As readers will no doubt be aware, on 8 May President Trump announced that the US was withdrawing from the nuclear deal reached between the P5+1 and Iran in 2015.  The President has vowed to reintroduce the “highest level of economic sanctions” against Iran but what does this mean for non-US companies and what steps should risk managers be taking now to keep up with the changing sanctions regime?

What is actually happening?

The US government has announced that “secondary sanctions” will be reimposed following the expiry of two wind-down periods.  “Secondary sanctions” target non-US companies which deal with Iran in breach of US sanctions by cutting-off their access to US markets and the US financial system.

The first wind-down period ends on 6 August 2018 and concerns restrictions on, amongst other things trade in raw or semi-finished metals, coal and industrial software.  The second ends on 4 November and concerns, amongst other things, restrictions on Iranian shipping and ports, petroleum-related transactions, the provision of (re)insurance and the provision of financial messaging services.

In addition, the US will re-designate some 400 entities which come within the definition of the “government of Iran” or “Iranian financial institution”.  Any person who deals with one of these re-designated entities risks enforcement action in the US.   

What should you be doing now?

Although the first wind-down period does not expire until 6 August, you should start taking action now. You should identify any business your company undertakes in Iran or with Iranian counterparties.   If your company’s Iranian business is a type which will be restricted when US sanctions are reimposed or involves counterparties who may be re-designated, you should start thinking about the best way of winding-down the business.  Any contract concerning Iranian business is likely to have fairly comprehensive sanctions provisions.  However, you may wish to take advice on how to best wind-down Iranian business.     

If secondary sanctions do not affect your Iranian business and you have no US interests, you may wish to continue your Iranian business. If so, you should contact your banks and insurers now to see if they will still be willing to process Iran-related payments and cover Iran-related risks. Most banks and insurers take a very conservative approach to sanctions and may prove a significant obstacle to continuing any Iranian business.

How has the EU responded?

On 18 May the European Commission announced that it planned to revise an existing blocking statute in order to prohibit EU companies from complying with the revived US sanctions.  This puts EU companies in a difficult position.  If they continue to trade with Iran in compliance with the blocking statute, they risk being barred from US markets. On the other hand, if they defy the blocking statute they will retain access to US markets but face enforcement in the EU. 

Doubts have emerged as to whether the blocking statute will ever become law and, if it does, whether member states will enforce it. At the time of writing there is still a significant degree of uncertainty. Companies who simply want to stay on the right side of the law will find it increasingly difficult to navigate this rapidly changing sanctions landscape.