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The Joint Comprehensive Plan of Action ("JCPOA") – Implementation Day
On 16 January 2016, Implementation Day, the International Atomic Energy Agency ("IAEA") handed down its Statement on Iran verifying that Iran has implemented its required nuclear-related commitments and therefore has completed the necessary steps for implementation of the JCPOA. As a result, under legislation adopted by the US, EU and others on 18 October 2015, sanctions relief has automatically been granted to Iran.
After nearly a decade of the broader sanctions measures against Iran, the implementation of the JCPOA provides increased opportunities for EU entities to trade with Iran. However, there remain critical differences in the scope of the relief applied to EU sanctions and US secondary measures and some of these sanctions remain in force. Moreover, the broad-ranging US primary sanctions against Iran applicable to US persons have not been removed. Neither have US export controls applicable to Iran nor US stock exchange reporting obligations with respect to Iran-related activities been altered.
What is the position under EU sanctions?
The relaxations of EU sanctions are far-reaching and include the lifting of sanctions related to Iranian oil, petroleum products, gas and petrochemical products (including related (re)insurance) (see prior blog post on 17 July 2015 for details of the key sanctions that have been relaxed affecting the (re)insurance market).
However, a number of restrictions remain in place. Broadly, these are as follows:
- asset freezes, visa bans and prohibitions will remain in relation to certain persons and entities subject to restrictive measures (imposed for human rights violations and due to support for terrorism);
- the arms embargo and sanctions related to missile technology will continue in force until 'Transition Day', including associated services (this will be 8 years after Adoption Day, or when the IAEA reports that all nuclear material in Iran remains in peaceful activities) and there remains a complete embargo on equipment for internal repression and monitoring communications;
- restrictions on certain nuclear or dual-use related transfers and activities, including the provision of financial assistance in relation to these activities, have become subject to prior authorisation to be granted on a case-by-case basis; and
- restrictions relating to certain graphite, raw and semi-finished metal and enterprise planning software designed for use in nuclear and military industries have likewise become subject to a prior authorisation regime.
What is the position under US sanctions?
Implementation of the JCPOA generally did not change:
- US primary sanctions applicable to US persons and entities (including non-US subsidiaries of US groups);
- US export controls applicable to Iran in relation to goods of US origin or made up of more than de minimis US origin content;
- transactions involving US Dollars; or
- US stock exchange reporting obligations.
Consequently, US persons remain prohibited from engaging in or facilitating most activities or transactions which have a nexus to Iran and will not be able to take advantage of the reliefs applicable to non-US persons. In addition, even non-US persons will still not be able to conduct business with underlying Iran-related exposures in USD due to risks that any payments made under such arrangements may be stopped or frozen in the US; or in connection with US origin goods exported to Iran unless an appropriate US export licence has been obtained. US issuers (who may also be non-US persons) will still need to report a range of Iran-related activities to stock exchanges in their quarterly and annual submissions (even if such activities are not prohibited under sanctions).
OFAC has issued General Licence H, which permits US-owned or controlled foreign entities to engage in certain transactions with Iran that would otherwise be prohibited by US primary sanctions against Iran. It also permits US persons to establish or alter operating policies and procedures of US person entities to the extent necessary to allow the US-owned or controlled foreign entity to engage in activities authorised by it. However, it does not allow US persons to be involved in the Iran-related day-to-day operations of the foreign subsidiary, nor does it allow them to approve, facilitate, finance, or guarantee those Iran transactions.
Secondary or extraterritorial sanctions applicable to non-US persons (ie those not owned or controlled by a US parent company), on the other hand, have been relaxed. The reliefs granted are:
- Non-US financial institutions will no longer be subject to secondary sanctions for transactions with entities that have been removed from the SDN list, including the Central Bank of Iran. Transactions involving the Iranian rial and Iranian sovereign debt are also no longer prohibited under secondary sanctions.
- Underwriting services, insurance and re-insurance in connection with activities consistent with the JCPOA, including activities in the energy, shipping and ship-building sectors of Iran, for NIOC and NITC, or for vessels transporting crude oil, natural gas, petroleum and petrochemical products to or from Iran are no longer subject to secondary sanctions.
- Investment activities in and transactions with Iran's energy sector and activities relating to the petrochemical sector are no longer subject to secondary sanctions.
- Transactions with Iran's shipping and shipbuilding sectors are likewise no longer subject to secondary sanctions.
Non-US companies are no longer subject to secondary sanctions for engaging in transactions for goods and services to be used in connection with Iran's automotive sector.
It must be borne in mind that, even though sanctions relief has been implemented, the relief that has been granted is subject to a 65-day "snapback" if Iran is found not to be complying with the JCPOA. As such, exclusion clauses, termination rights and other appropriate suspensive provisions should be included in any dealings with Iran which may relate to activities or persons/entities to whom EU or US sanctions previously applied to guard against the risk of a "snapback".
Caution must still be deployed due to the remaining prohibited activities under both EU and US secondary programmes. Again, appropriate due diligence and exclusionary clauses will be necessary to ensure compliance with those remaining regimes. Finally, due diligence will be required to ensure that no activities are performed which may implicate the extensive US primary sanctions regime involving US persons, USD or US origin goods. SEC reporting and other regulatory disclosure requirements will also continue to apply and issuers to which these rules apply will need to consider their approach.
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