IRAN SANCTIONS

 

 

1. BACKGROUND

 

Iran has been subject to multiple sanctions by the international community since the overthrow of the Shah in the 1979 Islamic revolution. The main player has been the United States, which since that year has oriented its foreign policy towards Iran in this sense, in the first place, in reaction to the Iranian hostage crisis (1979-1981) and, in the following years, to the support of Iran to international terrorism since the eighties and to the development of the Iranian nuclear program since 2002.

This is also the reason why both the European Union and the UN imposed sanctions on Iran.

Since 2010, the main international powers (United States, China, Russia, United Kingdom, France and Germany), as well as the European Union, have tried to negotiate with Iran to limit its atomic weapons development program.

In this context, the “Joint Comprehensive Plan of Action” (“JCPOA”) was signed in 2015 between the aforementioned countries and Iran. As a result of this agreement, both the EU and the US withdrew most of their sanctions on Iran (mainly trade and financial sanctions), in exchange for certain commitments by Iran to limit its nuclear program.

However, and contrary to the opinion of the other JCPOA signatory states and due to strong suspicions on the part of the United States of non-compliance with these commitments, on 8 May 2018 President Donald Trump announced the withdrawal of the United States from the aforementioned agreement and, consequently, the reintroduction of most of the US sanctions on Iran.

More recently, and after a growing escalation of tension in the Middle East between the United States and Iran, the latter announced, on 5 January, that it would no longer comply with its commitments as stipulated in the JCPOA. This has led to the activation of the Dispute Resolution Mechanism (a multi-stage procedure, as provided for in paragraphs 36 and 37 of the JCPOA, to settle possible conflicts over the implementation and enforcement of the agreement) foreseen in the JCPOA by the United Kingdom, France and Germany, a decision that has been criticized by Russia and China.

 

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EUROPEAN UNION

 

 

1. DEVELOPMENTS DURING THE YEAR 2019

 

In view of the above, on 9 April 2019, the Council of the European Union has issued Council Implementing Regulation (EU) 2019/560 of 8 April 2019 Implementing Regulation (EU) 359/2011 concerning restrictive measures against certain persons, entities and bodies in view of the situation in Iran, and Council Decision (CFSP) 2019/562 of 8 April 2019 amending Decision 2011/235/CFSP concerning restrictive measures against certain persons and entities in view of the situation in Iran, both published in the Official Journal of the European Union on 9 April of the same year.

By the said Implementing Regulation and Decision, the restrictive measures imposed on certain natural and legal persons in connection with violations of human rights (freezing of funds and resources as well as travel restrictions), the export of goods or equipment which might be used for internal repression and telecommunications surveillance equipment are extended until 13 April 2020.

Currently, eighty-seven (87) natural persons of Iranian nationality and one (1) Iranian entity are sanctioned.

 

2. CURRENT FRAMEWORK OF EU SANCTIONS RELATED TO IRAN

As we have already mentioned, after the signing of the JCPOA on July 14^th 2015, the main sanctions imposed by the European Union were withdrawn. These included the following:

• A ban on oil and gas imports from Iran.

 

• Ban on the provision of insurance for the transport of oil or petrochemical products from Iran and the freezing of funds and resources of a number of Iranian entities involved in maritime transport.

 

• Ban on trade in gold, precious metals, diamonds and petrochemicals with Iran.

 

• The freezing of the assets of the Central Bank of Iran (except for some exceptional cases).

 

• A ban on transactions between European Union banks and Iranian banks, as well as on short-term export credits, guarantees and insurance.

 

• A ban on exports to Iran of graphite, semi-finished metals and industrial software, shipbuilding technology, oil storage capacities, oil storage services or services related to cargo ships or oil tankers.

 

 

 

Individual sanctions on a number of entities sanctioned under Council Regulations and Decisions were also lifted.

However, the European Union, by means of Council Regulation (EU) No 359/2011 of 12 April 2011 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Iran (“Regulation 359/2011”) and Council Decision 2011/235/CFSP of 12 April 2011 concerning restrictive measures directed against certain persons and entities in view of the situation in Iran, continues to maintain certain sanctions related to the protection of human rights and the export of goods which might be used for internal repression.

