Sanctions Effect on Business
Following the easing of sanctions against Iran by the US and five other world powers, Europe has been eager to revive maritime trade relations with Tehran, sending itsshipping majors and port officials to ink new and renew old cooperation deals. Aside to increased activity in the carriage of oil, container lines have reestablished or augmented their services into Iran, Korean yards have booked orders from Iranian owners set on renewing their outdated fleets and shipping registers have rushed to the country to resume or deepen their relations with Iranian shipping market.
However, this has not been the case with respect to the U.S.-Iranian maritime trade relations.
According to Leigh Hansson and David Myers, lawyers from Reed Smith, a limited liability partnership registered in England, the Joint Comprehensive Plan of Action (JCPOA) did not do very much to free U.S. persons to deal with Iran or Iranians.
What is more, with Donald Trump assuming office as the new U.S. President, tensions seem to be heating up again between the two countries. Specifically, President Trump promised to “rip up” the July 2015 agreement to limit Tehran’s nuclear program in exchange for lifting international sanctions.
Since taking office, and even prior to assuming that role, President Trump has issued various statements indicating his stance on Iran, the Iran sanctions program and the JCPOA, calling it the “worst deal ever negotiated.” Nevertheless, under international law, it will be difficult for the United States to simply withdraw from the agreement. As an international treaty, the United States is bound to abide by its terms absent Iran’s significant non-compliance with the agreement (in which case “snap-back” of sanctions may occur), Hansson and Myers revealed in a conversation with World Maritime News.
Although Iran has engaged in several rounds of missile testing, it is unclear whether such tests are sufficient to demonstrate that Iran has breached the terms of the JCPOA to provide for snap-back of the nuclear sanctions.
“For the maritime industry, the risk is that entities that were previously delisted by the Obama Administration are now relisted by the Trump Administration, or new entities are added to the SDN list. This could be shipping companies or Iranian ports. While that may violate the spirit of the JCPOA, it would not be an entirely surprising outcome either,” our interlocutors explained.
In addition, numerous concerns still remain when doing business with Iran. Namely, parties are still experiencing considerable frustration when trying to process payments for their Iran transactions, Hansson and Myers further added.
“Although the U.S. government has clarified that U.S. dollar payments can be used for transactions with Iran as long as they do not need to process through a U.S. financial institution, and do not otherwise involve U.S. persons, many European and other banks are still understandably reluctant to process payments involving Iran for fear that they might violate U.S. sanctions.”
“For our non-U.S. clients, the main concern they have is inadvertently dealing with Specially Designated Nationals (SDNs) who may be subject to secondary sections. We always recommend that our clients have a robust screening program in place so that they can verify that the parties to their transactions are not, for example, on any of the EU designated entities and persons or U.S. denied parties lists.”
WMN: In the light of the latest heating up of tensions between the U.S. and Iran following the Washington administration putting Iran “on notice”, could we see another wave of economic sanctions against Iran?
“We think it is very likely that additional sanctions will be placed on Iran, Iranian entities and those doing business with designated Iranian entities. Earlier this month, OFAC designated approximately 35 individuals and entities and subjected them to secondary sanctions.”
U.S. sanctions may be primary and/or secondary. U.S. primary sanctions are those which affect U.S. persons. U.S. secondary sanctions are those which affect non-US persons.
WMN: What could be the main implications of those sanctions for maritime trade?
“For non-U.S. persons, which and who comprise the vast majority of the world’s population, the imposition or re-imposition of secondary sanctions on important players in the Iranian economy would have a very serious effect.
“In our experience, all the major participants in the maritime sector are very aware of the implications of breaching U.S. secondary sanctions and stretch every sinew to avoid doing so, even at the expense of turning away business, in respect of which the risk is modest, for one reason or another, although the detailed approach to risk assessment and acceptance varies. In other words, the mere existence of widespread U.S. secondary sanctions has a chilling effect on business activity.”