Seizing opportunities and managing risks

The agreement between Iran and the EU3+3 (China, France, Germany, Russia, the UK and the US) has led to hopes of an imminent ‘gold rush’ as sanctions are lifted and trade with the Islamic Republic recommences.

However, the agreement merely provides the framework for sanctions relief, which will not start until 2016 at the earliest, and there remain substantial hurdles and pitfalls for the unwary. 

So how can shipping service providers such as brokers, charterers, operators and managers return to Iran as sanctions are eased and how can they protect themselves against the risks that remain, despite the Joint Comprehensive Plan of Action (JCPOA)?

While there are significant opportunities in Iran, the UK and US authorities have made clear that they will continue to enforce the existing sanctions while they remain in place. As a result, and given the complexity of the current sanctions, it is critical to understand (and comply with) the current restrictions. These include restrictions on dealing with certain individuals and entities, restrictions on particular cargoes, and bans affecting banking and insurance.

Despite agreement of the JCPOA on July 15, 2015, and contrary to the impression which may have been given by some of the press coverage, no sanctions have been lifted so far. The first phase of sanctions relief will not take place until Implementation Day, which will not occur until Iran has complied with its obligations under the JCPOA and the International Atomic Energy Agency (IAEA) has verified this. Current estimates indicate that the most likely date for sanctions relief is the middle of 2016.

While the future sanctions relief will result in significant changes to the EU sanctions and the US sanctions with extra-territorial effect, it is important to be aware that the sanctions relief under the JCPOA will not impact on US domestic sanctions, other than in limited circumstances.

This means that US companies will once again face a very different set of restrictions to those faced by EU companies, and also that those EU companies which have a US connection (for example, because they employ US persons, or they make or receive payments in US dollars) will need to keep on top of the US landscape, as well as the EU restrictions.

Setting the scene

The second stage is to consider what can be done now. Businesses are understandably keen to explore the opportunities in Iran and, where possible, to secure ‘first mover advantage’ in this exciting market, but they need to be careful to ensure that they do not overstep the line.

Businesses should continue to exercise due diligence to ensure that their activities do not infringe the current sanctions. This is likely to require due diligence on the Iranian individuals and companies they come into contact with, as well as understanding whether any goods or services which are being discussed are currently subject to sanctions. They also need to ensure that anyone who travels to Iran to discuss future opportunities understands clearly what is and what is not permitted.

Shipping service providers should also engage in discussions with their banks and insurers to ensure that, as and when sanctions are lifted, they will support the business in exploiting lawful opportunities in Iran. The availability of banking and insurance is likely to be critical to the effectiveness of the sanctions relief under the JCPOA, and banks and insurers will want to be sure that they have all of the information which they need to make informed decisions.

Caution necessary

Even once Implementation Day arrives and sanctions begin to be lifted pursuant to the JCPOA, caution will still be required, for three main reasons.

Firstly, while the bulk of the EU restrictions will be lifted, the EU sanctions relating to weapons of mass destruction, human rights abuses and terrorism will remain in place, and significant numbers of individuals and entities will remain on the EU and US sanctions lists. There will therefore still be a need for thorough due diligence on cargoes, counterparties and other Iranian entities.
In particular, Tidewater Middle East (which is said to have operations at many Iranian ports) will remain on the EU sanctions list until 2023. Ships calling at ports in Iran after the first phase of sanctions relief need to ensure that no direct or indirect payments are made to or for the benefit of Tidewater Middle East. Likewise, some Iranian banks will remain on sanctions lists until 2023.

Secondly, Iran will of course initially be an unfamiliar and challenging environment in which to do business. Commercial organisations need to ensure that they obtain appropriate local advice to ensure that they operate in accordance with Iranian law, and that they fully understand the risks of trading in Iran.
Thirdly, the sanctions will ‘snap back’ (i.e. be re-imposed) in the event that Iran fails to comply with its remaining obligations under the JCPOA. This means that businesses which engage in trade with Iran in reliance on the sanctions relief contained in the JCPOA need to ensure that they are protected in the event that sanctions are re-introduced (for example, by including suitable contract wording).

Roadmap in place

The JCPOA offers a roadmap not only to a resolution of the Iran nuclear issue, but also to increased trade with Iran, and a host of opportunities for shipping service providers such as brokers, charterers, operators and managers to return to Iran.

However, the timeframe for sanctions relief depends on Iran’s willingness and ability to satisfy the requirements of the JCPOA, and therefore those companies which are looking at the possibility of increasing trade with Iran will need to keep a careful eye on the progress in this area.

Even once sanctions are lifted, pitfalls will remain for the unwary, and companies need to continue exercising due diligence and liaising with their banks and insurers, with legal input as necessary, to ensure that they do not fall foul of the restrictions which remain in place.

Daniel Martin is a partner at international law firm Holman Fenwick Willan. Daniel will form part of an expert panel group at a Baltic Exchange and UK Chamber of Shipping sanctions seminar taking place on October 15. The group will discuss the relaxation of sanctions on Iran and highlight developments in other sanction regimes, as well as the risks posed to shipping companies and insurers. Daniel can be contacted on +44 (0)20 7264 8189 or daniel.martin@hfw.com.