“Implementation Day” - Iranian Sanctions lifted
On 16 January 2016, also known as Implementation Day, all nuclear related economic and financial EU sanctions against Iran were lifted following verification by the International Atomic Energy Agency that Iran had met its requirements under The Joint Comprehensive Plan of Action (JCPOA) – an agreement made between the USA, Iran, the European Union, China, France, Russia, Germany and the UK.
Airbus has since agreed to sell over 100 aircraft to Iran. So, does this mean it’s going to be easier to trade with Iran?
Well, yes, for some.
The list of industries targeted for sanctions relief under the JCPOA is significant; however, most of the sanctions lifted under the JCPOA pertain to restrictions imposed on non-US persons. US persons and entities continue to be broadly prohibited from engaging in transactions, directly or indirectly, with Iran or its government.
There is therefore more freedom for persons and entities in the EU to trade with Iran and exploit the commercial opportunities that will naturally arise.
What does this mean?
If you are a supplier of aircraft, parts or services, tread very carefully.
European sanctions have been lifted permitting the sale of civil aircraft, spare parts, components and related software and technological goods, provided that the sale does not involve persons listed under the remaining EU/Iran sanctions regime.
Note that this only applies to passenger and not to cargo aircraft – meaning extra care would have to be taken in respect of hybrid passenger/cargo operations. European sanctions will remain in force in respect of “dual use” items.
Further, joint ventures with Iranian persons and entities and branches and subsidiary and representation offices may be established in Iran, as long as such ventures do not involve any listed persons under the remaining EU/Iran sanction regime.
What are the risks?
What then is the difficulty?
The answer is the extent and power of the US sanctions regime which will still arise
if the item concerned is of greater than 10% US origin by value or
if any US person is involved or
if the US financial system is involved and
if any Specially Designated Nationals (SDNs) are involved.
If the US sanctions arise, the consent of the US Treasury Department’s Office of Foreign Assets Control (OFAC) will be required.
The OFAC has issued a Statement of Licensing Policy adopting a “favourable” policy towards licensing civil aircraft transactions, however, the policy still requires permission before a transaction can proceed.
An OFAC licence will be required if “the US financial system” is involved (generally true with any US dollar payments).
Additionally, at least four Iranian banks remain subject to EU restrictions and it is known that UK and French banks will adopt a very cautious approach to being involved in any transaction. Beware, therefore, how you are to be paid if you do such a transaction. Check with your own bank first as to its policy.
Parties must ensure that anyone with whom they are dealing is not on the OFAC SDN list or any other Block Party lists such as those of the Denied Persons and Entity List (published by the Department of Commerce’s Bureau of Industry and Security (BIS)), or the List of Statutorily Barred Parties (published by the US State Department’s Office of Defense Trade Controls). Mahan Air, for example, remains blocked being on the SDN List.
What are the consequences?
It is your responsibility to ensure that you comply with financial sanctions. Failure to comply with financial sanctions legislation, or to seek to circumvent their provisions, is a criminal offence.
Whilst restrictions have been lifted in the EU, there are a number of entities and persons which are still bound by the restrictions due to human rights and terrorist related concerns.
They can be here.
Additional risk - snapback
If Iran is deemed not to be adhering to the JCPOA, the sanctions can be imposed again as follows:
EU – re-imposed sanctions will not have a retrospective effect. Therefore, contracts entered into before the date the sanctions have been re-imposed will be allowed to continue whilst companies wind down their activities.
US – will take a different approach. At the date of the snapback, all contracts entered into before this date will terminate.
This will increase the risk for US companies looking to do business with or in Iran.
Non US entities have greater freedom to do business with Iranian persons and entities and exploit the commercial activities that will arise from the lift of the economic and financial restrictions, especially in the aviation industry. Except as affected by US involvement as above.
However, caution must be exercised to follow protocol set in each jurisdiction in which your business operates and to keep a close eye on the political situation as this will, no doubt, dictate whether sanctions are re-imposed.
Author: Humphrey Wilson, Consultant, Aviation
Published: 12 Feb 2016