Thus, travel restrictions and an asset freeze were introduced against persons deemed to be complicit in or responsible for directing or implementing serious human rights violations in connection with the repression of peaceful demonstrators, journalists, human rights defenders, students or others demonstrating in defense of their legitimate rights (Articles 2 and 3 of Regulation 359/2011).

The measures may also be imposed on those who are complicit in or responsible for serious violations of due process and other procedural safeguards, for torture, cruel, inhuman and degrading treatment, or the death penalty.

On 23 March 2012, in view of the seriousness of the human rights situation in Iran, additional restrictive measures were introduced, namely an embargo on equipment which might be used for internal repression and on goods or equipment which might be used for monitoring or intercepting Internet and telephone communications over mobile or fixed networks (Articles 1a, 1b and 1c of Regulation 359/2011).

 

 

 

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UNITED STATES

 

 

1. DEVELOPMENTS DURING THE YEAR 2019

 

• In view of the above, it should be mentioned that during 2019 and on January 10, 2020, three (3) new Executive Orders related to Iran have been issued:

 

• Executive Order 13871 of 8 May 2019 (O. 13871) imposing additional sanctions on Iran’s iron, steel, aluminum and copper sectors, immobilizing the assets of certain Iranian persons or entities linked to these sectors (Section 1 of E.O. 13871) and establishing restrictions on entry into U.S. territory for these persons (Section 5 of E.O. 13871). In addition, O.E. 13871 authorizes the Secretary of the Treasury to exclude from the U.S. financial system any foreign financial institution that conducts or facilitates transactions related to the above sectors (section 2).

 

• Executive Order 13876 of June 24, 2019, which imposes individual sanctions (see, freezing of their funds and resources in section 1 and prohibition of entry into U.S. territory in section 5) on the Supreme Leader of the Islamic Republic of Iran, the Office of the Supreme Leader, any official of the Iranian Government, or person appointed by the Supreme Leader of the Islamic Republic of Iran to an official position. It also provides for the exclusion from the U.S. financial system of any financial entity that facilitates transactions in the interest of persons sanctioned under this Executive Order (section 2 of Executive Order 13876).

 

• Finally, Executive Order 13902, of January 10, 2020, has been imposed following the escalation of tension between the two countries due to the assassination by the United States of Iranian General Qasem Soleimani. Section 1 of Executive Order 13902 freezes funds and resources, as well as limits the entry into the United States of any Iranian individual or entity operating in the construction, mining, manufacturing or textile sectors in Iran. As in other Executive Orders already mentioned, Section 2 of this Executive Order 13902 also provides for the exclusion from the US financial system of any financial institution that facilitates transactions in the interest of persons sanctioned under this Executive Order.

 

• Furthermore, on 11 December 2019, two Iranian entities linked to the smuggling and transport of weapons from Iran to Yemen in support of the Shiite insurgency in that country were included in the List of Specially Designated Nationals and Blocked Persons (“SDN List”).

 

• Two judges of the Revolutionary Court of Tehran were also included in the above-mentioned list on 19 December 2019 for human rights violations (in this case, freedom of expression and assembly).

 

 

2. CURRENT FRAMEWORK OF US SANCTIONS RELATED TO IRAN

 

• RE-IMPOSITION OF UNITED STATES SANCTIONS

 

As we already mentioned, on May 8, 2018, President Trump announced the withdrawal of the United States from JCPOA. Thus, after two short transitional periods, sanctions on Iran were reintroduced (various sections of the Iranian Transactions and Sanctions Regulations were amended in order to implement President Trump´s decision, outlined in section 3 of the National Security Presidential Memorandum: Ceasing United States Participation in the Joint Comprehensive Plan of Action and Taking Additional Action to Counter Iran’s Malign Influence and Deny Iran All Paths to a Nuclear Weapon, of May 8^th, 2018), whose main objectives were the following:

 

1. To prevent the use of the US financial system in transactions with Iran.

 

2. Prohibit the export to Iran of products or technologies incorporating U.S. components that exceed 10% of their total value.

 

3. Exclude U.S. persons working in foreign companies from decision-making processes in Iran-related operations.

 

1. Thus, 90 days after President Trump’s announcement on 6 August 2018, the following sanctions were reimposed:

 

1. Ban on the procurement of dollars by the Government of Iran.

 

2. Ban on trade in gold or precious metals with Iran.

 

3. Prohibition on the direct or indirect supply or procurement from Iran of graphite, crude or semi-finished metals such as aluminium and steel, coal and software to integrate industrial processes.

