No More “Significant Reduction Waivers” – The Trump Administration Further Strengthens Sanctions against Iran

On April 22, 2019, the White House announced that the Trump administration will not issue further “significant reduction waivers” exempting specified countries from the threat of secondary sanctions based on their purchases of Iranian crude oil. The move signals the Trump Administration’s intention to utilize economic sanctions to bring Iran’s level of oil exports to zero. The announcement follows the recent determination to designate the Islamic Revolutionary Guard Corps as a foreign terrorist group, both forming part of the Administration’s “maximum pressure” campaign with respect to Iran. The campaign aims to push Iran to take action in response to the Trump Administration’s “twelve demands,” which relate both to nuclear issues and to other aspects of Iran’s behaviour, such as its involvement in conflicts in Syria and Yemen and tensions with US allies in the region.

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COURT OF APPEAL UPHOLDS DISCLOSURE ORDER DESPITE RISK OF PROSECUTION IN IRAN

The Court of Appeal has upheld a first instance decision requiring the claimant Iranian bank to produce customer documents in unredacted form, subject to measures to protect their confidentiality, despite the fact that compliance would put the claimant in breach of Iranian law: Bank Mellat v HM Treasury [2019] EWCA Civ 449.

This case gives a helpful illustration of the court’s approach where a party asserts that the production of documents under its disclosure obligations will contravene foreign criminal law. The court will balance the actual risk of prosecution in the foreign jurisdiction against the importance of the documents to the fair disposal of the trial. While the risk of prosecution will be a factor to weigh in the balance, it will not be determinative.

It is interesting to compare the High Court’s similar decision, albeit in a contrasting context, in the recent case of ACL Netherlands BV v Lynch (considered here). In that case the court declined to grant a party permission to use documents received on disclosure in the English litigation in order to comply with a US grand jury subpoena. Both decisions deal with a scenario where documents are required for proceedings in one jurisdiction but production will put the party in breach of its obligations under the (civil or criminal) law of another jurisdiction. Both decisions highlight the difficulties that may be faced by a party that finds itself caught between conflicting obligations in this way.

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Second Wave of United States Sanctions Against Iran Re-Imposed

Following President Trump’s decision on May 8, 2018 to withdraw the United States from the Joint Comprehensive Plan of Action (“JCPOA”), the US government announced that it would re-impose pre-JCPOA nuclear-related Iran sanctions (both primary and secondary) that were lifted under the JCPOA. As we reported previously, two “wind-down” periods—of 90 and 180 days respectively—commenced from the day of the announcement, during which non-US, non-Iranian companies were encouraged by the US government to withdraw from operations in Iran that would be affected by re-imposed sanctions. OFAC’s guidance discouraged non-US persons from engaging in new activity during the wind down periods, and stated that any such new activity may be a factor in connection with future enforcement action for actions taken after the wind-down period.

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SANCTIONS CLAUSES IN A CHANGING SANCTIONS REGIME

How far can a sanctions clause protect a party from having to perform their contractual obligations – and in the case of Iran-related sanctions concerns, how does this interact with the Blocking Regulation? In Mamancochet Mining Limited v Aegis Managing Agency Limited and Others[2018] EWHC 2643, the High Court held that, in order to avoid payment of a claim, insurers were required to show that payment would expose them to sanctions under US or EU law. A mere exposure to the risk of a sanction was not sufficient.

In this post, our Insurance Disputes team consider the implications of the decision. Continue reading

FinCEN Issues Advisory Regarding Detection of Illicit Transactions Related to Iran

On October 11, 2018, the Financial Crimes Enforcement Network (“FinCEN”) issued official guidance entitled “Advisory on the Iranian Regime’s Illicit and Malign Activities and Attempts to Exploit the Financial System” (the “Advisory”). The Advisory intends to help US financial institutions to “better detect potentially illicit transactions related to the Islamic Republic of Iran.” The Advisory also aims to help foreign financial institutions understand the obligations of their US affiliates and avoid the breach of US sanctions laws.

According to the Advisory, the Iranian regime accesses, and abuses, the international financial system using a variety of methods. These methods include:

  • Using senior officials of the Central Bank of Iran to help procure hard currency and conduct transactions for the benefit of the Islamic Revolutionary Guard Corps-Qods Force (“IRGC-QF”) and the Lebanese Hizballah.
  • Using exchange houses to hide the origin of funds and to procure foreign currency for the IRGC-QF, through the use of front companies and complex currency exchange networks. Exchange houses and trading companies have also been used to process funds transfers to evade sanctions laws.
  • Using front and shell companies in order to help procure various goods and technologies that enable malign actors to further their illicit activities. Such goods and technologies include printing equipment, dual-use equipment (in support of Iran’s ballistic missile programs), and aviation-related materials.
  • Using deceptive shipping practices to hide the connection between certain business activities and Iran and thus evade US sanctions.
  • Using gold and other precious metals to help facilitate the sale of Iranian oil and other goods, and to further evade the imposition of US sanctions.
  • Using virtual currencies to evade US sanctions.

