On 22 December 2012, three new EU measures in relation to Iran were published in the EU Official Journal. These expand the existing suite of EU sanctions, and are likely to be relevant to any EU companies, or persons within the EU, still engaged in trade with Iran, Iranian persons or Iranian-origin goods.
Probably the most eye-catching measure is the bringing into force of the EU embargo on Iranian-origin gas. The new regulations, however, deserve full and careful reading. In addition to the gas embargo, new trade and financial sanctions have been introduced, the existing trade sanctions and associated ‘grandfathering’ provisions have been amended to some extent, and the EU’s asset freeze regime has been extended to cover additional persons.
A summary of the new measures is provided below, under the following headings:
- The new EU measures
- UK implementation and guidance
- The gas embargo
- Other trade sanctions
- Financial sector restrictions
- Other new provisions of interest
The new EU measures
The three new legislative instruments are:
- Council Decision 2012/829/CSFP. This amends Council Decision 2010/413/CSFP, most importantly by adding additional persons to the list of ‘designated persons’ who are to be subject to the EU asset freeze regime. The additions include some significant Iranian state owned enterprises, amongst others. See: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:356:0071:0077:EN:PDF.
- EU Regulation 1264/2012. This implements the Decision referred to above by amending the EU asset freeze list at Annex IX of Regulation 267/2012 (the main EU Regulation on Iran, dating from March 2012), to add the additional persons listed in the Council Decision, and to make some amendments/deletions to existing entries on the asset freeze list. See: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:356:0055:0060:EN:PDF.
- EU Regulation 1263/2012. This implements the 15 October 2012 Council Decision 2012/635/CFSP and amends the main EU Regulation 267/2012. It introduces a range of new trade sanctions, discussed further below. It also introduces new restrictions on EU banks doing business with the Iranian financial sector, although the impact on UK banks is likely to be relatively limited, given that the UK position was previously more restrictive than that in the EU[i]. See: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2012:356:0034:0054:EN:PDF.
UK implementation and guidance
In terms of UK implementation:
- Both of the new EU Regulations (extending the asset freeze regime, and extending the trade/financial sanctions) are directly effective throughout the EU – including in the UK – and came into force on the day following their publication in the Official Journal (ie. on 23 December 2012).
- Some of the new trade restrictions created by Regulation 1263/2012 have transitional or ‘grandfathering’ provisions, enabling pre-existing contracts to be performed for a limited period. The specified time periods differ in respect of different types of restrictions, some restrictions are not grandfathered at all, and in some cases reliance on the grandfathering requires prior notification to an EU competent authority. The relevant provisions therefore require to be checked in each case, before reliance is placed on them.
- In terms of domestic UK legislationimposing penalties for breach of the new restrictions:
- The UK asset freeze regime operates by cross-referring to the EU list of designated persons. Unlicensed dealings in the assets of the persons who are ‘new’ additions to the EU list may therefore constitute a criminal offence in the UK without any further UK implementing legislation.
- The UK has not yet enacted domestic legislation to penalise breach of the new trade sanctions created by Regulation 1263/2012. In the normal course, we would expect this to follow relatively shortly.
- HM Treasury has issued the following new guidance:
- A Notice regarding the additions/amendments to the asset freeze list. This is in a standard form and is available at: http://www.hm-treasury.gov.uk/d/fin_sanc_notice_iran_cir_241212.pdf
- A Notice providing guidance on the new provisions in Regulation 1263/2012 which affect the financial sector (principally, the new restrictions on transfers of funds from EU banks to Iranian banks), and their interrelationship with the existing Financial Restrictions (Iran) Order 2012 (“Iran Order”) ;
- A new General Licence which ‘grandfathers’ any transactions already licensed by HM Treasury under the Iran Order or under the asset freeze regime, where such transactions would now fall to be authorised under amended Article 30(1) of EU Regulation 267/2012. This Licence is available at: http://www.hm-treasury.gov.uk/d/fin_sanc_iran_general_licence1_241212.pdf.
