INTERNATIONAL. The widely anticipated Council Regulation implementing the latest round of European Union sanctions against Iran has now been published. Regulation No. 267/2012 came into force upon its publication on 24 March 2012 and gives effect to the Decision of the Council of the European Union of 23 January (2012/35/CFSP).
That Decision provided for significant further sanctions on Iran – including a phased embargo of Iranian crude oil imports to the European Union - in response to continuing concerns over the Iranian nuclear programme.
This Update summarises the key features of the new Regulation which, with appendices, runs to some 112 pages. Given that the new provisions replace Regulation 961/2010 (which is repealed), a significant proportion of the Regulation restates measures that were already in force against Iran.
The most important new measures can be summarised as follows:
Prohibition on the purchase, import or transport from Iran of crude oil, petroleum products and petrochemical products
The most significant additions to the sanctions regime are found in Articles 11 and 13, in the form of prohibitions on the import, purchase or transport of crude oil, petroleum products or petrochemical products, whether originating from Iran or merely located there.
The specific prohibitions on these items are against their import from Iran into the European Union; the purchase from Iran of these items; and the transport of
these items from Iran to any country worldwide.
Crude oil and petroleum products are defined at Annex IV, and petrochemical products at Annex V. The list of petrochemicals in particular is broad, including ammonium nitrate and acetone.
As expected from the wording of Council Decision 2012/35/CFSP, these prohibitions have retrospective effect, permitting only the execution of those contracts concluded prior to 23 January 2012. These contracts must be concluded by 1 May 2012 in the case of petrochemical products, and by 1 July 2012 in the case of crude oil and petroleum products.
Prohibition on the provision of related finance or financial assistance, and insurance or reinsurance
Articles 11 and 13 also prohibit the provision of financing or financial assistance, and insurance or reinsurance, related to the import, purchase or transport of crude oil and petroleum and petrochemical products. European Union insurers and reinsurers are prohibited from providing cover to anyone involved in carrying these products from Iran, even if there is no other connection to the European Union.
However, having regard to the retrospective provisions entering into ancillary contracts for the execution of permitted contracts is permitted, prior to the dates of 1
May 2012 (in the case of petrochemical products) and 1 July 2012 (in the case of crude oil and petroleum products).
In addition, under Articles 12(2) and 14(2), it is permitted to provide third party liability and environmental liability insurance and reinsurance within the same time limits.
However, uncertainties do remain. First, according to HM Treasury’s guidance (http://www.hm-treasury.gov.uk/d/fin_sanc_public_notice_reg267_2012.pdf) those contracts of insurance necessary for the execution of a trade contract will be considered to be ancillary contracts.
However, it is unclear what insurances would be deemed ‘necessary’ for the execution of the main contract.
Although the position has been clarified in relation to liability and environmental liability insurance (at least to some extent – see below), this issue may require further clarification regarding other types of insurance and reinsurance and caution should be exercised on a case by case basis.
A second point to note is that there may be an ambiguity within the Regulation caused, in part, by translation issues.
In practice, the first draft of European Union legislation is traditionally written in French, before then being translated into the various official languages of the European Union, including English. The English version of Article 12(2) sets out the exemption (until 1 July 2012) for “third party liability insurance and environmental liability insurance and reinsurance” from the ban on providing insurance and reinsurance for the export, purchase or transport of Iranian crude oil and petroleum products.
Identical language is used for the exemption regarding petrochemical products in Article 14(2). This exemption, on some interpretations, might make it seem that reinsurance is only permitted for environmental liability.
The same ambiguity can be found in the Spanish and Italian translations of the Regulation. However, in the original French (and also in the German, Dutch and
Swedish translations), reinsurance for both types of liability is exempted from the ban for the specified period.
In the circumstances, having regard to the French version, it would appear reasonable to assume that the exemption for reinsurance extends to both types of liability. However, clarification will be required on this point from HM Treasury.
Clarification of prohibition of brokerage regarding provision of insurance to the Iranian Government, entities, bodies or persons
Article 35 of Regulation 267/2012 clarifies that in addition to prohibiting the provision of insurance, it is also prohibited to broker the provision of insurance or reinsurance to Iran or its government, government entities and state companies, to Iranian persons, entities or bodies other than natural persons, and to natural or legal persons when acting on behalf of the Iranian government or Iranian entities.
Prohibition on the sale, supply or transfer of key equipment and technology for the Iranian petrochemical industry
The Regulation also extends the existing prohibition on the sale, supply and export of ‘key equipment’ for exploration, producing, refining and liquefaction in the oil and gas sector to equipment relating to the petrochemicals industry (Article 8).
Annex VI sets out an extended list of key equipment and technology for this purpose. Article 9 also extends the prohibition on technical assistance, financing or financial assistance to petrochemical industry equipment.
Restrictions on finance and investment in the petrochemical sector in Iran
The Regulation has also extended the restrictions on granting loans, acquiring and extending participations and creating joint ventures in the oil and gas industry to the petrochemicals industry (Article 17).
Gold, Precious Metals & Currency
It is now prohibited to sell, supply, transfer or export, to or from the Government of Iran and any company controlled by it (irrespective of whether that item originated in the European Union, if being exported to Iran, or in Iran, if that item is being imported to the European Union), gold, precious metals and diamonds as listed at Annex VII of the Regulation.
It is also prohibited to provide technical assistance, brokering services, financing or financial assistance in relation to these items to the Government of
Iran and its associated entities.
Any newly printed banknotes or unissued Iranian denominated banknotes or coinage may not be sold, supplied, transferred or exported to or for the benefit of the Central Bank of Iran.
Although this is a long and complex Regulation, it largely replicates its predecessor, Regulation 961/2010. The new content was not surprising given that most of it had been outlined in Council Decision 2010/35/CFSP.
The Regulation has clarified what was meant by ‘oil and petroleum products’ and ‘petrochemical products’ in its detailed Annexes, and has provided some – though not complete - guidance on several aspects relating to insurance. The sanctions will continue to present a challenge to all those operating in our key sectors, particularly whilst the retrospective provisions continue to unwind.
Compliance and risk issues should continue to be assessed on a case by case basis in the light of these new provisions.
Clyde & Co sanctions expertise
Sanctions regimes have been evolving very quickly in a rapidly changing environment. The scope and complexity of regulation in this area is increasing meaning multinational businesses are often faced with assessing a number of sanctions regimes, including those imposed by the United Nations, European Union and the United States.
We have developed a particularly strong record in advising on trade sanctions. Our wide experience of working in new and emerging markets means we regularly advise clients on the impact of sanctions , in particular in the trade, shipping and insurance sectors.
We have recently advised clients on the implications of the imposition of trade sanctions against Iran, Syria and Libya by the US and the EU, and the actions of the Arab League and Turkey.
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Disclaimer: The views set out in this article do not constitute legal advice and readers are urged to seek specific legal advice in relation to any particular issues which arise from the subject-matter of the article.
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