Lista M. Cannon, David M. Harris and Nicola Kelly
November 1, 2010
As previewed in our briefing of 25 August 2010, on 27 October, Council Regulation (EU) No 961/2010 on restrictive measures against Iran came into force (the “Regulation”). The Regulation repeals Regulation 423/2007, which previously contained restrictive measures against Iran.
The Regulation follows the recent United Nations Iran Sanctions issued on 9 June 2010 by UN Security Council Resolution 1929. The Regulation goes beyond the measures imposed by UN Security Council Resolution 1929 and clarifies the provisions originally outlined by EU Council Decision 2010/413/CFSP. The Regulation also expands the scope of the previous EU sanctions over Iran.
This client briefing provides an overview of recent developments in Iran and a summary of certain provisions of the Regulation. However, given the length and complexity of the Regulation, certain prohibitions and exceptions are not covered in this briefing and it is not an exhaustive analysis of the restrictive measures. Companies currently and prospectively conducting business in or with Iran should review the provisions of the Regulation carefully and analyse the effects it may have on their business activities.
- Press reports published last week indicated that Iran has started to load fuel into the core of its first nuclear power plant. Over the last few days, Iran has apparently now agreed to resume negotiations over its nuclear program.
- According to a statement last Friday from Catherine Ashton, EU High Representative and EC Vice President on Iran, Ms Ashton received a letter from the Iranian nuclear negotiator, Saeed Jalili. Ms Ashton had reportedly written to Mr Jalili with the offer to commence substantive talks, with the discussions to cover Iran’s nuclear program and related issues. Mr Jalili’s response welcomed the fact that Ms Ashton had contacted him and notes that he is agreeable to beginning discussion regarding the nuclear program after 10 November 2010. Ms Ashton regards this as a very significant move.
- The UK Foreign & Commonwealth Office has reported throughout that the UK continues to urge Iran to take up the offer to hold substantive talks on its nuclear program.
Implementation of the EU Regulation
- The Regulation contains provisions covering the following broad areas:
4.1 Export and import restrictions (including provisions for the oil and gas sectors);
4.2 Restrictions on financing of certain enterprises (including provisions for the oil and gas sectors);
4.3 Freezing of funds and economic resources;
4.4 Restrictions on transfers of funds and on financial services; and
4.5 Restrictions on transport.
- The Regulation is directly applicable in all Member States and therefore primary legislation within each country is not required to implement the restrictive measures. The Regulation states that Member States are required to implement rules on the penalties applicable to infringements of the Regulation. The Regulation states that the penalties provided for shall be effective, proportionate and dissuasive.
- As a result of the Regulation, the UK will be required to pass new laws to give effect to penalties for infringements of the Regulation.
Territorial Scope of the Regulation
- The territorial scope of the Regulation is broadly the same as under Regulation 423/2007. The Regulation applies:
7.1 Within the territory of the European Union, including its airspace;
7.2 On board any aircraft or any vessel under the jurisdiction of a Member State;
7.3 To any person inside or outside the territory of the European Union who is a national of a Member State;
7.4 To any legal person, entity or body which is incorporated or constituted under the law of a Member State;
7.5 To any legal person, entity or body in respect of any business done in whole or in part within the European Union.
Summary of Selected Provisions of the Regulation
Oil and Gas
- Chapter II of the Regulation refers to a number of restrictions covering the oil and gas sectors in connection with the key equipment and technology listed in Annex VI. These restrictions do not apply to transactions required by a trade contract concluded before the date of entry into force of the Regulation, or by a contract or agreement concluded before 26 July 2010 and relating to an investment in Iran made before the same date. However, the person, entity or body seeking to engage in the transaction or to provide assistance must have notified the competent authority at least 20 working days in advance of the transaction or assistance. Chapter II contains additional Export and Import restrictions (please see below for further information on these restrictions).
- Chapter III of the Regulation includes restrictions on the financing of certain enterprises in relation to the exploration or production of crude oil and natural gas, the refining of fuels or the liquefaction of natural gas.
- Companies should be aware that the restrictions covering the oil and gas sectors are wide in scope. For example, there is a prohibition on establishing co-operation with an Iranian person, entity or body engaged in the transmission of natural gas. Co-operation is defined in the Regulation as: (i) the sharing of investment costs in an integrated or managed supply chain for the receipt or delivery of natural gas directly from or to the territory of Iran; and (ii) direct co-operation for the purpose of investing in liquefied natural gas facilities within the territory of Iran or in liquefied natural gas facilities directly connected thereto.
- Chapter V of the Regulation contains detailed requirements for processing transfers of funds to and from an Iranian person, entity or body.
- There are restrictions and certain requirements that credit and financial institutions, which are within the territorial scope of the Regulation, must comply with. In addition, branches and subsidiaries of credit and financial institutions domiciled in Iran, which fall within the territorial scope of the Regulation, need to comply with certain notification requirements detailed in the Regulation.
