US Economic Sanctions Regulations and Iran

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1 Kathleen A. Scott Senior Counsel Norton Rose Fulbright US US Economic Sanctions Regulations and Iran Intertanko North American Panel Meeting March 21, 2016 Stamford, CT

2 Overview Primary economic sanctions laws: International Emergency Economic Powers Act ( IEEPA ) Trading With the Enemy Act ( TWEA ) Administered by the US Department of the Treasury, Office of Foreign Assets Control ( OFAC ) ( Department of State Department of Commerce Generally, two categories of sanctions: (i) comprehensive country wide sanctions and (ii) more targeted regime, entity or individual based sanctions (including individuals or entities specially designated by the US Department of the Treasury) 2

3 Overview (cont d) Restrictions include: Export or re-export of US-origin products to a sanctioned country, individual or entity ( sanctions target ) Imports into the United States from sanctions targets US persons (and some owned or controlled non-us entities) engaging in transactions directly or indirectly involving sanctions targets or facilitating such transactions by non- US persons Prohibitions on transactions with Specially Designated Nationals ( SDN ) 3

4 Overview (cont d) All transactions in or through the United States must also comply with OFAC regulations All US Persons must comply with OFAC regulations. US Persons include: US citizens/permanent residents - regardless of their physical location All persons who are physically located in the United States - regardless of their citizenship, including those in transit Corporations, partnerships and all other entities registered in the US, including the US branches and offices of non-us financial institutions Non-US branches of a US financial institution Non-US Persons: In some instances (such as Cuba), US sanctions also apply to non-us entities that are owned or controlled by US entities In general, where a US person owns a controlling interest (more than 50%) or where a US person holds a majority of the seats of the board of directors or otherwise controls the actions, policies, or personnel decisions of the non-us entity 4

5 Potential Penalties Civil Penalties International Emergency Economic Powers Act ( IEEPA ) (applicable to sanctions regimes other than Cuba): $250,000 or twice the transaction value, whichever is greater, per violation Trading With the Enemy Act ( TWEA ) (Cuba sanctions):up to $65,000 per violation Foreign Narcotics Kingpin Designation Act: up to $1,075,000 per violation Criminal Penalties (criminal violations referred to DOJ) IEEPA - up to twenty (20) years imprisonment for individuals, as well as fines of up to $1,000,000 TWEA - up to ten (10) years imprisonment for individuals, as well as fines of up to $1,000,000 Penalty Mitigation: Penalty guidelines allow for significant mitigation under certain conditions Other penalty considerations include: denial of export privileges, negative publicity, other regulators interest 5

6 6 IRAN

7 History of Iran Sanctions US law imposed a trade embargo prohibiting US persons from engaging in transactions with the Government of Iran, Iranian nationals and SDNs For a few years, sanctions also applied to non-us entities owned or controlled by US persons US also was authorized to impose secondary sanctions on certain significant transactions with Iran conducted by non-us persons outside the US Sanctions imposed through statutes, regulations, and US presidential executive orders 7

8 History of Iran sanctions (cont d) Sanctions included prohibitions on US persons engaged in financial transactions (including importing, financing, exporting, investing) or petroleum trading transactions with Iran/Government of Iran Sanctions applicable to US persons wherever located or to any person located in the US Non-US persons prohibited from re-exporting to Iran US origin goods, technology or services US banks, including US offices of non-us banks, prohibited from servicing Iran government accounts or persons in Iran; transfers to or from Iran through a US bank are blocked 8

9 Nuclear Agreement With Iran On November 24, 2013, the P5+1 (China, France, Germany, Russia, the United Kingdom, and the US) entered into a joint plan of action (JPOA) agreement with Iran whereby Iran agreed to temporarily suspend its nuclear program in exchange for limited relief from sanctions Building on the JPOA, on July 14, 2015, the P5+1, European Union, and Iran reached a Joint Comprehensive Plan of Action (JCPOA) to ensure that Iran s nuclear program will be exclusively peaceful 9

10 Implementation Day January 16, 2016: Implementation Day of the JCPOA: International Atomic Energy Agency (IAEA) verified Iran had implemented its key nuclear-related measures described in the JCPOA, and the Secretary State confirmed the IAEA s verification, US lifted secondary nuclear-related sanctions on Iran, as described in the JCPOA, against non-us persons removed from the SDN list (400 SDN designations lifted, over 200 remain) Broad US sanctions on US persons (including companies and other entities) engaging in transactions with Iran or the Iranian government remain in place EU economic and financial sanctions also lifted Sanctions can be re-imposed if Iran violates its obligations 10

