EU intensifies sanctions against Iran and Syria
22 Oct 2012
The Council of the European Union (“EU”) decided on Monday, October 15, 2012 to intensify political pressure on the governments of Iran and Syria by strengthening existing measures as well as adopting further new sanctions. This note provides an overview of major changes that took effect on Tuesday, October 16, 2012 with the relevant sanctions text having just been published in the EU’s Official Journal.1
I. Introduction
Following weeks of discussions led by France, Germany and the United Kingdom (“UK”), and in light of mounting concerns over Iran’s nuclear weapons intentions, the EU has adopted a new round of economic sanctions against Iran. Sanctions target the banking, energy, trade, transport and shipping sectors. The new set of measures augment an already extensive sanctions regime (most recently, the EU imposed an oil embargo, effective as of the beginning of July, which allegedly has contributed to a significant devaluation of the Iranian Rial in recent weeks). The EU stressed that the new round of measures “target Iran’s nuclear and ballistic programmes and the revenues of the Iranian government for these programmes. They are meant to persuade Iran to engage constructively by negotiating seriously and addressing the concerns of the international community.”2
On the same day, the EU also strengthened its sanctions against Syria, especially its arms embargo,as summarised below.
II. Overview and Assessment of Amended EU Sanctions Against Iran
The new EU sanctions against Iran follow mounting concerns about Iran’s nuclear programme and the desire to bring Iran back to the negotiation table. Broadly speaking, the new measures aim to further restrict Iran’s ability to develop a nuclear, military and ballistic missile programme, as well as to cut off financial resources that would support such programs. The new EU sanctions impose significant restrictions on transactions with the Iranian banking sector and the shipping industry. Specifically:
1. Financial services: In an unusual move, the EU adopted a general ban on all transactions between European and Iranian banks. Going forward, EU citizens and banks (as well as foreign banks and persons conducting business within the EU) may engage with Iranian banks and financial entities, their subsidiaries and branches only if a transaction is explicitly authorised in advance by relevant national authorities. For instance, transactions can be approved if they relate to a specific trade contract that itself is not prohibited under the EU’s sanctions regime. In addition, certain de minimis transactions (depending on the type of transaction: below €10,000, €40,000 or €100,000) may be consummated without prior approval. However, such transactions, will require a subsequent notification to the competent national authority if the value is above €10,000. Broadly speaking, these measures will bring the EU closer to the unilateral UK sanctions adopted in late 2011 that already essentially prohibited UK banks from engaging in transactions with the Iranian banking sector.3 The EU Council will take further action to implement these measures by means of a regulation which will set out further details of the ban and exemptions from the ban.
2. Trade-related restrictions:
In addition, the EU has adopted the following trade-related restrictions:
a. Graphite & metals: an export ban (including related technical or financial assistance) on graphite, raw or semi-finished metals, such as aluminum and steel, that could be used to make machinery for Iran’s nuclear and missile programmes. While the graphite and metals industries typically are not subject to EU sanctions, the EU has decided to target these products, as they are used in industries controlled by the Iranian Revolutionary Guard Corps or are relevant to Iran’s nuclear, military and ballistic missile programmes. In addition, the sale, supply and transfer of software for integrating industrial processes relevant to the aforementioned industries is prohibited;
b. Oil & gas: an extension of the existing export ban to additional key equipment for the Iranian oil, gas and petrochemical industries;
c. Natural gas: a ban on the import, purchase and transport of natural gas (as well as on financing, insurance and brokering services related to these activities) from Iran; and
d. Financial services: an extension of the ban on export credits, guarantees or insurance for trade with Iran to short term instruments; medium- and long-term commitments were already previously prohibited.
The EU Council still must adopt implementing legislation, which will define precisely the items covered by the trade embargoes (this would be of particular importance for industries where it will be difficult to determine whether a given product or service is covered, e.g., with regard to the targeted software for integrating industrial processes).
3. Shipping industry:
The EU has also targeted the Iranian shipping industry, in a further effort to cut off the means that allow Iran to obtain financial resources. Relevant measures include:
a. Oil transport & storage: a ban on the use of vessels belonging to EU citizens and companies for transporting or storing Iranian oil and petrochemical products;
b. Oil tankers: a prohibition on EU persons assisting in the construction of new oil tankers for Iran (including the provision of technical assistance or financing or financial assistance);
c. Naval equipment: a prohibition on the sale, supply or transfer to Iran of key naval equipment and technology for ship building and maintenance (including the provision of related technical assistance and training). Notably, this ban does not apply only to EU citizens and transactions originating from EU territory, but extends to transactions involving vessels and aircrafts flying under the flag of a Member State, even if the vessel or aircraft did not depart from a Member State’s airport or harbour; and
d. Flagging services: as of January 15, 2013, a ban on providing flagging and classification services for Iranian oil tankers and cargo vessels.
4. Asset freezes/Travel bans: Finally, the EU added 34 Iranian entities and one further individual to the list of persons subject to asset freezes. Targeted entities include state-owned entities active in the oil and gas industry (notably, subsidiaries of the National Iranian Oil Company (NIOC), Naftiran Intertrade Company Ltd, and Petropars Ltd.) and in the financial sector. Most of the targeted persons are resident/based in Iran, but some entities are also located abroad, including in the UK, Singapore and Switzerland. The targeted individuals are also prohibited from entering into or transiting through the EU. At the same time, the EU has abolished various exemptions from the asset freezes that involved the Central Bank of Iran and Bank Tejarat.