 

4. Prohibition on the significant transactions related to the purchase or sale of Iranian Rials or the maintenance of substantial funds or accounts outside the territory of Iran denominated in Iranian Rials.

 

5. Prohibition on the purchase, underwriting or facilitation of the issuance of Iranian sovereign debt.

 

6. On the Iranian automotive sector.

 

1. Within 180 days of the announcement, on November 4, 2018, U.S. sanctions were also reintroduced in relation to:

 

1. Ban on transactions with port operators, shipping companies and shipbuilders in Iran, including Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran and its subsidiaries.

 

2. Ban on oil related transactions carried out with, inter alia, the National Iranian Oil Company (“NIOC”), the Naftiran Intertrade Company (“NICO”) and the National Iranian Tanker Company (“NITC”), including the purchase of oil, petroleum products and petrochemicals from Iran.

 

3. Prohibition on transactions by foreign financial institutions with the Central Bank of Iran and other financial institutions in Iran designated pursuant to Section 1245 of the “National Defense Authorization Act for Fiscal Year 2012” (“NDAA”).

 

4. Prohibition on the provision of specialised financial messaging services for the Central Bank of Iran and other Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010, of July 1^st 2010 (“CISADA”).

 

5. Prohibition on the provision of insurance and reinsurance services.

 

6. On the Iranian energy sector.

 

1. In addition, on 5 November 2018, over 700 natural and legal persons were added to the List of Specially Designated Nationals and Blocked Persons (“SDN List“), including persons who had been removed from this same list by the entry into force of the JCPOA. From the time of this reintroduction, the conduct of transactions with such individuals or entities may result in the imposition of U.S. sanctions, even for those who are not U.S. Persons[1].

These sanctions are set out in the following legislation.

 

 

• CODE OF FEDERAL REGULATIONS: IRANIAN TRANSACTIONS AND SANCTIONS REGULATIONS

 

The Code of Federal Regulations, specifically in Title 31 Money and Finance: Treasury, Volume 3, Subtitle B: Regulations Relating to Money Finance, Chapter V Office of Foreign Assets Control, Part 560, Iranian Transactions and Sanctions Regulations (“ITSR”) establishes the general US framework for sanctions on Iran:

 

• EXPORTS, IMPORTS AND TRANSSHIPMENTS RELATED TO IRAN

 

Section 560.201 prohibits “the importation into the United States of any goods or services of Iranian origin or owned or controlled by the Government of Iran”.

 

Similarly, section 506.204 also prohibits “the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any goods, technology, or services to Iran or the Government of Iran is prohibited, including the exportation, reexportation, sale, or supply of any goods, technology, or services to a person in a third country undertaken with knowledge or reason to know that:

 

1. Such goods, technology, or services are intended specifically for supply, transshipment, or reexportation, directly or indirectly, to Iran or the Government of Iran; or

 

1. Such goods, technology, or services are intended specifically for use in the production of, for commingling with or for incorporation into goods, technology, or services to be directly or indirectly supplied, transshipped, or reexported exclusively or predominantly to Iran or the Government of Iran”.

 

Even if an exported good does not have Iran as its final destination, a US Person can be sanctioned under section 560.403, which extends the scope of the above-mentioned sanctions to transhipments through Iran:

 

“The prohibitions in §§ 560.204, 560.206, and 560.208 apply to export, reexport or supply transactions which require a transshipment or transit of goods or technology through Iran to third countries”.

 

 

• TRADE TRANSACTIONS RELATED TO IRAN

 

As stated in section 560.206, any transaction involving Iran or goods of Iranian origin is prohibited under the following terms:

 

“No United States person, wherever located, may engage in any transaction or dealing in or related to:

 

1. Goods or services of Iranian origin or owned or controlled by the Government of Iran; or

 

1. Goods, technology, or services for exportation, reexportation, sale or supply, directly or indirectly, to Iran or the Government of Iran”.

 

As to the meaning of the term “goods of Iranian origin“, section 560.407 delimits its interpretation as follows:

 

560. “Importation into the United States from third countries of goods containing Iranian-origin raw materials or components and transactions relating to such goods are not prohibited by § 560.201 or § 560.206 if those raw materials or components have been incorporated into manufactured products or substantially transformed in a third country by a person other than a United States person.

