On 25 October 2010, the European Council adopted a wide-ranging package of sanctions on Iran, with prohibitions affecting the energy, insurance, transport and financial sectors. The sanctions are set out in Council Regulation 961/20101 ("the EU Regulation") which came into force on 27 October 2010.
The EU Regulation follows the Council Decision of 26 July 2010 and the UN Security Council Resolution 1929 of 9 June 2010, as well as United States Comprehensive Iran Sanctions and other sanctions regimes adopted by other countries.
The EU sanctions are considerably broader and more severe than those imposed by the UN, which were focused on preventing the sale and supply of goods used in nuclear production and missile development to Iran. The new EU sanctions aim at energy, financial, insurance and transport sectors, and at entities connected with the Iranian government and with the Iranian nuclear industry.
The sanctions are applicable to all EU Member States and extend over several key areas, and the key provisions are summarised below. The EU Regulation2 also repeals and replaces EC Regulation 423/2007.
HM Treasury issued a Financial Sanctions / Counter Illicit Finance Notice (the "Treasury Notice") on 27 October 2010 with a detailed commentary on the EU Regulation .
All references are to the EU Regulation unless otherwise noted.
The EU Regulation prohibits the provision of insurance or reinsurance to the Government of Iran, an Iranian person, entity or body and, to any natural person or legal person acting on behalf of or at direction of an Iranian person. Importantly, HM Treasury takes the view that this prohibition will also apply to reinsurance provided by a UK reinsurer where the underlying insured is an Iranian company, regardless of where the insurer is based4.
The EU Regulation allows exceptions to this ban for the provision of: (i) health and travel insurance to individuals acting in their private capacity; (ii) any compulsory or third party insurance to Iranian persons or entities based in the EU; (iii) insurance or reinsurance to Iranian individuals acting in their private capacity (except if they are in the list of designated persons or entities); (iv) insurance or reinsurance to the owner of a vessel, aircraft or vehicle chartered by the Iranian Government or an Iranian person or entity.
Participation in any activities intended to circumvent this prohibition, knowingly or intentionally, is also prohibited.
Insurance and reinsurance contracts concluded before 27 October 2010 are not prohibited but the sanctions prohibit their extension or renewal5.
Nuclear-related technology and common military list
The sanctions prohibit the sale, transfer or supply to Iran of dual-use goods, technology as well as equipment which might be used for internal repression. They also impose restrictions on trade in key equipment and technology which could contribute to enrichment-related, reprocessing or heavy water-related activities, or to the development of nuclear weapons systems. The prohibited items may be found on Annexes I, II, III and IV of the EU Regulation. The prohibition also covers arms and all other related material and goods and technology listed in the Common Military List7.
Any export to Iran of items indicated above whether or not originating in the EU is subject to prior authorisation by the competent authorities of the exporting Member State identified in Annex V of the EU Regulation, who shall not grant authorisation if they have reasonable grounds to determine that these items will contribute to enrichment, reprocessing or heavy water-related activities or to the development of nuclear weapon delivery systems.
It is also prohibited to provide technical assistance, brokering services, financing or financial assistance (including grants, loans and export credit insurance) in respect of the provision of the banned items to Iran.
There is also a prohibition on imports and transport from Iran of the banned products listed in Annexes I, II and III of the EU Regulation.
It is prohibited to sell, supply or transfer key equipment or technology to Iran (which is listed in Annex VI) for the following key sectors in the oil and gas industry in Iran:
- production and exploration of crude oil and natural gas;
- refining; and
- liquefaction of natural gas.
The provision of technical assistance or training, or financing or financial assistance in respect of the above items or any technical assistance or training, is also prohibited. The prohibition on providing finance extends to the granting of any loan or credit to the Iranian persons, entities or bodies engaged in the exploration or production of crude oil and natural gas, the refining of fuels or the liquefaction of natural gas9. The acquisition or extension of participation in enterprises engaged in these oil and gas sectors (including the acquisition of participating shares or securities10), and the creation of any joint venture in these oil and gas sectors11.
The above prohibitions are without prejudice to the execution of transactions required by a trade contract concluded before 27 October 2010, or an obligation relating contracts concluded prior to 26 July 2010 and relating to investments made in Iran prior to that date, subject to notification at least 20 working days prior the date of the transaction to the Member State's competent authority.
Purchasing Iranian oil and gas is not prohibited. Recital 9 to the Regulation expressly states that: "[t]he restrictive measures should not affect the import or export of oil or gas to and from Iran, including the fulfilment of payment obligations in connection with such import or export".
Grants, financial assistance and concessional loans to Iranian person or entities, the acquisition or extension of a participation or the creation of a joint venture with an Iranian person or entity are prohibited. This prohibition applies to Iranian natural persons or entities related to the manufacture of military goods or technology, manufacture of equipment used for internal repression and exploration of crude oil, natural gas, refining of fuels or the liquefaction of natural gas. In addition, this prohibition applies to uranium mining, uranium enrichment and reprocessing of uranium or the manufacture of goods and technology related to nuclear and missile industry.
The competent authorities of the Member States may grant derogations13 if they receive sufficient guarantees that the Iranian entity will not engage or will not be related to the Iranian nuclear or military industry. This includes the Iranian government's participation in international financial institutions.
Financial institutions within the territories of EU Member States or under their jurisdiction are prohibited from opening representative offices or new branches, subsidiaries or bank accounts in Iran or establishing joint ventures with a credit or financial institution domiciled in Iran.
The opening of new branches, subsidiaries or representative offices of Iranian banks in the EU, and the establishment by them of new joint ventures, ownership interests or correspondent banking relationships is also prohibited.