The Advisory stresses repeatedly that US financial institutions should be particularly cautious at this time, in light of the fact that all sanctions on Iran previously lifted under the Joint Comprehensive Plan of Action (JCPOA) are to be reimposed (or already have been reimposed) following 90- and 180-day wind-down periods. Because of this, FinCEN expects that the evasive, deceptive, and illicit activities described above will increase in frequency. In order to better assist with the detection of deceptive activities, FinCEN provides a set of “red flags” that financial institutions should review and keep in mind when analyzing specific transactions.

Finally, the Advisory reminds US financial institutions of their various obligations under US sanctions laws, the USA Patriot Act, the Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA), and other related regulations.

We continue to monitor developments in this area. Please contact the authors of this newsletter or your usual Herbert Smith Freehills contact for more information.

 

Daniel Hudson
Daniel Hudson
Partner, London
+44 20 7466 2470
Jonathan Cross
Jonathan Cross
Partner, New York
+1 917 542 7824
David Atia
David Atia
Associate, New York
+1 917 542 7841

First wave of United States sanctions against Iran re-imposed on 7 August 2018, as the amended EU Blocking Statute comes into effect on the same day

End of first wind-down period

Following President Trump’s decision on 8 May 2018 to withdraw the United States from the Joint Comprehensive Plan of Action (“JCPOA”), the US government announced that it would re-impose pre-JCPOA nuclear related sanctions (both primary and secondary) that were lifted under the JCPOA. As we reported previously, two ‘wind-down’ periods – of 90 and 180 days respectively – commenced from the day of the announcement, during which non-US, non-Iranian companies were encouraged by the US government to withdraw from operations in Iran that would be affected by re-imposed sanctions.

On 6 August 2018 the first of these wind-down periods expired. President Trump issued a new Executive Order (“New EO”) re-imposing sanctions effective as of 7 August 2018. For our full briefing on the matter, please click here.

 

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PROPOSED AMENDMENTS TO THE EU BLOCKING STATUTE

In May, we published an e-bulletin discussing President Trump’s announcement that the United States would withdraw from the Iran nuclear deal (the Joint Comprehensive Plan of Action – “JCPOA“), and that all pre-JCPOA nuclear-related sanctions on Iran (including secondary sanctions) would be re-imposed.

The European Union, along with leaders of the other countries party to the JCPOA (Germany, France, the United Kingdom, Russia and China) have all reiterated their commitment to the JCPOA. Continue reading

UNITED STATES ANNOUNCES COMPLETE WITHDRAWAL FROM THE JCPOA, AND PROVIDES WINDING-DOWN PERIOD BEFORE SANCTIONS RE-IMPOSITION

On May 8, 2018, President Trump announced that the United States will completely withdraw from the Joint Comprehensive Plan of Action (the “JCPOA“). The JCPOA, signed in July 2015 and implemented on January 16, 2016, lifted most US nuclear related secondary sanctions and certain US primary sanctions targeting Iran. Prior to the JCPOA, the US had also imposed a broad range of “secondary sanctions” – applicable to dealings of non-US persons with sanctioned Iranian parties – in a number of key economic sectors in Iran, including automobile, energy and finance. The President’s announcement today states that all pre-JCPOA nuclear related sanctions will be re-imposed (both primary and secondary), and indicates that the US may impose new and additional sanctions in the future, going beyond the already highly restrictive sanctions regime which preceded the JCPOA. Continue reading

Corporate Crime update – January 2018

Welcome to the January 2018 edition of our corporate crime update – our round up of developments in relation to corruption, money laundering, fraud, sanctions and related matters. Our update now covers a number of jurisdictions. For the full update on each jurisdiction, please click on the name of the jurisdiction below.  Continue reading

TRUMP ADMINISTRATION CONTINUES IRAN SANCTIONS WAIVERS, BUT SIGNALS DESIRE FOR CHANGES

Following the announcement of the new strategies on Iran in October 2017, on January 12, 2018, the Trump administration announced that it will continue to waive the application of certain nuclear sanctions under the Joint Comprehensive Plan of Action (“JCPOA”) as a “last chance.” In a statement, the President states that he intends to pursue a supplemental agreement with European allies of the US, and in the absence of such an agreement, the United States will ultimately withdraw from the JCPOA. Continue reading