Iran Sanctions Update

CONTRIBUTED BY MICHELLE LINDERMAN, PARTNER, LONDON, INCE & CO

On 23 December 2012, Council Regulation 1263/2012 entered into force implementing, with some minor amendments, the restrictions set out in Council Decision 2012/635 of 15 October 2012. Regulation 163/2012 (the “Amending Regulation”) amends EU Regulation 267/2012 (the “Regulation”) which is the primary piece of EU legislation concerning restrictive measures against Iran. On 22 December 2012, Council Regulation 1264/2012 entered into force amending the list of persons, entities and bodies identified by the Regulation as subject to the financial sanctions imposed by the Regulation.

We set out below an overview of the most significant further restrictions imposed by the Amending Regulation. These further restrictions apply in conjunction with the pre-existing restrictions, details of which can be found in our previous updates.

Key equipment and technology for key sectors of the oil and gas industry
The scope of the pre-existing prohibitions on the sale, supply, transfer or export of key equipment and technology for key sectors of the oil and gas industry in Iran has been expanded by the Amending Regulation through the addition of a further annex (Annex VIA) listing restricted key equipment and technology. Examples of the key equipment and technology listed in Annex VIA include “casing, tubing and drill pipe, of a kind used in drilling for oil or gas” and certain containers for compressed or liquefied gas.

It is also prohibited to provide directly, or indirectly, technical assistance or brokering services related to the key equipment and technology listed in the new Annex VIA to any Iranian person, entity or body, or for use in Iran. Equally, it is prohibited to provide directly or indirectly, financing or financial assistance related to the key equipment and technology listed in that Annex to any Iranian person, entity or body, or for use in Iran.
There are, in certain circumstances, grace periods for the execution of certain contracts relating to the above.

Key naval equipment and technology
It is now prohibited, under Article 10a of the Regulation, to sell, supply, transfer or export key naval equipment or technology, directly or indirectly to any Iranian person, entity or body or for use in Iran. It is also prohibited, under Article 10b, to provide, directly or indirectly, technical assistance or brokering services related to this equipment and technology or related to the provision, manufacture, maintenance and use of these restricted goods. As with the prohibitions relating to key equipment for the oil and gas industry, there are also restrictions on providing financing whether directly or indirectly related to this equipment.

The equipment and technology that falls within the scope of these prohibitions is listed in Annex VIB to the Regulation and includes equipment and technology for ship building, maintenance or refit, including that which is used in the construction of oil tankers. The list of restricted goods includes engines and related parts; machinery for soldering, brazing or welding; propellers and navigational instruments for the maritime industry.

An exception to these prohibitions is available where a non-Iranian vessel is forced into Iranian territorial waters under force majeure. Further, the prohibitions shall not apply to contracts concluded before 22 December 2012 and ancillary contracts necessary for the execution of such contracts, provided that they are executed by 15 February 2013.

Bunkers
The exceptions to the prohibitions on the import, purchase and transport of Iranian crude oil and petroleum products have been expanded by the Amending Regulation. Article 12(1) of the Regulation now provides limited exceptions to the aforementioned prohibitions in respect of bunker oil which originates in Iran or has been exported from Iran, provided that the bunker oil is produced and supplied by a country other than Iran and is purchased for the purposes of vessel propulsion. Where a vessel is forced into Iranian waters under force majeure, the purchase of Iranian bunker oil for vessel propulsion is permitted. Unlike the other exceptions to the prohibitions on the import, purchase or transport of Iranian oil and petroleum products, where bunker oil is purchased pursuant to either of these new exceptions, there is no requirement that 20 working days’ advance notice be given to the relevant competent authority.

Natural gas
With limited exceptions, the Regulation now prohibits, under Article 14a, the purchase, transport or import into the EU of natural gas which originates in Iran or has been exported from Iran. It is also prohibited to swap natural gas i.e. to exchange natural gas streams of different origins, which originates in Iran or has been exported from Iran. It is also prohibited to provide, directly or indirectly, brokering services, financing or financial assistance as well as the provision or brokering of insurance and re-insurance in respect of the purchase, transport, import or swapping of Iranian natural gas.

