After over a decade of negotiations relating to Iran's nuclear proliferation, the Joint Comprehensive Plan of Action (JCPOA) was agreed on 14 July 2015 with Iran. The JCPOA puts in place measures to ensure that Iran's nuclear programme can only be used for peaceful purposes in exchange for the gradual lifting of economic and financial sanctions against Iran.
Following Implementation Day on 16 January 2016, there was a substantial reduction in the international sanctions and restrictions imposed on Iran, including the secondary sanctions imposed by the US prohibiting non-US entities engaging with Iran. It allowed the opening up of international trade and other services in a wide range of important sectors such as oil, gas and petrochemicals, financial services and banking activities, all of which had previously been prohibited.
Implementation Day however did not remove all restrictions and some remain in place today, including prohibitions on the provision of technology and goods related to nuclear technology, military technology and transactions involving certain graphite and raw metals. The sanctions imposed in respect of human rights violations are unaffected by Implementation Day. Because some sanctions remain, particularly in respect of the US, it is important to be mindful of the practical difficulties of doing business in Iran.
Even tangential connections to the US can give rise to criminal liability. This is especially true if a multinational company has US operations. By way of example, in 2015, Schlumberger Oilfield Holdings Ltd (“SOHL”) a company with headquarters in London, Paris, The Hague and Houston, but formally incorporated in Curacao, entered a guilty plea for conspiring to violate the US International Emergency Economic Powers Act (“IEEPA”) by wilfully facilitating illegal transactions with Iran and Sudan.
It was lawful for SOHL, as a non-US entity, to operate in Iran and Sudan under certain circumstances, and SOHL had policies to ensure the company did not violate US economic sanctions. However, employees of Drilling & Measurements (“D&M”), a Texas-based Schlumberger business segment which provided services to SOHL were not trained adequately to ensure that all company US persons, including non-US citizens who resided in the US while employed by D&M, complied with those policies. What did the employees do? They provided normal business services to SOHL for its Iranian and Sudanese operations by: (1) approving and disguising SOHL’s capital expenditure requests from Iran and Sudan for the manufacture of new oilfield drilling tools and certain company purchases; (2) making and implementing business decisions specifically concerning Iran and Sudan; and (3) providing certain technical services and expertise to troubleshoot mechanical failures and to sustain expensive drilling tools and related equipment in Iran and Sudan.
This involvement of US persons rendered criminal those transactions which if done by SOHL alone would not have violated US law. Because D&M was working with SOHL, the US authorities charged SOHL, a foreign entity, with conspiracy to violate the IEEPA under 18 U.S.C. § 371, the federal conspiracy statute. SOHL was required to forfeit $77,569,452 in proceeds from the offence and pay a criminal fine of $155,138,904 - all of this because it failed to monitor the involvement of a US business segment in its global operations.
In short, there is plainly more work which needs to be done and parties need to be ever-vigilant before Iran can be considered a truly accessible market.
At first sight this seems like a success story for the international sanctions system whereby the de-escalation of Iran's nuclear capability has been achieved by a trade-off against financial and trade restrictions and a roadmap is in place for the wholesale lifting of sanctions against Iran. However this may be a premature conclusion.
At the end of January 2017, Iran conducted a ballistic missile test for the purpose of assessing its defence mechanisms. The reaction of the White House was to add to the Specially Designated National and Blocked Persons List 25 individuals and companies who are connected to Iran's ballistic missile programme or provide support to Iran's Revolutionary Guard. President Trump tweeted on 2 February 2017 that "Iran has been formally PUT ON NOTICE for firing a ballistic missile."
The reaction from the Iranian Foreign Minister was to say, also via Twitter, that "Iran is unmoved by threats as we derive security from our people", later adding "We will never use our weapons against anyone, except in self-defence."
The Twitter brinkmanship is not the constructive atmosphere, based on mutual respect envisaged by the JCPOA and it is possible we will see this continue throughout the year. This unfortunately offers little comfort to those who, 12 months ago, looked to Iran as a new and exciting place to do business.
The road to Transition Day under the JCPOA may yet have a few bumps in it.
The events over the past 12 months have created a complex situation whereby some Iranian sanctions imposed by the UK/EU are still in place whereas others are no longer in force. In addition, what may be permitted under UK and or EU law may, in fact, continue to be prohibited by US sanctions. Brexit may make this position more complicated as we could see the UK government adopting a different course towards Iran. The recent Queen's Speech highlighted the UK Government's intention to pass new laws implementing international sanctions which may or may not mirror the current EU position.
UK companies must therefore be mindful of these restrictions and not assume that the JCPOA has given them carte blanche to carry out business in Iran – this is not the case.
Before deciding whether to do business with Iran careful advice needs to be taken. It is more important than ever to ensure that you put in place the adequate protections referred to in our earlier article on the Russian/Crimean sanctions.