On 16 January 2016, the International Atomic Energy Association (IAEA) reported to the United Nations Security Council (UNSC) that Iran has satisfied its obligations under the Joint Comprehensive Plan of Action (JCPOA) agreed between Iran and the "EU3 + 3" countries (France, Germany, the United Kingdom, China, the Russian Federation, and the United States) in July 2015. Saturday 16 January 2016 is therefore “Implementation Day” under the JCPOA, triggering the easing of certain sanctions against Iran by the United States, European Union and United Nations Security Council.
The lifting of the sanctions was implemented by the EU through EU Council Decision (CFSP) 2016/37 of 16 January 2016, which triggered the application of the provisions on the relaxation of the nuclear-related sanctions against Iran envisaged in the Council Decision and two Council Regulations adopted on 18 October 2016 (Council decision (CFSP) 2015/1863, and Council Regulations No 2015/1861 and No 2015/1862). The provisions of these Council Decisions and Regulations on the lifting of nuclear-related sanctions apply as of 16 January 2016.
In addition, the European Commission published a detailed Information Note on the lifting of nuclear-related sanctions under the JCPOA, providing the much-needed guidance to businesses regarding the implications of this important step of the JCPOA.
As a significant and diverse emerging market, Iran presents substantial opportunities for European businesses, especially those engaged in the oil and gas and wider energy sector, together with manufacturing companies, retail and consumer goods suppliers, the food and drink and sector, and financial institutions and wider financial services companies. Nonetheless, there remains a misconception that Implementation Day lifts all sanctions imposed on Iran - companies will need to continue to comply with wider human-rights and antiterrorism-related sanctions which remain in place against Iran. In addition, from a practical perspective, it remains to be seen whether sanctions relief will be held back should banks continue to take a cautious approach to processing Iranian payment transactions.
What restrictions have been lifted?
The following nuclear-related prohibitions and restrictions imposed by the EU against Iran have been lifted altogether or replaced by authorisations requirements as of 16 January 2016:
1) Financial, banking and insurance measures:
- the restriction in relation to fund transfers to and from Iranian persons has been lifted - therefore there are no longer prior authorisation or notification requirements;
- banking activities - such as the establishment of new correspondent banking relationships or establishment of non-listed Iranian banks in the EU, joint ventures between EU and Iranian banks - are permitted;
- Specialised financial messaging services, including SWIFT, to Iranian banks, natural and legal persons, entities or bodies, are permitted;
- The provision of financial support for trade with Iran, such as export trades, guarantees, or insurance are permitted.
2) Sanctions targeting the oil, gas and petrochemical sectors:
- Import, purchase, swap and transport of oil, gas, petroleum and petrochemical products from Iran is permitted;
- In addition, export from the EU to Iran of equipment and technologies for the oil, gas and petrochemical sectors, as well as investment in the Iranian oil, gas and petrochemical sectors, is permitted.
3) Sanctions related to shipping, shipbuilding and transport sectors:
- Activities related to shipping, shipbuilding and the transport sector - such as sale, supply, transfer or export of naval equipment and technology, construction of cargo vessels, the provision of vessels for oil transportation or storage, the provision of flagging and classification services - are permitted.
4) The prohibition on the sale, purchase, supply transfer or transport of Gold, other precious metals, banknotes and coinage
- The prohibition on the above actives has been lifted.
5) De-listing of persons, entities and bodies
- A number of individuals, entities and bodies who were previously subject to an asset freeze (or a visa ban) have been delisted;
- However, asset freezes and visa bans remains in place against a large number of natural and legal persons and bodies in Iran (including under human rights, anti-terrorism and arms proliferation-related sanctions).
The following prohibitions have been replaced by authorisation requirements.
1) Dual-use equipment:
- The prohibition on the sale/supply/transfer or export of dual-use equipment to Iran or for use in Iran is now subject to an authorisation requirement rather than a prohibition.
2) Sale, supply, transfer or export to of certain graphite and raw or semi-finished metals:
- The prohibition of these activities has been replaced by an authorisation regime with national competent authorities
3) Restriction on the sale, supply, transfer or export of software
- The prohibition on the sale/supply/transfer/export of Enterprise Resource Planning Software has been replaced by an authorisation regime with national competent authorities
Prior to engaging in any of the above transactions, authorisation in the form of a licence should be obtained from the relevant competent authority.
Sanctions remaining in place
Despite the possible impression that might have been given by Iranian official communications and some media reports, the lifting of sanctions under the JCPOA concerned only certain nuclear-related sanctions. A significant number of prohibitions and restrictions remain in place, in particular:
1) Arms embargo;
2) Missile technology sanctions - prohibitions on dealing in missile goods and technologies listed in Annex III to Council Regulation 267/2012;
3) Asset freezes and visa bans against a number of natural and legal persons, entities and bodies - in relation to arms proliferation, human rights violations and terrorism.
4) Nuclear transfer and activities - transfers of certain nuclear proliferation-sensitive goods and technology, including associated services, such as financial and technical assistance, are subject to an authorisation by national competent authorities.
DLA Piper comment
The lifting of the nuclear-related sanctions against Iran by the EU is expected to open significant new business opportunities for European companies.
At the same time, European businesses, planning to explore the opportunities opened by the JCPOA and to do business with Iran, should proceed cautiously and make sure that their planned activities are not subject to remaining legal or practical restrictions. A careful legal and business assessment of the risks should be undertaken. In particular, the following aspects and complications should be considered:
- Differences in the EU and US approach to the lifting of Iran sanctions, which will result in additional legal risks for the companies that are subject to both EU and US jurisdictions.
- A significant number of prohibitions and restrictions (including asset freezes and extensive authorisation requirements) remain in place under the applicable EU regulations.
- Iranian infrastructure to do business - companies planning to engage in Iran should carefully review the business environment that they are entering into. There are known challenges in terms of contract negotiations, availability of legal support, rule of law, good governance , banking & finance and the political risks still associated with exploring business opportunities in Iran.
- The possibility of a "snap back" - under the JCPOA, the EU (as well as the US) reserve the right to reintroduce sanctions on Iran if Iran is found to have violated its JCPOA obligations. Although the EU regulations provide some protection to any legitimate transactions concluded before the snapback, given the current political instability surrounding Iran the possibility of sanctions being reintroduced contributes to significant legal and business uncertainty.
The introduction by the US of additional sanctions against certain persons and entities in Iran on 16 January 2016 (shortly after the announcement of the lifting of certain nuclear related sanctions) demonstrates the extent of the remaining uncertainties regarding the sanctions against Iran.
- The approach taken by banks and financial institutions - banks and financial institutions, in particular those subject to both the EU and US jurisdictions, are taking a very cautious approach towards returning to normal business activities in Iran, following the multi-million penalties recently imposed on a number of financial institutions by US authorities. As a result, some banks may refrain from entering into or facilitating transactions that are formally permitted, while there remain uncertainties about the future of the sanctions regime targeting Iran. This can lead to practical difficulties in organising the financing or payment of business transactions with Iran.