Screening exports for Iranian connections

   In late December, the European Union implemented new sanctions against Iran that increase the complexity of transactions for companies that still do business in that nation.
   International traders should realize that Iran is a political lightning rod because of its continued pursuit of nuclear weapons and that Western law enforcement agencies will be watching closely for violations of their sanctions policies.
   The new measures include:

• Tightening existing controls on transfers of funds to and from Iranian persons and impose broader restrictions on transactions between EU and Iranian financial institutions. The European Union changed the language in its control regime making prior notification necessary for funds transfers that equal or exceed 10,000 euros (before it was just exceeds). And the prior notification requirement for humanitarian transfers of food and medical supplies that exceed 10,000 euros has been amended to add a 100,000 euros value at which point exporters must seek prior authorization for the shipment.
• Extending the types of products, such as pipes and tubes, covered by the existing controls on the supply of critical oil and gas equipment to Iran.
• Prohibiting the sale, supply, transfer or export to Iran of graphite and certain base metals in raw or semi-processed form (specific metals are defined by their customs tariff classification), as well as certain naval equipment and technology, and related technical and financial assistance. 
• Prohibiting the purchase, import or transport of natural gas from Iran, and related technical and financial assistance. The prohibitions do not apply to natural gas that has been exported from a country other than Iran when the exported gas has been combined with gas originating in Iran while in pipelines and refineries of the exporting country.
• Prohibiting the provision of shipping services for oil tankers, cargo vessels and other ships flying the Iranian flag or owned or controlled by an Iranian, including classification services, design, construction and repair, and making bulk liquid tankers available to any Iranian. Services that are off limits include carrying out ship surveys, inspections, audits and the issuance, renewal or endorsement of documents associated with adherence to maritime rules and regulations.
• Prohibiting the supply of enterprise software designed for use in the nuclear, military, gas, oil, navy, aviation, financial or construction industries.
• Extending the list of groups and people that are designated as controlled persons. 

   The International Trade Practice Group at law firm Baker & McKenzie recommended clients screen, and regularly re-screen, counterparties, end-users, banks and other third parties involved in transactions to verify that they are not on (or owned or controlled by someone on) the expanded list of designated persons. Traders should also consider placing controls on the transfer of funds to or from an Iranian person and assess whether any products or technology being purchased or supplied fall within the scope of the previous or new controls on Iran.
   The EU measures bear some similarity to new U.S. sanctions. Legislation attached to the $663 billion Defense Department authorization for next fiscal year, which was signed by President Obama on Jan. 3, designates Iran’s energy, port, shipping and ship-building sectors as facilitating nuclear proliferation. Businesses that engage in transactions with these sectors can be penalized and have their assets in the United States frozen. Also, individuals selling or supplying commodities that can aid Iran’s shipbuilding and nuclear sectors, such as graphite, aluminum, steel, metallurgical-coal and software for integrating industrial processes, would face sanctions.
   Another provision also requires the executive branch to report use of Iranian seaports by foreign vessels and use of foreign airports by Iranian airlines, which would violate existing sanctions. The amendment would continue to allow nations to buy Iranian crude oil as long as they can show that purchases have been decreasing over time.
   The law sanctions insurance or reinsurance providers for trade with Iran in energy, shipping and shipbuilding sectors.
   Congress ignored White House concerns the law counteracts existing sanctions. Officials asked Senate Democratic leaders to wait until next year to draft a bill that is consistent with existing sanctions law, according to Bloomberg News. Officials said the new provisions were confusing and inconsistent in applying sanctions, according to an email Bloomberg obtained and a subsequent statement it received from the National Security Council.
   The White House email also said that reporting requirements about vessels calling at Iranian ports and landings of Iranian planes would “impose serious time burdens” on the U.S. intelligence community and sanctions officers, Bloomberg reported.
   Congress only agreed to extend the implementation time for the sanctions to 180 days from 90 days.
   USA*Engage, a coalition of manufacturing and other business interests that favors multilateral diplomacy over unilateral sanctions, expressed its disappointment at earlier passage of the Iran sanctions bill in the Senate.
   “The Senate’s vote… to approve additional unilateral sanctions is at odds with the U.S. government’s official position of pursuing a dual track of multilateral sanctions and diplomatic engagement,” the statement said.
   USA*Engage’s main premise is that sanctions amount to unfunded mandates whose costs are borne by individual companies and communities, and that the stated goals of unilateral sanctions fail to materialize.
   Meanwhile, a measure to ensure classification societies that inspect commercial ships on behalf of the U.S. government are also not providing those services to governments sponsoring terrorism was included in the Coast Guard reauthorization bill signed by the president on Dec. 20. The provision is aimed at organizations that provide services for Iran or Syria.
   There are four foreign-based classification societies that have agreements with the Coast Guard to inspect U.S.-flagged vessels to verify they meet international maritime conventions and national regulatory requirements.