What has happened?
On 14 July 2015, Iran, together with China, France, Germany, Russia, the UK and the US (with the facilitation of the High Representative of the EU) agreed a Joint Comprehensive Plan of Action – the so-called JCPOA.
Implementation Day has just happened (Saturday, 16 January 2016). The International Atomic Energy Agency has confirmed that Iran has met its nuclear obligations under the JCPOA, in return for which
(i) the majority of the EU imposed sanctions targeting Iran have been lifted; and
(ii) the US secondary sanctions have been lifted. These are the sanctions aimed at non-US persons, which were designed to discourage the international community from doing business with Iran. The US primary sanctions, i.e. those directed at US persons, will remain in place.
What this means is that UK, European and all non-US international businesses generally are now able, at least in principle, to re-engage with Iran.
Subject to certain exceptions, US persons continue to be prohibited from doing business with Iran. One very significant exception is that the US has issued a general licence allowing non-US entities owned or controlled by US persons (e.g. a European subsidiary of a US company) to engage in transactions with Iran. The licence (General Licence H) is available here. Note, however, that non-US entities still require a specific licence to reexport US-origin controlled goods (or third country items containing 10% or more US-controlled content) to Iran.
Separate to the implementation of the JCPOA, on Sunday, the UN Security Council announced that it had removed the Iranian Bank Sepah and its UK subsidiary Bank Sepah International Plc from the UN sanctions list. However, steps may need to be taken at a national level (and indeed by the EU) to implement the lifting of the UN sanctions against Bank Sepah.
It is also anticipated that other jurisdictions with their own autonomous sanctions against Iran will lift those sanctions, consistent with the JCPOA. We understand that Switzerland has already done so, for example.
What challenges on business remain?
During the period of sanctions, Iran has been disconnected from the international financial systems. The EU and the US have issued guidance which is intended to clarify what business with Iran is and is not permitted. The guidance is available below:
However, even with this guidance, it will take some time for the international banks to get comfortable in processing payments involving Iranian-related funds. The genesis for their concern is in large part due to a fear of US penalties. However, the JCPOA agreement itself confirms that non-US, international banks can in general terms engage in transactions with Iranian banks without fear of US penalties provided that they do not take place in the US jurisdiction (for example, US dollar clearing through the US financial system remains prohibited). But that said, we anticipate that it will take some time for the banking community to reverse that fear factor.
In addition, international banks will still need to satisfy themselves about the source of funds emanating from Iran and the destination of payments made to Iran. Leaving sanctions to one side, banks have existing anti-money laundering and compliance responsibilities which they will need to satisfy and Iran's international isolation means that its anti-money laundering and compliance systems are not necessarily of an equivalent standard. Iran will now be running to catch up with international standards.
In addition, some sanctions will remain in place and a number of entities will remain subject to sanctions. So it will be important for all businesses to ensure that they do their due diligence so that they know who they are dealing with and that the intended transaction will not fall foul of the restrictions that remain.
What about the opportunities?
The opportunities for UK and international businesses are significant. Iran has huge natural resources and a highly educated and predominantly young population of over 80 million. Having travelled to Iran again only very recently, we are well aware that they are very keen to re-connect with the international community. So, although international businesses will need to proceed with a degree of caution for the reasons discussed, there are real and profitable opportunities to be had for them and their Iranian partners.