- Chapter III provides restrictions on the financing of certain enterprises, including the granting of financial loans or credits. However, the making of an investment through transactions referred to in Article 11(1) in an Iranian person, entity or body engaged in the manufacture of goods or technology listed in Annex IV shall be subject to an authorisation from the competent authority of the Member State concerned.
- In addition, Chapter IV (with reference to the persons, entities or bodies listed in Annex VII and VIII) contains provisions on the freezing of funds and economic resources.
Insurance and Re-Insurance
- Chapter V of the Regulation includes prohibitions on the provision of insurance and re-insurance to: (i) Iran or its Government, and its public bodies, corporations and agencies; (ii) an Iranian person, entity or body other than a natural person; or (iii) a natural or a legal person, entity or body when acting on behalf or at the direction of a legal person, entity or body referred to in (i) or (ii). It is prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent the above prohibition on the provision of insurance and re-insurance. Companies should be aware that there are certain exceptions to these prohibitions contained within the Regulation.
- The Regulation prohibits the extension or renewal of insurance and re-insurance agreements concluded before the entry into force of this Regulation, but, without prejudice to Article 16(3) of the Regulation, it does not prohibit compliance with agreements concluded before that date. Article 16(3) states that no funds or economic resources shall be made available, directly or indirectly, to or for the benefit of the natural or legal persons, entities or bodies listed in Annex VII and VIII.
Export and Import Restrictions
- Chapter II of the Regulation includes restrictions on the sale, supply, transfer or export of certain goods, technology and equipment, directly or indirectly (whether or not originating in the EU) to any Iranian person, entity or body or for use in Iran. The relevant goods, technology and equipment are: (i) goods and technology listed in Annex I and II; and (ii) equipment which might be used for internal repression as listed in Annex III. However, the competent authorities of the Member States may grant an authorisation for certain transactions as provided for in the Regulation if certain conditions are met.
- Annex I lists goods and technology, including software, which are dual-use items or technology as defined in Regulation No 428/2009 (with certain exceptions). Annex II includes other goods and technology which could contribute to Iran’s enrichment-related, reprocessing or heavy water related activities, to the development of nuclear weapon delivery systems or to the pursuit of activities related to other topics about which the International Atomic Energy Agency (IAEA) has expressed concerns or has identified as outstanding. Annex III contains a list of equipment which might be used for internal repression.
- Prior authorisation from the competent authority of the Member State where the exporter is established is required for the sale, supply, transfer or export, directly or indirectly, of the goods and technology listed in Annex IV, whether or not originating in the EU, to any Iranian person, entity or body or for use in Iran. Annex IV includes any goods and technology, other than those included in Annex I and II, which could contribute to enrichment-related, reprocessing or heavy water-related activities, to the development of nuclear weapon delivery systems, or to the pursuit of activities related to other topics about which the IAEA has expressed concerns or has identified as outstanding.
- There are prohibitions and restrictions on the provision of technical assistance, financing and financial assistance in connection with the EU Common Military List and Annex I, II, III and IV of the Regulation. In addition, there are restrictions on the provision of brokering services in connection with Annex I, II, III and IV. Again, the competent authorities may grant authorisation for certain transactions as provided for in the Regulation if certain conditions are met.
- The Regulation provides that it is prohibited to purchase, import or transport from Iran the goods and technology listed in Annexes I, II and III, whether the items concerned originate in Iran or elsewhere.
- The Regulation is complex and is potentially wide reaching for any businesses with activities in or with Iran. While it remains to be seen what penalties will apply in the UK, it is likely that there will be substantial consequences for any breach of the Regulation by entities or individuals in the EU. The Export Control Organisation has issued a Notice to Exporters, which provides some guidance on the Regulation. HM Treasury has also issued guidance in relation to the financial sanctions. It is very important that businesses with current and prospective business links with Iran review the provisions of the Regulation carefully and seek advice on any areas of potential concern.
This article was prepared by Lista M. Cannon (Partner, firstname.lastname@example.org or +44 0 20 7832 3601), David M. Harris (Senior Associate, email@example.com or +44 0 20 7832 3637) and Nicola Kelly (Associate, firstname.lastname@example.org or +44 0 20 7832 3630) of Fulbright & Jaworski International LLP in London. Lista and David are lawyers in Fulbright & Jaworski L.L.P.'s International Trade Practice Group. Fulbright’s International Trade Practice Group, chaired by J. Scott Maberry (Partner, email@example.com or +1 202 662 4693) and Stephen M. McNabb (Partner, firstname.lastname@example.org or +1 202 662 4528), advises clients worldwide in the areas of economic sanctions, export controls, munitions exports, and other areas of international trade regulation.
Lista M. Cannon
David M. Harris