The gas embargo
The gas embargo is enacted as new Article 14a of Regulation 267/2012. The gas affected by the embargo is “natural gas which originates in Iran or has been exported from Iran” (“Iranian Gas”) – i.e. it is the origin of the gas, rather than the nationality of its immediate vendor, which determines whether it falls within these provisions. “Natural gas” is defined in new Annex IVA, and includes natural gas condensates, natural gas in liquefied and gaseous states, propane, butane and other gaseous hydrocarbons.
The activities which are prohibited by the embargo include:
- purchasing, transporting or importing Iranian Gas into the EU;
- swapping such gas (defined as “exchang[ing] natural gas streams of different origins“); and
- providing, directly or indirectly, brokering services, financing or financial assistance, including financial derivatives, as well as insurance and re-insurance and brokering services relating to insurance and re- insurance, in respect of the above activities.
There are, however, certain important carve outs, in particular in relation to the purchase of natural gas that has been exported from a state other than Iran, where the exported gas has been combined with gas originating from Iran within the infrastructure of a non-Iranian country; and the execution of contracts for the delivery of non-Iranian origin gas into the EU.
Other trade sanctions
Other new sanctions, which should be referred to for their full effect (and in each case for applicable grandfathering provisions and other exemptions, if any), include:
- Key equipment for the oil and gas industry – prohibition on sale, supply etc to Iranian persons or for use in Iran
The existing Articles 8-10 of Regulation 267/2012, which contained restrictions on the supply, transfer or export of key equipment and technology used in the oil and gas industry (and related technical or financial assistance), have been replaced. New Articles 8 and 9 contain substantively the same prohibitions but extend to cover additional equipment listed in Annex VIA, and are subject to different grandfathering provisions.
- Key naval equipment and technology – prohibition on sale, supply etc to Iranian persons or for use in Iran
There are new prohibitions on the sale, supply, transfer or export of key naval equipment or technology listed in new Annex VIB (and related technical or financial assistance). Annex VIB includes engines, other propulsion equipment and surveying equipment.
- Specified software – prohibition on sale, supply etc to Iranian persons or for use in Iran
New Articles 10d-e of Regulation 267/2012 prohibit the sale, supply, transfer or export (and related technical or financial assistance) of “Enterprise Resource Planning software, designed specifically for use in nuclear, military, gas, oil, navy, aviation, financial and construction industries“, as listed in a new Annex VIIA.
- Graphite and raw or semi-finished metals – prohibition on sale, supply etc to Iranian persons or for use in Iran
New Articles 15a-b of Regulation 267/2012 impose a prohibition on the sale, supply, transfer or export of graphite and raw or semi-finished metals as listed in new Annex VIIB (and related technical or financial assistance). The listing of metals is wide-ranging and includes specified types of graphite, iron, steel, copper, aluminium, lead, zinc, tin and other base metals.
Financial sector restrictions
Article 30 of Regulation 267/2012 previously provided (in high level terms) that transfers of funds between EU persons and Iranian persons were required to be notified to an EU competent authority (in the UK, HM Treasury) if over EUR 10,000, or pre-authorised if over EUR 40,000, in each case subject to certain exemptions (the “transfer of funds restrictions”). Additional requirements also applied under the Iran Order in relation to transfers between UK banks and Iranian banks, and under the asset freeze regime in relation to transfers to or from asset-frozen Iranian banks.
As a result, and by way of example:
- If a UK person, using a UK bank account, wanted to make a payment of EUR 40,000 into an Iranian person‘s UK bank account, that transfer would have required authorisation under the transfer of funds restrictions.
- If the same payment was to be made from a UK bank account to the Iranian person‘s Iranian bank account, that transfer would have been subject not only to the transfer of funds restrictions but also to licensing under the UK’s Iran Order. That licensing requirement was, however, a feature of UK rather than EU law.
Regulation 1263/2012 has introduced new restrictions on EU credit and financial institutions relating to the transfer of funds to or from:
- Iranian credit and financial institutions;
- Iranian bureaux de change;
- branches/subsidiaries (wherever located) of Iranian credit and financial institutions and bureaux de change; and
- credit and financial institutions and bureaux de change (wherever located) controlled by persons domiciled in Iran.
