On 23 January 2012, the European Council adopted Decision 2012/35/CFSP, setting out a range of new sanctions on Iran, including an oil embargo. Many elements of the extended sanctions required implementing legislation to be brought into force. That legislation was introduced over the weekend, in the shape of Regulation 267/2012 (the “2012 Regulation”) which consolidates and replaces the previous key Regulation 961/2010. Herbert Smith’s briefing on the Decision which the new Regulation implements can be found here. This briefing provides a high level overview of some key elements of the 2012 Regulation.
The oil and petrochemicals embargo
The 2012 Regulation brings the trade embargo on Iranian crude oil and petroleum products into force. These products are listed in Annex IV to the Regulation. In particular, it is prohibited to: import crude oil or petroleum products originating or exported from Iran; purchase crude oil or petroleum products which are located in or originate from Iran; transport crude oil or petroleum products originating or being exported from Iran; or provide finance (including insurance or financial derivatives) for the above. The same restrictions now apply to petrochemical products, as listed in Annex V of the Regulation.
Certain ‘grandfathering’ provisions apply, including permitting the execution, up to 1 July 2012, of trade contracts concluded prior to 23 January 2012, and to permit dealings in oil already exported from Iran prior to 23 January 2012, or exported pursuant to the grandfathering provisions. Third party liability insurance and environmental liability insurance and reinsurance is also permitted up to 1 July 2012.
Key equipment – petrochemicals extension
The EU regime already prohibited selling, supplying or exporting ‘key equipment’ listed in Annex VI to Iranian persons or for use in Iran. This included equipment needed to explore and produce crude oil or natural gas, for refining, or for the liquefaction of natural gas. The key equipment list in Annex VI has now been extended to cover items relating to the petrochemical industry.
Restrictions on finance – petrochemicals extension
The existing regime also included restrictions of granting loans, creating joint ventures with, or acquiring/extending participation (e.g. by increasing one’s shareholding) in Iranian persons involved in the activities referred to above. Again, these restrictions have been extended to Iranian persons engaged in the petrochemical industry, which is defined for these purposes as “production plants for the manufacturing of items in Annex V” (Article 17).
Transfer of Funds
The 2010 Regulation restricted transfers of funds to Iranian persons or entities, so that transfers of €10,000 – €40,000 required notification in advance to the competent member-state authority, while transfers of over €40,000 required approval from such authorities. The 2012 Regulation provides additional detail as to who should notify or request authorisation and in which member state (e.g. whether the member state of the payer or the payee must be notified).
In addition, and in order to prevent circumvention of the fund transfer provisions, the definition of “transfer of funds” has been broadened to include non-electronic transfers, such as cash, cheques and accountancy orders. Similarly, the duty on credit and financial institutions to exercise enhanced vigilance in relation to dealings with Iranian credit and financial institutions has been extended to Iranian bureaux de change. This may impact on companies currently using non-traditional banking methods to be paid in relation to (lawful) trading activity in Iran.
We will provide a further briefing on these and other changes in due course.