It is prohibited to participate in the direct or indirect sale or purchase of public or publicguaranteed bonds issued after 26 July 2010 by the Government of Iran, the Central Bank of Iran or any banks domiciled in Iran or banks not domiciled in Iran but controlled by persons or entities domiciled in Iran, including providing brokering, assistance or advertising in respect of the sale or purchase of these bonds.
All funds and economic resources of those persons and entities listed in Annexes VII and VIII to the EU Regulation appended to the sanctions are frozen, as they were identified as being engaged in, directly associated with or providing support for Iran's development of nuclear weapon delivery systems.
There are exceptions for making payments due under a judicial, administrative or arbitral decisions or pursuant a contract entered into prior to the freezing of an account by the sanctions, provided that the funds are paid into a frozen account. Payment due under a lien or contracts entered into prior to the freezing of an entity which are unrelated to the activities prohibited under the sanctions is permitted, provided that the payment is not directly or indirectly received by an Iranian person, body or entity designated in the sanctions. These payments must be notified by the relevant Member State to the sanctions committee, who must authorise the payment or refuse it within ten working days.
Entities present on the list of freezing orders include the Islamic Republic of Iran Shipping Lines (IRISL) and all entities controlled by IRISL whether in or outside Iran.
Transfer of funds15
Funds being transferred to or from an Iranian person or entity regardless of its location or persons or entities controlled directly or indirectly by an Iranian person are subject to reporting requirements to the Member States competent authority (listed in Annex V):
- Transfers of funds for foodstuffs, healthcare or humanitarian purposes may be carried out without prior authorisation, but transfers above €10,000 must be notified to the relevant competent authority of the Member State;
- Any other transfer under €40,000 may be carried out without prior authorisation, but must be notified to the relevant competent authority if above €10,000; and
- All transfers above €40,000 must be authorised prior to the transfer by the relevant competent authority. Member States are required to inform other Member States of any rejected authorisations.
- All relevant transfers of funds regardless of whether the transfer is executed in a single operation or in several linked operations in respect of Iranian interests must be notified to the relevant competent authority in advance of the transaction and are deemed authorised within four weeks if not objected to in writing. Member State competent authorities may charge a fee for the authorization
- Notification and requests for authorisation of payments to Iran should be addressed to the competent authority by the payment service provider of the payer and payments from Iran should be addressed by payment service provider of the payee.
- It is possible to obtain a single authorisation to cover a series of payments due under a contract.
All goods from/to the customs territory of the EU (which includes Monaco, Channel Islands and the Isle of Man) to/from Iran are required to produce additional pre-arrival or predeparture information.
If the Member States' competent authorities have reasonable grounds to believe, on the basis of the pre-arrival or pre-departure information, that prohibited goods are being carried, they can inspect all cargo, air and sea, to and from Iran and, if necessary, seize and dispose of the cargo at expense of the importer/exporter and of the person or entity responsible for the illicit attempted supply, sale or transfer.
The provision of bunkering or ship supply services, or servicing of vessels by nationals of Member States to Iranian-owned or directly or indirectly controlled vessels is prohibited if that national has information that provides reasonable grounds to believe that the vessel carries items prohibited under the sanctions, with the exception of services necessary for humanitarian purposes.
The provision of engineering and maintenance services to Iranian owned or directly or indirectly Iranian controlled cargo aircraft shall be prohibited if there are reasonable grounds to believe that the cargo aircraft carries items prohibited under the sanctions, with the exception of services necessary for safety or humanitarian and safety purposes.
Limitation on claims arising from the sanctions17
No claims in connection with any contract or transaction affected, directly or indirectly, by the sanctions including claims for indemnity or any other claim of this type are to be satisfied, if they are made by the Iranian Government, any of the designated persons or entities and any Iranian persons/entities or Iranian controlled persons/ entities. Examples given in the Regulation are claims such as a claim for compensation or a claim under a guarantee, notably a claim for extension or payment of a bond, guarantee or indemnity, particularly a financial guarantee or financial indemnity, of whatever form.
Defence of bona fide activity18
The freezing of funds and economic resources or the refusal to make funds or economic resources available to designated entities carried out in good faith will not give rise to liability of any kind on the part of the natural or legal person or its directors or employees (except in the case of negligence)
The prohibitions set out in the EU Regulation will not give rise to liability, if EU nationals or companies established in the EU did not know and had no reasonable cause to suspect that their actions would infringe the sanctions.
Scope of the sanctions19
The EU Regulation applies:
- within the territory of the EU, including its airspace;
- on board any aircraft or any vessel under the jurisdiction of a Member State;
- to any person inside or outside the territory of the EU who is a national of a Member State;
- to any legal person, entity or body which is incorporated or constituted under the law of a Member State;
- to any legal person, entity or body in respect of any business done in whole or in part within the EU.
In the UK, Regulations made under the European Communities Act 1972 give effect to EU sanctions. SI 2007/1374 created criminal penalties for violations of the 2007 EU Regulation on Iran (European Community Financial Sanctions) sanctions.
It is likely that new a new statutory instrument will soon be passed in the UK creating criminal penalties for violations of aspects of the EU Regulation.
1 Official Journal (OJ) 2010 L281/1
3 Article 26
4 Paragraph 59 of the Treasury Notice
5 Articles 26 (4)
6 Articles 2 – 7
7 Official Journal 2010 C 69/03
8 Articles 8, 9 & 10
9 Article 9 (b) and 11 (1) (b)
10 Article 11 (1) (b)
11 Article 11 (1) (c)
12 Articles 11 - 15
13 i.e. the grant of an exception to the prohibition
14 Articles 16 – 20
15 Article 21
16 Articles 15 – 18
17 Articles 29
18 Articles 32
19 Articles 39
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.