Written by Jason Morris on Friday June 1, 2018
In 2015, an agreement, known as the Joint Comprehensive Plan of Action (JCPOA), was drawn up in which Iran agreed to curtail its nuclear activities in return for the lifting of UN, US and EU sanctions.
The JCPOA was made between Iran, the US, the UK, France, Germany, Russia and China, and included the following conditions:
Having met these conditions sanctions against Iran were lifted on 16 January 2016.
However in May 2018 President Trump announced that the US will be leaving the agreement, meaning the US Office of Foreign Asset Control (OFAC) sanctions would be reinstated.
There are specific time periods in place for this to happen, namely a 90-day and a 180-day wind-down period for institutions to effectively end business transactions with Iran.
The first deadline is on 6 August 2018. This will affect the trade of certain products including raw and semi-finished metals, and the purchase of US dollars. The second deadline is on 4 November 2018 and will affect the trade of petroleum products.
There are requirements for the interim period too that must be understood by institutions involved with Iran. Any ‘new’ business that has been placed after 8 May 2018, and prior to the above deadline dates, involving trades that will become the subject of sanctions when they are reintroduced, are likely to be construed as sanctionable.
As such, any firms or institutions involved with Iran should think carefully about business now being placed, and assess whether it would be sanctionable or whether it is instead part of existing business that pre-dates 8 May 2018. To aid this, OFAC issued waivers which will remain in place for the duration of the relevant wind-down periods. When appropriate, OFAC will also revoke or amend general and specific licences issued in connection with the JCPOA.
At that time, OFAC will issue new authorisations to allow the wind-down of transactions and activities that were authorised pursuant to the revoked or amended general and specific licenses. At the end of the 90-day and 180-day wind-down periods, the applicable sanctions will come back into full effect.
The impact of these sanctions being reinstated could be far-reaching. For example, in the oil and gas sector, the US itself is not a particularly big customer, however, other countries who are will have to reduce or end their trade with Iran or risk facing US sanctions.
European oil companies Total and BP could be significantly affected because of the deals they have in place with Iran. BP has a 50/50 ownership arrangement with the Iranian Oil Company (IOC) of the Rhum gas field, situated 240 miles off the Scottish coast. As a result of the reintroduction of US sanctions on Iran, BP has had to halt work on this gas field and is looking to sell its stake to another oil and gas company.
The lifting of sanctions is not restricted to energy companies; in the aviation industry Airbus and Boeing both have lucrative deals in place to sell aircraft to Iran. Under the sanctions changes they stand to lose out on billions of dollars because of US parts being used in the construction.
It’s not all doom and gloom, though. The remaining active partners of the JCPOA have said they will continue to support the agreement. The EU has even started the process of blocking the US sanctions on Iran by adding them to the so-called ‘Blocking Regulation’, which was created by the EU in 1996 in response to the US penalising firms for trading with Cuba. Essentially, it is a piece of legislation that the EU can use to warn Washington to back down over its reneging on the Iran deal.
There are four main elements to the blocking regulation:
Whether or not this will allow business to continue with Iran for the remaining parties is yet to be seen. The US have huge influence, globally, on what business is done where, and accordingly many institutions will be reluctant to risk proceeding.
How can ICA help?
Sanctions are a key tool in the armoury of the global fight against financial crime. Understanding sanctions remains a complex yet fascinating topic and is crucial for the development of a well-rounded strategy in combatting financial crime. We offer two courses on managing sanctions risk:
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