This therefore brings the EU position more into line with the pre-existing UK position.
The new EU restrictions are inserted as a new Article 30 into the 2012 Regulation. The pre-existing transfer of funds restrictions (old Article 30) move to become a new Article 30a. These existing measures remain largely unchanged.
As such, and in summary:
- If a transfer between an EU bank and a designated (ie. asset frozen) Iranian bank is to take place, a licence under the asset freeze regime is required.
- If a transfer between an EU bank and a (non-designated) Iranian bank is to take place, the new Article 30 applies. Notification or authorisation may be required, depending on the size and nature of the transfer. Licensing grounds are specified in the Regulation.
- If a transfer between an EU bank and an Iranian person is to take place, and no Iranian bank is involved in the transaction, Article 30a applies. Notification or authorisation may be required, depending on the size and nature of the transfer. Licensing grounds are specified in the Regulation.
A further (moderately useful) explanation of the interaction between the various licensing/authorisation regimes is provided by the new HM Treasury advisory notice, referred to above, including guidance on how to apply for licences when both the UK and EU regimes apply.
Other new provisions of interest
The following new provisions in Regulation 1263/2012 are also of particular interest:
- Oil embargo exemptions – certain amendments have been made to the exemptions from the oil/petrochemicals embargo (see amended Articles 12(1) and 14(1) of Regulation 267/2012).
- Extended grounds for asset freeze – Article 23 of Regulation 267/2012 sets out the basis on which persons can be added to the list of designated (asset frozen) persons at Annex IX of that Regulation. Article 23(c) previously permitted listing of persons who are members of the Islamic Revolutionary Guard Corps (“IRGC”), persons owned/controlled by the IRGC or its members, or persons acting on their behalf. This provision has been extended to additionally cover persons “providing insurance or other essential services to [the IRGC etc] “.
- Amendments to the grounds on which transfers, which would otherwise be prohibited under the asset freeze, can be licensed under Articles 23, 26 and 28 – This amendments include changes to licensing ground relating to the use of frozen funds can be licensed to satisfy pre-existing contractual obligations, and amendments to the basis for licensing transactions with the Central Bank of Iran.
- Prohibitions on the provision of shipping services to Iranian persons in respect of oil tankers and cargo vessels – New Article 37a prohibits (from 15 January 2013) the provision of, amongst other things, classification, inspection, testing, design, construction, repair, inspection, testing, certification, surveys, audits and other specified services to oil tankers and cargo vessels which are Iranian-flagged or which are owned, chartered, or operated, directly or indirectly, by an Iranian person.
- Prohibitions on making oil/petrochemical storage vessels available to Iranian persons – new Article 37b prohibits the making available of vessels designed for the transport or storage of oil and petrochemical products to an Iranian person. Further, the provision of vessels to any person is prohibited unless the vessel providers have taken appropriate action to prevent the vessel being used to carry or store oil/petrochemical products and originate in or have been exported from Iran.
- Certain amended/new derogations relating to environmental safety and other matters are introduced by Articles 43 and 43a.
The timing of these significant new provisions, which were published over the pre-Christmas weekend, was unfortunate[ii]. It is important that any persons who are exposed to the Iranian sanctions regime review the detail of the provisions with care on their return from the festive break (if they have not done already). Whilst the EU has still stopped short of a full trade embargo on Iran, some of the new restrictions (for example, in relation to metals, the gas embargo, and the financial sector restrictions) are potentially very broad in scope and/or effect.
[i] by virtue of the Financial Restrictions (Iran) Order 2012 (“Iran Order”), a direction under the Counter-Terrorism Act 2008). As explained in our previous briefing (http://hsf-fsrandcorpcrimenotes.com/2012/11/21/hmt-reissues-direction-to-cease-business-with-iranian-banks/), the direction, which was first given on 21 November 2011, was reissued on 21 November 2012.
[ii] Please note that this briefing does not discuss the US sanctions in relation to Iran, which have also been amended over the Christmas break.