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:
- nuclear related items that feature on the Nuclear Suppliers Group list,
- certain items that could contribute to reprocessing- or enrichment-related or heavy water-related activities or other activities inconsistent with the JCPoA,
- missile related items that feature on the Missile Technology Control Regime list,
- certain software designed specifically for use in nuclear and military industries,
- certain graphite and raw, fabricated semi-finished metals,
- certain items that may be used for internal repression,
- certain items that may be used for the monitoring or interception of internet or telephone communications,
- any items that an EU Member State has determined could contribute to the development of nuclear weapon delivery systems.
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:
- trade in gold and precious metals
- sale and transfer to and from Iran of graphite, raw, or semi-finished metals
- sales or transfer from Iran of software for integrating industrial processes
- transactions and accounts related to Iranian's rials or Iranian sovereign debt
- automotive and aircraft sector sanctions
importation into the US of Iranian-origin carpets and foodstuffs
The second set of reintroductions will happen on 5 November 2018 covering:
- sanctions on the energy sector, including supplies to the Iranian energy sector
- sanctions on petroleum related transactions with, amongst others, National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO) and National Iranian Tanker Company (NITC)
- sanctions on port operators, shipping and shipbuilding sectors, including dealings with particular shipping
- sanctions on transactions by financial institutions with designated Iranian financial institutions
- sanctions on financial messaging
- sanctions on underwriting and insurance
- re-designation of thousands of individuals and businesses as Specially Designated Nationals, meaning they are designated persons or sanctions targets.
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:
- the prohibition: this prohibits EU persons from complying with US Iranian secondary sanctions without authorisation. This covers direct action or action through a subsidiary or other third party or by deliberate omission. Guidance accompanying the Blocking Regulation says that it does not require EU persons to do business with or in Iran but rather that EU persons "are free to choose whether to start working, continue, or cease business operations in Iran…The purpose of the Blocking Statute is exactly to ensure that such business decisions remain free, i.e., are not forced upon EU operators by the listed extra-territorial legislation, which the [European] Union law does not recognise as applicable to them".
- the reporting obligation: if an EU person's economic or financial interests are directly or indirectly affected by the US Iranian secondary sanctions they must notify the European Commission of this within 30 days. For corporate entities, the notification should be made by the directors, managers or others with management responsibilities.
- the nullification of foreign decisions: any judgement or decision of a non-EU court, tribunal or administrative authority giving effect to reinstated US Iranian secondary sanctions is not enforceable in the EU.
- the right to damages: if an EU person suffers loss as a result of the reinstated US Iranian secondary sanctions they are entitled to recover damages from the business or individual causing that loss. The guidance to the EU Blocking Regulation raises the question of whether an EU person can raise an action against the US authorities for damages, but it is non-committal in its response stating that "who exactly will be the defendant in each case will depend on the specifics of the case, on the kind of damage caused, the person or entity actually causing it, the possible shared responsibility in causing such damage, etc.".
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.