The new measures come on top of the already existing EU sanctions against Iran, which include, inter alia:
a. Arms embargo: an arms embargo (including certain goods and technology related to nuclear enrichment or nuclear weapon systems, nuclear materials and facilities, certain chemicals, electronics, sensors and lasers,navigation and avionics);
b. Dual-use items embargo: export and import bans on dual-use goods and technology, e.g., telecommunication systems and equipment, information security systems and equipment, nuclear technology and low-enriched uranium;
c. Nuclear investment: ban on investment by Iranian nationals and entities in uranium mining and production of nuclear material and technology within the EU;
d. Oil & gas: (i) an import ban on crude oil and petroleum products, (ii) a ban on imports of petrochemical products, (iii) embargo on key equipment and technology for the oil and natural gas industries, (iii) a ban on the provision of certain services related to crude oil and petroleum products or the oil and natural gas industries, and (iv) a ban on certain investments in the oil and natural gas industries;
e. Financial services: (i) a prohibition on engaging in medium- or long-term commitments for financial support for trade with Iran, (ii) no new grants and concessional loans permitted to the Iranian Government, (iii) enhanced monitoring of the activities of EU financial institutions with Iranian banks, (iv) restrictions on certain financial transfers to and from Iran, (v) restrictions on issuance of and trade in certain bonds, (vi) restrictions on establishment of branches and subsidiaries of, and cooperation with, Iranian banks, and (vii) restrictions on provision of insurance and re-insurance; and
f. Other: (i) a ban on trade in gold, precious metals and diamonds with the Government of Iran, (ii) visa bans against certain individuals, (iii) asset freezes against certain entities and individuals, and (iv) restrictions on access to EU airports for certain cargo flights.
The EU’s existing sanctions regime against Iran is believed to already significantly restrict the Iranian economy and its ability to finance Iran’s nuclear programs. Indeed, the new measures are intended to fill loopholes in the already existing measures, increasing their impact on the Iranian economy and exerting further pressure on Iran to pursue a negotiated settlement with regard to its nuclear programme.
III. Overview and Assessment of Amended EU Sanctions Against Syria
During the same Council meeting, the EU also imposed stricter sanctions on Syria, in response to the continuing violence there. Additional measures include:
1. Arms embargo (import): a new series of measures supplementing the existing arms embargo against Syria that provide for a ban on importing arms and related material from Syria into the EU, or any EU involvement in the transport of Syrian arms (including provision of related financing, insurance and brokering services). Indeed, EU Council has stated that “no EU citizens or companies must be involved in Syrian military cooperation with third countries, which could benefit the Syrian regime.”
2. Flight ban: a ban on all flights operated by Syrian Arab Airlines (Syria’s national carrier). Syrian Arab Airlines had also been targeted with an asset freeze in the previous round of EU sanctions against Syria on the grounds that the airline provides financial support to the Syrian regime. This measure also bolsters the existing ban on cargo flights to Europe. However, flights for purposes of evacuating European citizens and their family members from Syria are permitted.
3. Asset freezes/Travel bans: additional asset freezes, targeting 28 further individuals and two additional entities (Megatrade and Expert Partners; both act as proxies for the Syrian Scientific Military Research Institute (SSRC)). Targeted individuals are deemed responsible for violent repression against civilians, and include all current government ministers. The amendment brings the total number of individuals subject to asset freezes up to 181 and the total number of entities up to 54. The individuals are also prohibited from entering into or transiting through the EU.
The new measures constitute the eighteenth round of EU sanctions against Syria since the violence began in March 2011, and come on top of already existing EU sanctions against Syria, which include:
1. Arms embargo (export): prohibition on the sale, supply, transport or export of arms and related materiel to Syria (including certain dual-use goods that might be used for internal repression);
2. Telecoms: an embargo on the sale, supply, transport, or export of telecommunications monitoring and interception equipment to Syria (including provision of related assistance);
3. Oil & gas: (i) an import ban on crude oil and petroleum products, (ii) an embargo on key equipment and technology for the oil and natural gas industries, (iii) a ban on provision of certain services related to crude oil and petroleum products or the oil and natural gas industries, and (iv) a ban on certain investment in the oil and natural gas industries and the construction of power plants for electricity production;
4. Financial services: (i) a prohibition on certain payments by the European Investment Bank, (ii) further restrictions on issuance of, and trade in, certain bonds, (iii) restrictions on the establishment of branches and subsidiaries of, and cooperation with, Syrian banks, and (iv) restrictions on provision of insurance and re-insurance;
5. Luxury goods: a ban on exports of luxury goods (e.g., caviar, truffles and cigars, wines and spirits, gems, luxury vehicles) above certain values;
6. Shipping industry: an obligation of Member States to inspect vessels and aircraft bound for Syria if they suspect that the cargo contains arms or equipment for internal repression that are covered by the arms embargo against Syria; and
7. Other: (i) a ban on trade in gold, precious metals and diamonds with the Government of Syria, (ii) visa bans against certain individuals, (iii) asset freezes against certain entities and individuals, and (iv) restrictions on access to EU airports for certain cargo flights.
IV. Conclusion
Companies and financial institutions should carefully scrutinize their operations, business relations or any other areas of potential exposure, and should take action immediately in order to ensure compliance with the amended EU sanctions regime against Iran and Syria. Indeed, the new EU measures not only target certain sensitive industries (defence, oil & gas) but in the case of Iran now extend to any transaction involving the Iranian banking sector. Moreover, with the addition of import bans, companies active within the EU need to look even more “upstream,” i.e., they will need to verify not only that their customer but also that their supplier relations are compliant with EU sanctions.
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