Graphite and raw or semi-finished metals
The Regulation now prohibits, under Article 15a, the sale, supply, transfer or export of graphite and raw or semi-finished metals, such as aluminium and steel, directly or indirectly, to any Iranian person, entity or body, or for use in Iran. It is also prohibited, under Article 15b, to provide, directly or indirectly, technical assistance or brokering services related to the restricted metals, or the provision, manufacture, maintenance or use of them, or to provide, directly or indirectly, financing or financial assistance in relation to such goods.

The metals which fall within the above restrictions are deemed relevant to the industries controlled directly or indirectly by the Islamic Revolutionary Guard Corps or which are relevant to Iran’s nuclear, military or ballistic missile program and are listed in Annex VIIB to the Regulation.

Again, the Regulation contains grace periods for the execution of certain contracts relating to such goods.

Transfers of funds between the EU and Iran
Article 30 of the Regulation now prohibits, with exceptions, the transfer of funds between credit and financial institutions that are subject to EU sanctions legislation and credit and financial institutions and bureaux de change domiciled in Iran, their branches and subsidiaries wherever located and credit and financial institutions and bureaux de change controlled by persons, entities or bodies domiciled in Iran.

The exceptions to this prohibition include, inter alia, transfers for humanitarian purposes; personal remittances; transfers in connection with specific permitted trade contracts; payments to satisfy claims by or against an Iranian person, entity or body; and payments in relation to pre-23 January 2012 contracts (or ancillary contracts, necessary for the execution of such contracts) that specifically provide for the reimbursement of outstanding amounts to the EU party to be made through the supply of Iranian oil or the proceeds derived from their supply. The Regulation contains specific notification and authorisation requirements which must be complied with in respect of transfers permitted under an exception to the general prohibition.

Services to Iranian vessels
From 15 January 2013, it will be prohibited, under Article 37a of the Regulation, to provide various services to oil tankers and cargo vessels which are Iranian flagged or are owned, chartered, or operated, directly or indirectly, by an Iranian person, entity or body. The prohibited services are:

>>the provision of classification services;
>> the supervision of and participation in the design, construction or repair of ships and their parts and the provision of related technical or financial assistance;
>> the inspection, testing and certification of marine equipment, materials and components as well as the supervision of the installation on board and the supervision of system integration; and
>> the carrying out of surveys, inspections, audits and visits and the issuance, renewal or endorsement of certificates and documents of compliance required under a raft of international conventions and protocols on behalf of the flag State administration.

Vessels used to store Iranian oil
The Regulation now expressly prohibits, under Article 37b, making vessels designed for the storage of oil and petrochemical products available to any Iranian person, entity or body or to anyone if the vessel is to be used for the carriage or storage of Iranian oil or petrochemical products. This prohibition requires anyone providing a relevant vessel to take appropriate action to ensure that it will not be used to carry or store Iranian oil or petrochemical products. Limited exceptions to the above prohibitions are available in respect of certain specific pre-23 January 2012 contracts and oil or petroleum products exported from Iran prior to that date.

Conclusion
The publication of the Amending Regulation represents a further tightening of the EU’s sanctions against Iran. It has clarified the scope of certain pre-existing restrictions, but has significantly reduced permissible trade and further complicated the underlying legislation. The restriction on money transfers between the EU and Iran introduces new legal, compliance and practical barriers to trade with Iran.

It is recommended that anyone considering carrying out any business with an Iranian element seeks legal advice in order to avoid inadvertent breaches of the Regulation and/or unexpected delays and disruptions to their trade. Similarly, anyone considering any of the business activities prohibited by EU sanctions against Iran (such as trading restricted metals or chartering an oil tanker, for example) should be aware that they may fall foul of the Regulation, even if there is no obvious link to Iran. EU sanctions define the words “Iranian person” very broadly so as to include persons and entities outside of Iran that are owned or controlled, directly or indirectly, from Iran. Enhanced due diligence should therefore be exercised in relation to any business activity that is restricted by the sanctions even where it does not directly involve Iran.

This article is intended to provide a brief overview of the latest sanctions against Iran and should not be relied on as specific legal advice on any sanctions issue. In the event of any query arising out of this article or in relation to sanctions generally, please contact Michelle Linderman or your usual contact at Ince & Co.

Michelle Linderman
Partner, London
[email protected]

James Rose
Solicitor, London
[email protected]

Jonathan Reese
Solicitor, London
[email protected]