Flash update: trade compliance

International Trade Alert

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This week has seen two important developments in relation to the UK and EU legal and regulatory framework governing trade with Iran and Russia:

  • The European Court of Justice (the ECJ) has clarified a number of points in relation to EU sanctions measures targeting Russia
  • The UK Export Control Organisation (the ECO) has announced the withdrawal of the Iran List

Russia

In July 2014, the European Union adopted sanctions measures in response to Russia's actions to destabilise the situation in Ukraine. These measures impose restrictions on certain financial transactions, restrict the access of certain Russian entities to capital markets, restrict the export of certain sensitive goods and technologies to Russia and prohibit the provision of services for certain oil projects in Russia.

This week the ECJ answered a number of questions in relation to these sanctions measures in the course of a judicial review challenging the validity of the measures brought by Rosneft (the Russian oil and gas company) against the UK Government and Financial Conduct Authority.

One of the key challenges faced by companies navigating the restrictions introduced under the measures has been the lack of clarity as to what is and is not covered by the legislation and therefore what commercial activities in relation to Russia are and are not allowed. Guidance issued by the European Commission and the UK Government has assisted to an extent, but uncertainty has remained.

The ECJ has said that the fact that some of the provisions of the measures may be subject to clarification, does not make them invalid for lack of certainty or prevent member states from imposing criminal penalties for breach of the measures. Full compliance with the measures therefore remains key to avoid criminal, or indeed wider reputational penalties, for being found to have acted in breach.

The ECJ was also asked to consider whether the restrictions on the provision of certain so termed "financial assistance", should be interpreted as including the processing of payments by a bank or other financial institution. The court held that the term "financial assistance " does not include the processing of a payment by a bank or financial institution. Therefore, on a practical basis, per the ECJ judgment, a bank processing a payment in relation to the supply of so termed "Annex II" items (certain items that can be used in Russia's oil sector) to or for use in Russia, does not require a licence to authorise the processing of payments related to the supply of the items. This is position is contrary to prior guidance on this point issued by the European Commission. For completeness, the actual supply of any Annex II items does still require a licence.

Read the full judgement of the Court.

Iran

The UK Government announced this week that the Iran List published by the ECO has been withdrawn following the suspension of some UK and EU sanctions measures under the Joint Comprehensive Plan of Action (the JCPOA).

The Iran List was compiled and published by the ECO to provide guidance for UK companies on Iranian entities that the ECO were concerned may use or divert products exported from the UK for a weapons of mass destruction (WMD) end use.

EU and UK legislation (the EU Dual Use Regulation and the UK Export Control Order 2008 respectively) provide that an export licence is required to authorise an export if an exporter has been informed by the Government, is otherwise aware, or has grounds for suspecting, that goods which it intends to export may be intended in whole or in part for WMD purposes. This is known as an "end use" or "catch all" control and applies to all goods exported from the UK, not only goods normally subject to export controls.

In announcing the withdrawal of the Iran List the ECO stated that the UK Government "fully supports expanding our trading relationship with Iran and encourages UK businesses to take advantage of the commercial opportunities that arise".

Companies should be aware however that the end use control still applies both in relation to Iran and other third countries. Appropriate due diligence should therefore be undertaken and recorded in relation to the end use and end user of company products to manage the risk that the products may be diverted to a prohibited end user or for a prohibited end use. The ECO also off an end user advice service, which can be accessed via the ECO SPIRE export licensing system.

See our earlier update including more details on the JCPOA, the sanctions measures that have been suspended and those which remain in force.

As advised by the ECO, "It is important to take appropriate due diligence measures before engaging in any activity. Iran will remain a challenging place to do business so if in doubt exporters should seek legal advice".

DLA Piper's Global Trade & Government Affairs team

DLA Piper's Global Trade team is made up former regulators and compliance specialists, meaning we have a unique insight into compliance challenges and regulatory enforcement activity. We have extensive experience in advising and representing a wide range of global companies on trade related compliance issues, including export control regulations, sanctions compliance, transactions involving countries and entities subject to economic sanctions and trade embargoes and customs/import issues.

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For more information contact John Forrest or Chloe Barker.

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