News Business Crime & Financial Services 9th May 2018

Fresh OFSI Guidance for Importers and Exporters & Significant Iran Sanctions Developments

Gavin Irwin attended the Export Licensing Symposium, organised by the Department for International Trade, in Westminster, on Tuesday 8th May 2018.

The Office of Financial Sanctions Implementation (‘OFSI’) indicated that they will soon publish guidance “relevant to those involved in importing and exporting, especially those operating in areas where financial sanctions are in force”.

The guidance is likely to be placed on the OFSI website this week but was made available to attendees at the Symposium. Gavin provides a synopsis below.

The financial sanctions regime prohibits anyone from entering into transactions with designated persons. A licence may be obtained from OFSI to permit financial transactions with such designated persons. The trade sanctions regime prohibits exporters from selling goods (generally controlled military or dual-use goods, or goods which are not controlled but in relation to which there are end-user concerns), and/or providing associated services, in certain circumstances. A licence may be obtained from the Export Control Joint Unit (‘ECJU’), through the SPIRE system, to permit such export.

Whilst OFSI deals with ‘who’ and the ECJU deals with ‘what’, the two regimes have a considerable and obvious overlap. However, a lack of familiarity with both could give rise to inadvertent non-compliance by businesses. It would be possible to have a trade licence for export but to breach financial sanctions by receiving payment for the export. To date, OFSI has not provided guidance in relation to the convergence of the two regimes.

The new guidance provides that importers and exporters should:

  • remember that they must consider financial sanctions, even where a product is not subject to trade sanctions or export controls, if funds or economic resources are being made available – directly or indirectly – to or for the benefit of, a designated person
  • remember that financial sanctions licences are not covered by SPIRE and that licences may be needed from both OFSI and the ECJU
  • not assume that OFSI will grant a licence simply because one was not required from the ECJU or had been granted by the ECJU
  • remember that licences cannot be issued retrospectively
  • remember that HMRC’s Customs Handling of Import and Export Freight (‘CHIEF’) system does not incorporate OFSI’s Consolidated List
  • remember that all financial sanctions are not covered by the Consolidated List – sectoral sanctions, such as those in place in relation Russia’s actions in destabilising Ukraine, must be separately checked
  • consider:
    • who and where the goods or services are coming from or going to
    • who is shipping the goods
    • the vessel on which the goods are being shipped
    • the status of all parties in the payment chain
    • the fact that any trade may be used to finance illicit activity
    • whether their bank will receive payment even when there is no prohibition, financial or trade, after licences have been obtained
  • be aware that designated persons may not be based in the country to which an export is destined but could still be subject to financial sanctions. (For example, companies in Malaysia, Turkey and UAE are listed under the Iran (nuclear proliferation) regime.)

Just as the Symposium was ending, President Trump announced that the United States will completely withdraw from the Joint Comprehensive Plan of Action (‘JCPOA’). Critically, the other parties to the JCPOA, including the UK, have not withdrawn.

The JCPOA, implemented in January 2016, lifted a raft of nuclear proliferation sanctions, and other more general sanctions, targeting Iran. As a result, all US, pre-JCPOA, nuclear related sanctions will be re-imposed. Further, the US indicated that it may impose new and additional sanctions, going beyond the already highly restrictive sanctions regime which preceded the JCPOA.

The US Department of the Treasury’s Office of Foreign Assets Control (‘OFAC) immediately issued new guidance relating to the action it would take to implement the withdrawal. While many of the pre-JCPOA sanctions will be re-imposed, OFAC will provide ‘wind-down periods’ for certain activities involving Iran.

Following a ’90-day wind-down period’, ending on 6th August 2018, the US government will re-impose the following sanctions:

  • sanctions on the purchase or acquisition of US dollar banknotes by the Government of Iran;
  • sanctions on Iran’s trade in gold or precious metals;
  • sanctions on the direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminium and steel, coal, and software for integrating industrial processes;
  • sanctions on significant transactions related to the purchase or sale of Iranian currency, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian currency;
  • sanctions on the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and,
  • sanctions on Iran’s automotive sector.

Following a ‘180-day wind-down period’, ending on 4th November 2018, the US government will re-impose the following sanctions:

  • sanctions on Iran’s port operators, and shipping and shipbuilding sectors;
  • sanctions on petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
  • sanctions on transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions in relation to the purchase of crude oil from Iran (subject to country-specific significant reduction exemptions);
  • sanctions on the provision of specialised financial messaging services to the Central Bank of Iran and Iranian financial institutions;
  • sanctions on the provision of underwriting services, insurance, or reinsurance; and,
  • sanctions on Iran’s energy sector.

Importantly, for UK businesses, OFAC’s guidance discourages non-US persons from engaging in new activity during the wind down period and states that any such new activity will be a factor in future enforcement action taken in relation to conduct after the wind-down period.

It has been reported that European leaders are concerned that the US could use its influence to prevent businesses in other countries that have not re-imposed sanctions on Iran from doing business there. As if to prove the point, President Trump’s new ambassador to Germany, who had been in post for a matter of hours, tweeted that “German companies doing business in Iran should wind down operations immediately.”

The UK, France, Germany and many other European states have expressed “regret and concern” with President Trump’s decision, stating that “[t]ogether, we emphasise our continuing commitment to the JCPOA. This agreement remains important for our shared security.”

A complex, risk-laden, multi-party stand-off has begun. UK persons and businesses are currently in the US’s cross-hairs.

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