11 Secondary Sanctions lifted Financial and banking-related sanctions Sanctions on the provision of underwriting services, insurance, or re-insurance in connection with activities that are consistent with the JCPOA Sanctions on certain Iranian business sectors: Energy and petrochemical Shipping and shipbuilding and port operators Trading in gold and other precious metals Trading in graphite, raw or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes, in connection with activities that are consistent with the JCPOA Sale, supply, or transfer of goods and services used in connection with Iran s automotive sector Associated services for each of these categories 11

12 Sanctions lifted (shipping-related) Non-US persons now can: Provide US bank notes to the Iranian Government Provide underwriting services, insurance and reinsurance connected with shipping Engage in transactions with Iran s shipping sector, including transactions with NIOC, NITC and NICO, so long as not on SDN list or otherwise prohibited Bunkering, inspection, classification, financing and provision of vessels to Iran (including IRISL, NITC and affiliates) - Transactions with Tidewater still prohibited 12

13 What is still in place US companies continue to be broadly prohibited from engaging in transactions or dealings with Iran or its government Government of Iran and Iranian financial institutions remain persons whose property and interests in property are blocked US persons broadly prohibited from engaging in transactions or dealings with the Government of Iran and Iranian financial institutions, unless exempt from regulation or authorized by OFAC Unless exempted or specifically authorized, US persons must continue to block property and interests in property of the Government of Iran, Iranian nationals and Iranian entities Non-US persons still prohibited from knowingly engaging in conduct that seeks to evade US restrictions on transactions or dealings with Iran or that cause the export of goods or services from the United States to Iran US government retains rights under other laws and executive orders to take actions to counter certain Iranian actions, such as human rights abuses 13

14 General License H OFAC issued General License H on January 16, 2016 Generally authorizes certain transactions relating to non-us entities or controlled by a US person that would otherwise be prohibited: US person may engage in activities related to the establishment or alteration of operating policies and procedures of a US entity or USowned or -controlled non-us entity to the extent necessary to allow a US-owned or -controlled non-us entity to engage in transactions with Iran that are authorized by GL H US parent companies may make available to non-us entities they own or control automated and internationally integrated business support systems US person third-party service providers are authorized to make available to a US-owned or -controlled non-us entity those systems that they provide to the US parent on a contract basis Systems covered operate passively and without human intervention to facilitate flow of data between and among US parent and its owned or controlled non-us entities 14

15 General License H (cont d) Unless otherwise authorized by regulation or OFAC license, transactions not permitted by GL H include: Exportation, re-exportation, sale, or supply, directly or indirectly, by US owned- or -controlled non-us persons of any goods, technology, or services if the items are destined for Iran or the Government of Iran at the time they leave the US Transfer of funds to, from or through a US bank or US-registered securities broker-dealer Non-US persons (including US-owned or -controlled non-us entities) reexporting from a third country, (i) directly or indirectly, any goods, technology, or services that have been exported from the United States if they know or have reason to know that the re-exportation is intended specifically for Iran/ Government of Iran and the items are controlled for export from the United States to Iran and (ii) items containing 10% or more US-controlled content, if undertaken with knowledge or reason to know that the re-exportation is intended specifically for Iran or the Government of Iran Transactions with persons on the SDN list Non-US persons not owned or controlled by US persons are not affected by GL H (need to get OFAC license) 15

16 What to keep in mind In conducting Iran-connected business, remember: No US persons or entities US persons cannot refer Iranian business to a non-us person (facilitation) No use of US banks or US financial system Check identity of any Iranian counterparties against prohibited persons lists (US SDN and EU Consolidated) Ensure insurers will cover the transaction Maintain records of what you did to document compliance Include clause in documents allowing revocation of agreement in case sanctions are re-imposed 16

17 Questions? Kathleen A. Scott Senior Counsel Norton Rose Fulbright US LLP 666 Fifth Avenue New York, New York United States Tel Fax NORTON ROSE FULBRIGHT Law around the world nortonrosefulbright.com 17

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