US clarifies position on partial suspension of Iran sanctions

TRME - Clyde  Co - Iranian sactions update Image source Sergio Russo - EDITThe temporary relaxations of US sanctions against Iran will expire in July this year. (Image source: Sergio Russo)With all eyes pinned on the negotiations currently taking place to decide the future of the US sanctions on Iran, global law firm Clyde & Co’s legal director Patrick Murphy gives an update on the progress so far

Clyde & Co recently attended sanctions briefing sessions addressed by a US State Department official in London and a US Department of Treasury official in Dubai.

At the briefings, the officials emphasised the US’ commitment to implementing its obligations under the joint plan of action (JPOA) agreed between the P5+1 in Geneva in on 24 November 2013 and clarified the US position on the temporary and limited relaxation of its sanctions against Iran.

The overall message is that the US will continue vigorously to enforce its sanctions legislation and stands equally ready to progress towards the further relaxation of sanctions against Iran or to pass more restrictive measures, as appropriate depending on Iran’s compliance with its commitments under the JPOA.

Key points
The headline points highlighted at the briefings were:
• The temporary relaxations of US sanctions legislation will expire on 20 July 2014 unless extended.
• If no extension is announced by 20 June 2014 then an extension is unlikely and harsher new sanctions may be introduced instead.
• All business pursuant to the limited relaxations must be completed, including payment having been received, by 20 July 2014.
• The suspension of US sanctions applies only to non-US persons, with the exception of humanitarian and civil aviation equipment transactions.
• The restrictions on trade with designated persons are unchanged.
• US sanctions legislation in general continues to be vigorously enforced.
• Up to US$4.2bn in blocked funds is eligible for release to Iran.
• Since 20 January 2014, EU insurers may underwrite the carriage of Iranian petroleum products. However, it remains unclear whether doing so would place an insurer in breach of US sanctions if the vessel’s destination is a country other than China, India, Japan, the Republic of Korea, Taiwan or Turkey.

Context
Clyde  Co - Patrick Murphy - Iranian sanctions colour - RESIZEPatrick Murphy, Clyde & Co Legal Director based in Dubai (Image source: Clyde&Co)As part of their commitments to implement the JPOA, the US and EU enacted legislation on 20 January 2014 which allows for temporary and limited relief from trade sanctions against Iran. The JPOA provides the framework for the eventual lifting of all UN, US and EU sanctions aimed at preventing Iran’s development of nuclear weapons.

The US Department of State and US Treasury officials emphasised that the JPOA is not an acceptable endpoint for either side, though it does provide space for negotiation to take place towards a comprehensive resolution.

Necessarily, the reliefs in the 20 January 2014 legislation are temporary, limited and reversible. In common with the reliefs under EU legislation, the US reliefs under the JPOA will expire on 20 July 2014, unless extended by further legislation, meaning the restrictions will then revert to their previous form. The reliefs are in practice rather limited in scope, as further described below.

The US officials also noted that if there is no further progress by 20 June 2014, extension of the 6-month JPOA period is unlikely, and the US Government may instead move to impose tougher sanctions than were previously in place. It is likely these would extend much further towards a blanket ban on all trade with Iran.

There has been concern that the US Congress could destabilise the situation by passing tougher sanctions legislation irrespective of progress under the JPOA. The officials noted that Congress now appears to accept that diplomacy should be allowed to take its course, besides which the President of the US reconfirmed in his State of the Union speech that he would exercise his veto if necessary to prevent the premature enactment of new sanctions against Iran.

Substance of the relief
As noted, the relief from US sanctions is fairly limited in scope. It extends in large part to non-US persons only and to:

1. The export of petrochemical products from Iran (not including petroleum products or natural gas condensate).
This includes the provision of “associated services”, including any insurance, transportation or financial service.

2. The provision of goods and services to the automotive sector in Iran
The US officials emphasised that this allows for the export of car kits to Iran, subject always to compliance with the requirement to avoid contact with designated persons, which include Iran’s container port operator.

3. Trade in gold/precious metals
It was noted that the relief only allows Iran to purchase gold with funds outside Iran that are not in “oil fund” accounts. The sums held in escrow in oil fund accounts will still have to be retained there.

4. Supply and installation of civil aviation equipment
While the JPOA states that such relief applies “in Iran”, the US officials confirmed that supply and installation of civil aviation equipment outside Iran is also permitted. US and non-US persons may obtain a licence to supply and install such equipment within the JPOA period.

5. Transport of petroleum products
The US sanctions permit the import of Iranian crude oil by China, India, Japan, the Republic of Korea, Taiwan and Turkey at the combined rate of 1mn bpd. Payments for Iranian crude oil imports are to remain in the blocked “oil fund” accounts outside Iran, but up to US$4.2bn of the funds currently held on such accounts may be released to Iran. Until 20 July 2014, it is permitted to provide insurance and other “associated services” relating to the import of crude oil by persons in the 6 permitted importer countries.

There is a discrepancy between the reliefs implemented by the US and by the EU regarding insurance of crude oil transportation, and there is also a concern that parties may be unfairly affected if coverage of an insured event which occurs within the JPOA period becomes unlawful beyond 20 July 2014. The US Government is considering these and other issues and may issue further guidance in due course.

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
T: +44 20 7834 7676, F: +44 20 7973 0076, W: www.alaincharles.com

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