Out-Law Analysis | 30 May 2018 | 4:04 pm | 3 min. read
The EU has proposed reviving its 1996 Blocking Regulation which, if implemented as proposed, would prohibit companies from complying with US sanctions; permit compensation to be provided to businesses which are penalised as a result, and prohibit the recognition in the EU of court decisions enforcing the US sanctions.
However, the effectiveness of the Blocking Regulation is likely to be curtailed by the unwillingness of businesses to proceed in Iran and risk being the subject of US enforcement.
Politically the Blocking Regulation may prove an effective tool with which to negotiate waivers and licences from the US government, but whether or not these will be available at the moment is unclear.
In the face of such uncertainty, non-US businesses should start planning their exit from Iran - or, if committed to Iranian businesses notwithstanding the risk of US enforcement, establishing if they will be able to proceed on a legal and practical level.
Businesses should begin by asking themselves the following questions:
What is my exposure to Iran?
Businesses should be identifying their own exposure to Iran and that of their subsidiaries. They should then seek to fulfil any obligations to be carried out during the 'wind down' periods.
If, for example, supplies are to be made before 4 August (or 4 November if the activity is not caught by the first tranche of sanctions to be re-activated) then businesses can proceed without breaching US sanctions subject to ensuring that:
The US government has advised that non-US persons are to use the wind down periods to "wind down their activities", rather than to enter into new contractual arrangements. Businesses should not therefore extend their contractual obligations, for example extending the volume of goods to be supplied, without first seeking legal advice.
Does the contract provide a route for termination of any contracts?
Many non-US businesses were mindful of the possibility of 'snap back' at the time when contracts for business in Iran were originally drafted. In many cases, contracts will have been negotiated in such a way as to allow for termination if the US and/or EU sanctions were reinstated. A right to terminate by notice may also have been included, although this type of clause is unusual in negotiated contracts unless one party had a very strong negotiating position.
In the absence of these relatively clear-cut routes to termination, parties may seek to rely on 'force majeure' clauses or put forward arguments of illegality and frustration as a route to terminate. These arguments are likely to be met with opposition from Iranian counterparties, particularly if the Blocking Regulation is implemented prohibiting EU businesses from complying with US sanctions.
The governing law of the contract will be a relevant factor in determining the outcome of any sanctions litigation, and those raising proceedings are likely to push for the law most favourable to their position.
What if I decide to proceed with business in Iran?
Once a non-US business has weighed up the risks and decided to proceed in Iran notwithstanding the risk of US enforcement, or if it can legally proceed pursuant to a waiver or licence from the US authorities, there are still a number of practical questions to consider:
There are numerous factors that businesses will be weighing up when considering whether to continue dealings in Iran. Many large EU multinationals operating in Iran have put their multi-million projects on hold while they wait to see if waivers or licences will be available from the US.
Any businesses with live contracts in Iran or considering business in Iran should seek legal advice before making any decisions.
Stacy Keen is a regulatory law expert at Pinsent Masons, the law firm behind Out-Law.com.