Out-Law Guide | 20 Sep 2018 | 5:49 pm | 5 min. read
This guide was last updated in September 2018
Companies should also be aware of how the EU's blocking regulation works to protect EU companies from some of the effects of US sanctions.
What is caught by the EU sanctions?
In early 2016, under the Joint Comprehensive Plan of Action (JCPoA) the majority of the EU's economic and trade sanctions against Iran were lifted including the wide ranging EU sanctions relevant to the oil and gas sector.
Some sanctions remain though. They apply to all EU businesses and individuals, referred to as 'EU persons' operating anywhere in the world and to any overseas business or individual when in or doing business in the EU. For example an EU citizen working outside of the EU brokering a deal to supply nuclear or missile related items to an Iranian individual, entity or body or for use in Iran may breach the sanctions.
The EU Iranian sanctions that remain in place restrict sales, supplies, transfers or exports, and the provision of certain connected services, directly or indirectly, to any individual, entity or body in Iran or for use in Iran of items featured in two EU Council Regulations: Council Regulation (EU) No 267/2012 and Council Regulation (EU) No 359/2011. Restrictions apply to:
Also prohibited is the direct or indirect acceptance of funds, goods or services from targets of Iranian financial sanctions, or making funds, goods or services available to those targets. The Iran-specific financial sanctions targets are listed in the UK's Consolidated List of Financial Sanctions Targets. Supplies and dealings with entities and bodies owned or controlled by financial sanctions targets are also prohibited.
Licences and authorisations may be available in respect of certain activities that would otherwise breach the remaining EU Iranian sanctions.
The prohibitions relating to sales and supplies apply regardless of whether or not items originated in the EU, which means that sales and transfers from non-EU countries by EU persons are also prohibited.
Actions by EU persons shall not give rise to liability of any kind on their part if they did not know and had no reasonable cause to suspect that their actions would infringe the remaining EU Iranian sanctions.
EU member states are to introduce penalty regimes for breaching the EU Iranian sanctions that are "effective, proportional and dissuasive". In the UK it is a criminal offence to breach the EU Iranian sanctions punishable by periods of imprisonment, unlimited fines or both. It is also an offence to knowingly participate in activities that are designed to circumvent the sanctions.
Wider non-sanctions specific export controls may apply within EU member states on the export of goods and technology to Iran.
Notwithstanding the lifting of the EU Iranian sanctions, EU persons may face practical issues in receiving payment in respect of any activities in Iran. Many banks are now refusing to be involved in any Iran-related activities following the decision by the US to reinstate US Iranian secondary sanctions.
US Iranian secondary sanctions
On 8 May 2018 US president Donald Trump withdrew the JCPoA sanctions relief against Iran and began a process to reinstate secondary trade and economic sanctions.
Secondary sanctions are wide enough to capture non-US businesses and individuals for dealings that occur entirely outside of the US. US persons and companies never benefited from the sanctions relief under the JCPoA and the relief did not apply to dealings involving US persons, US origin goods and technology, the US financial system or individuals, businesses and certain connected parties featured on the US's Specially Designated Nationals list.
The US Iranian secondary sanctions are being reinstated in two stages. The first sanctions were reinstated on 7 August 2018 and related to:
importation into the US of Iranian-origin carpets and foodstuffs
The second set of reintroductions will happen on 5 November 2018 covering:
Iran has brought a case to the International Court of Justice challenging the US's withdrawal from JCPoA and its reinstatement of secondary sanctions. A ruling is expected before the end of September 2018.
EU Blocking Regulation
In response to the US withdrawal the EU has moved to protect EU entities and individuals against US secondary sanctions by updating its 1996 Blocking' Regulation (Council Regulation (EC) No 2271/96) to include the US's secondary sanctions on Iran.
The Blocking Regulation has four components:
In the UK it is a criminal offence to breach the 'prohibition' or fail to comply with the 'reporting obligation', punishable by an unlimited fine.
The EU Blocking Regulation has been in place since 1996, with its scope limited to several specific US economic sanctions imposed on Cuba, Libya and Iran. To date it has not been tested at an EU level or in the courts of the EU member states and its effectiveness as a tool to protect EU persons that engage in dealings with Iranians or in Iran is unclear. How effective it will be in the future depends on whether or not it will be enforced throughout the EU.