 

1. Transactions relating to Iranian-origin goods that have not been incorporated into manufactured products or substantially transformed in a third country are prohibited”.

 

 

• THIRD-PARTY TRANSACTIONS RELATED TO IRAN

 

In addition, section 560.208 of the ITSR prohibits US Persons from facilitating transactions related to Iran that are conducted by parties other than US Persons.

 

“No United States person, wherever located, may approve, finance, facilitate, or guarantee any transaction by a foreign person where the transaction by that foreign person would be prohibited by this part if performed by a United States person or within the United States”.

 

In addition, section 560.417 provides a broad definition of the term “facilitation” that even prohibits recommending Iran-related transactions to parties outside the United States:

 

“With respect to § 560.208, a prohibited facilitation or approval of a transaction by a foreign person occurs, among other instances, when a United States person:

 

1. Alters its operating policies or procedures, or those of a foreign affiliate, to permit a foreign affiliate to accept or perform a specific contract, engagement or transaction involving Iran or the Government of Iran without the approval of the United States person, where such transaction previously required approval by the United States person and such transaction by the foreign affiliate would be prohibited by this part if performed directly by a United States person or from the United States;

 

1. Refers to a foreign person purchase orders, requests for bids, or similar business opportunities involving Iran or the Government of Iran to which the United States person could not directly respond as a result of the prohibitions contained in this part; or

 

1. Changes the operating policies and procedures of a particular affiliate with the specific purpose of facilitating transactions that would be prohibited by this part if performed by a United States person or from the United States”.

 

 

 

• TRANSACTIONS OF NON-US ENTITIES CONTROLLED BY A US PERSON

 

These entities are also prohibited from conducting transactions with Iran (section 560.215):

 

“An entity that is owned or controlled by a United States person and established or maintained outside the United States is prohibited from knowingly engaging in any transaction, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran that would be prohibited pursuant to this part if engaged in by a United States person or in the United States”.

 

• INVESTMENTS IN IRAN

 

Finally, section 560.207 prohibits US Persons from making investments in Iran:

 

“Any new investment by a United States person in Iran or in property (including entities) owned or controlled by the Government of Iran is prohibited”.

 

• SANCTIONS ON THE IRANIAN ENERGY SECTOR

 

Sanctions on the Iranian energy sector are imposed through the ITSR and various laws, especially the Iran Sanctions Act, of December 15 1996 (“ISA”), and its subsequent modifications introduced by the Iran Freedom Support Act, of September 30 2006 (”IFSA”), the CISADA and the Iran Threat Reduction and Syria Human Rights Act of 2012, of November 1 2011 (“ITRSHRA”).

• ITSR: SANCTIONS

The ITSR sanctions mainly transactions related to the development of Iran’s oil resources. In this regard, section 560.209 prohibits the following:

 

1. “The entry into or performance by a United States person, or the approval by a United States person of the entry into or performance by an entity owned or controlled by a United States person, of:

 

1. A contract that includes overall supervision and management responsibility for the development of petroleum resources located in Iran, or

 

2. A guaranty of another person’s performance under such contract; or

 

1. The entry into or performance by a United States person, or the approval by a United States person of the entry into or performance by an entity owned or controlled by a United States person, of:

 

1. A contract for the financing of the development of petroleum resources located in Iran, or

 

2. A guaranty of another person’s performance under such a contract”.

 

 

• ACTIVITIES SANCTIONED BY THE ISA

 

In addition, the ISA imposes sanctions on the following operations listed in its Section 5(a) “Sanctions related to the energy sector in Iran”:

 

1. Development of Iran’s oil resources

 

The aforementioned section 5(a) (1) (B) prohibits “investments which directly and significantly contribute to enhancing Iran’s capacity to develop oil resources”.

 

As set out in subparagraph (A) of the same paragraph (1), this prohibition only applies to the said investments in certain cases:

 

“Except as provided in subsection (f), the President shall impose five or more of the sanctions described in section 6(a) on an individual if the President determines that the individual will, on or after the date of enactment of the Iran Threat Reduction and Syria Human Rights Act of 2012.

1. Makes an investment described in subsection (B) of $20,000,000 or more; or
2. Makes a combination of investments described in subparagraph (B) within a 12-month period if each such investment is at least $5,000,000 and such investments are equal to or greater than $20,000,000 in total”.

