior to snapback With the exception of goods or services necessary to wind down operations in or business involving Iran during the 180-day period, the provision or delivery of additional goods or services and/or the extension of additional loans or credits to an Iranian counterparty after snapback, including pursuant to written contracts or written agreements entered into prior to snapback, may result in the imposition of U.S. sanctions unless such activities are exempt from regulation, authorized by OFAC, or not otherwise sanctionable. On the EU side, the EEAS Information Note explains that sanctions will not apply with retroactive effect in order to allow companies to wind down their activities. Details of the period of time allowed for the execution of prior contracts will be specified in the legal acts providing for the reintroduction of sanctions. 5. Does Credendo cover snap-back risk? Yes, Credendo does cover snap-back risk. While sanctions which re-enter into force upon snapback will not apply with retroactive effect to commercial and financing contracts entered into prior to snap-back consistent with the JCPOA, snap-back may in any case have a chilling effect on international business transactions with Iran. As was witnessed when the original sanctions entered into force, Iranian counterparties may face difficulties in the financial markets to make payments towards commercial and financial creditors. Such events would be capable of constituting a political or a protracted default risk event covered under Credendo s general policy terms. DISCLAIMER: This client memo and its contents are provided merely for information purposes and do not constitute an offer, promise or commitment by Credendo. Accordingly, this client memo does not give rise to any obligation to enter into negotiations or to provide cover in relation to any transaction.

5 ANNEX 1 DISMANTLING OF EU SANCTIONS AGAINST IRAN 6 Sector Activity Post- Implementation Day 7 Nuclear and uranium sector (goods, technology and software) (Annex I) > Partial dismantling of sanctions from Implementation Day: competent authority, which shall submit the proposed authorisation to the UN Security Council for approval Nuclear software (Annex VII A) > Partial dismantling of sanctions from Implementation Day: competent authority, without having to contact UN Security Council Dual use (Annex. II SGN list) > Partial dismantling of sanctions from Implementation Day: competent authority, without having to contact the UN Security Council 6 Applicable EU Regulation: EU Regulation 2015/1861 of 18 October 2015, which amends EU Regulation 267/2012 concerning restrictive measures against Iran 7 Implementation Day: 16 January 2016

6 Missile Technology (Annex. III) > Sanctions confirmed until Transition Day 8 Activities prohibited Common Military List / transport services > Sanctions confirmed until Transition Day Activities prohibited Oil & Gas / Petrochemical > Sanctions dismantled from Implementation Day Graphite, raw or semi-finished metals (Annex VII B, VIII) > Partial dismantling of sanctions from Implementation Day: competent authority, without having to contact the UN Security Council Freezing of funds and economic resources belonging to certain entities and prohibition on making available funds or economic resources to such entities (reconnection to SWIFT system) (Annexes XIII and XIV) - > Sanctions dismantled from Implementation Day for entities listed in Annex 1 of Attachment II of the JCPOA 9 (including the Central Bank of Iran, Bank Melli, Bank Mellat, Bank Tejarat, Europaisch-Iranische Handelsbank, Kala Naft, NIOC, NICO) > Sanctions dismantled from 22 January 2016 for Bank Sepah and Bank Sepah International 10 > Sanctions confirmed until Transition Day for entities listed in Annex 2 of Attachment II of the JCPOA (including Bank 8 Transition Day: 8 years following the Adoption Day of 18 October Joint Comprehensive Plan of Action of 14 July Ref: Council Implementing Regulation (EU) 2016/74 of 22 January 2016 implementing Regulation (EU) No. 267/2012

7 Sedarat), which remain on OFAC SND lists Transfer of funds to and from Iran - > Sanctions dismantled Activities must not have a nexus with primary US sanctions which shall remain in place 11 (i.e. no transit through US banking / clearing system, no involvement of US persons) Banking activities and related services Insurance/re-insurance Sale and purchase of public and public guaranteed bonds > Sanctions dismantled Activities must not have a nexus with primary US sanctions which shall remain in place (i.e. no transit through US banking / clearing system, no involvement of US persons) > Sanctions dismantled Activities must not have a nexus with primary US sanctions which shall remain in place (i.e. no transit through US banking / clearing system, no involvement of US persons) > Sanctions dismantled Activities must not have a nexus with primary US sanctions which shall remain in place (i.e. no transit through US banking / clearing system, no involvement of US persons) Bunkering, ship supply services, engineering and maintenance Export and technical assistance > Sanctions dismantled from Implementation Day (provided that vessel/aircraft is not carrying goods covered by Common 11 Primary US/OFAC sanctions shall continue to apply to US Persons, except for the following narrow exceptions: (i) the civil aviation sector, (ii) EU entities controlled by more than 50% by US Persons/entities, and (iii) the carpet, caviar and pistachio sector.

8 services for aircraft and other services related to vessels and aircraft owned by Iranian entities Military List or other goods the export of which remains prohibited, unless they are necessary for humanitarian and safety purposes) Gold, precious metals, diamonds, Iranian denominated banknotes and minted coinage Equipment, technology and software that may be used for internal repression purposes (Annex III of Regulation (EU) 359/2011) 12 Equipment, technology and software that may be used for the monitoring or interception of internet or telephone communications (Annex IV of Regulation (EU) 359/2011) > Sanctions dismantled > Sanctions confirmed Activities prohibited unless they are exclusively destined towards the protection of personnel of the EU and its Member States in Iran > Sanctions confirmed competent authority, without having to contact UN Security Council 12 Regulation (EU) 359/2011 of 12 April 2011 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Iran, as amended and supplemented by Regulation (EU) 264/2012 of 23 March 2012 and by Regulation 1245/2012 of 20 December 2012