01 Aug 2017

Iran imposes reciprocal sanctions on US entities

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What has happened?

On 26 March 2017, the Islamic Republic of Iran ("Iran") imposed sanctions on 14 US entities and individuals in response to the US Government's imposition of additional sanctions on 24 entities and individuals alleged to be involved in Iran's ballistic missile programme. On 18 May 2017, Iran extended its reciprocal sanctions to an additional 9 US entities and individuals (the "Reciprocal Sanctions").

Legal basis

The Reciprocal Sanctions were imposed following resolutions of the Supreme Council for National Security of the Islamic Republic of Iran (the "Supreme Council").

The Supreme Council was established pursuant to Article 176 of the Iranian Constitution to safeguard the national interests and to preserve the Islamic Revolution. Its resolutions are effective upon ratification by the Supreme Leader of the Islamic Republic of Iran. Resolutions passed by the Supreme Council are binding and effective immediately and cannot be challenged before the Iranian courts.

Scope

The consolidated list of entities and individuals subject to Reciprocal Sanctions is available on IMFA May 2017.

We note that United Technologies Corporation, which was initially listed on 26 March 2017, does not appear in the consolidated list which was updated following the extension of the Reciprocal Sanctions on 18 May 2017. For the avoidance of doubt, it has been duly confirmed by Iran's MFA that United Technologies Corporation is not a designated entity under Iran's Reciprocal Sanctions.

The Reciprocal Sanctions (i) prohibit the listed entities and individuals from entering into any commercial agreement with Iranian entities (it being specified that any contract breaching this regulation is null and void under Iranian law) (ii) freeze their assets in Iran; and (iii) render their former and current representatives ineligible to receive visas to enter Iran.

It is unclear whether the Reciprocal Sanctions are intended to have any extra-territorial effect outside Iran. It would seem unlikely on their face but the Iranian authorities have not issued any guidance which would aid their interpretation. There is, however, a general principle of Iranian law that laws which inhibit rights should be interpreted restrictively.

That said, it is still somewhat unclear whether the Reciprocal Sanctions apply to subsidiaries and affiliates of the targeted entities. The Reciprocal Sanctions also give rise to a number of questions such as (1) the extent to which, for example, an EU company doing business in Iran is prohibited from dealing with entities and individuals targeted by the Reciprocal Sanctions outside of Iran and (2) whether products which include components manufactured by targeted entities can be sold to Iranian counterparties or otherwise imported into Iran by unrelated third parties.

The lack of clarity surrounding the Reciprocal Sanctions is giving rise to considerable concern on the part of international companies doing business with Iran. This concern will only be heightened by the announcement of new US sanctions on 18 July 2017 and the prospect of further retaliatory Reciprocal Sanctions foreshadowed by the President of Iran the following day.

Practical suggestions

International companies doing business in Iran will be familiar with the due diligence that they need to undertake on their Iranian counterparts. Pending further guidance from the Iranian authorities, it may be sensible for international companies doing business in Iran also to undertake due diligence on their own supply chains to check if they are dealing with entities and individuals targeted by the Reciprocal Sanctions or selling products into Iran which contain components manufactured by them.

In addition, they may wish to review their contractual arrangements with their Iranian counterparties to identify the extent to which any dealings (by either party) with the entities and individuals targeted by the Reciprocal Sanctions might give rise to rights of termination.

Once these investigations have been completed, it may well be appropriate to obtain detailed advice from local Iranian sanctions experts.

Stephenson Harwood can assist in putting our clients in touch with sanctions experts in Iran.

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