 

1. Production of refined oil products

 

Section 5 (a) (A) (2) provides for the following prohibition:

 

“Except as provided in subsection (f), the President shall impose five or more of the sanctions described in section 6(a) on a person if the President determines that the person, on or after the date of enactment of the Iran Threat Reduction and Syria Human Rights Act of 2012, sells, leases or otherwise provides to Iran goods, services, technology, information or support described in subparagraph (B) if

 

1. Any of these has a market value of $1,000,000 or more; or

 

1. Which, over a 12-month period, have a combined market value of $5,000,000 or more”.

 

The goods, services, technology, information or support referred to in this subparagraph are defined in subparagraph (B) as those which “can directly and significantly facilitate the maintenance or expansion of Iran’s domestic production of refined petroleum products, including any direct and significant assistance in connection with the construction, upgrading or repair of petroleum refineries or directly associated infrastructure, including the construction of port facilities, railways and roads, the primary use of which is to support the delivery of refined petroleum products”.

 

1. Export of refined oil products to Iran

 

In addition, paragraph (3), subparagraph (A) provides that sanctions may be imposed on the export of petroleum products in the following cases:

 

“Except as provided in subsection (f), the President shall impose five or more of the sanctions described in section 6(a) on a person if the President determines that the person, on or after the date of enactment of the Iran Threat Reduction and Syria Human Rights Act of 2012, intentionally

 

1. Sells or supplies refined petroleum products to Iran:

 

1. Having a market value of $1,000,000 or more; or

 

1. That, over a 12-month period, have a combined market value of $5,000,000 or more; or

 

1. Sells, leases or provides to Iran goods, services, technology, information or support described in subparagraph (B) if

 

1. Any of these has a market value of $1,000,000 or more; or

 

1. That, over a 12-month period, have an aggregate market value of $5,000,000 or more”.

 

The goods, services, technology, information or support referred to in this section are defined in subparagraph (B) as those which “can directly and significantly facilitate the maintenance or expansion of Iran’s domestic production of refined petroleum products, including

 

1. Except as provided in subparagraph (C), the execution or conclusion of a contract to provide insurance or reinsurance for the sale, lease or supply of such goods, services, technology, information or support;

 

1. Financing or intermediation of such sale, lease or supply;

 

iii.    The provision of vessels or shipping services for the delivery of refined petroleum products to Iran;

 

1. The barter or procurement by which goods are exchanged for goods, including insurance or reinsurance of such exchanges; or

 

1. Purchasing, underwriting, or facilitating the issuance of sovereign debt of the Government of Iran, including government bonds, issued on or after the date of enactment of the Iran Threat Reduction and Syria Human Rights Act of 2012”.

 

1. Joint Ventures in Iran related to oil resources development

 

The following prohibition is also established in relation to Joint Ventures involving the Government of Iran in paragraph (4):

 

“(A) Except as provided in subsection (f), the President shall impose 5 or more of the sanctions described in section 6(a) with respect to a person if the President determines that such person is willfully engaged, on or after the date of enactment of the Iran Threat Reduction and Syria Human Rights Act of 2012 in a Joint Venture with respect to the development of petroleum resources outside Iran if

 

1. The Joint Venture is established as from 1 January 2002; and

 

• The Government of Iran is a relevant partner or investor in the Joint Venture; or

 

• Iran may, through a direct operational role in the Joint Venture or by other means, receive technological know-how or equipment not previously available to Iran which could directly and significantly contribute to enhancing Iran’s capability to develop oil resources.

 

(B) Subparagraph (A) shall not apply in respect of an interest in a Joint Venture established on or after 1 January 2002 and before the date of enactment of the Iran Threat Reduction and Syria Human Rights Act of 2012 if the person involved in the Joint Venture terminates that interest not later than the date which is 180 days after such date of enactment”.

 

1. Support for the development of refined oil resources and products in Iran

 

Paragraph (5) also lays down other prohibitions related to the production of refined petroleum products. These sanctions are set out in section 201 of the ITRSHRA which codifies Executive Order 13590 of 21 November 2011 and amends the aforementioned section 5(a) (in the aforementioned paragraph (5) and paragraph (6)) of the ISA. Thus, the following is established:

 

“(A) Except as provided in subsection (f), the President shall impose five or more of the sanctions described in section 6(a) on a person if the Presiden