26.11.2021

Sanctions Update: Iran

In May the United States announced the re-imposition of sanctions in relation to trade with Iran

US re-imposition of sanctions

US sanctions were to be imposed following two “wind-down” periods (these periods were intended to give parties time to complete or exit existing transactions with Iranian counterparties).

See: https://www.treasury.gov/resource-center/sanctions/Programs/pages/iran.aspx

The first wind-down period ended on 6 August.  As of 7 August, certain US sanctions directed at the Iranian government sector “snapped back” into place. 

The second wind-down period ends on 4 November.  As of 5 November, all remaining sanctions will be re-imposed.  From that date the US is also likely to extend the number of sanctioned Iranian persons.

US and New Zealand sanctions

The US has primary and secondary sanctions in relation to Iran.  Primary sanctions apply to US persons or where there is a “US nexus” (e.g. the goods are of US origin, or funds are passing through a US bank).

Secondary sanctions apply to non-US persons, such as where they are dealing in sanctioned goods or with sanctioned persons, or facilitating this trade. 

New Zealand imposes sanctions that are mandated by the United Nations.  New Zealand sanctions on Iran are more limited.  They relate to the prevention of nuclear proliferation. 

See: https://www.mfat.govt.nz/en/countries-and-regions/middle-east/iran/doing-business-with-iran/

As noted above, US sanctions have a much wider scope than New Zealand sanctions: US secondary sanctions may apply to non-US persons, including New Zealanders or New Zealand companies doing business with Iranian counterparties. 

What is the impact on New Zealand businesses of US sanctions?

Trade with Iran is still possible.  There is no prohibition on trading non-sanctioned New Zealand goods with non-sanctioned Iranian persons. 

Further, it appears that the re-imposed US sanctions should not apply to persons “conducting or facilitating a transaction for the sale of agricultural commodities, food, medicine, or medical devices to Iran” so long as no sanctioned Iranian is involved. 

However international and domestic banks, shipping companies, and insurers have little or no appetite for trade with Iran.  The impact of US sanctions on New Zealand businesses is therefore likely to be as much practical as legal.

Banks will not take the compliance risk of this trade.  International shipping companies such as Maersk and CMA CGM (who have US subsidiaries and / or exposure) have already announced that they will withdraw from Iran (even though the EU has introduced “blocking” legislation to protect EU businesses from US sanctions).  International insurers have or will reintroduce sanctions clauses in policies which will impact insurance cover on goods and vessels.

In summary, payment, logistics and insurance for trade with Iran will become even more difficult and costly to effect. 

For New Zealand companies who also trade in the US, reputational risk (becoming known in the US as a company that trades with Iran) may be an important factor to consider.

What should businesses trading with Iran do?

There remain opportunities for New Zealand businesses, but risk needs to be carefully assessed and managed.

Businesses should:

  • Review your sanctions policies and due diligence procedures.
  • Review KYC on your counterparties, including monitoring the list of Iranian persons subject to sanctions by the US. Ensure you have exercised the necessary due diligence on your counterparties to satisfy yourself that they are not, or are not in any way connected with, sanctioned persons.
  • Identify whether any existing contracts will be performed / outstanding payments will be received, before the second wind-down period ends on 4 November 2018.
  • Consider the performance of existing contractual obligations after 4 November 2018. Is it possible to perform the contract(s) using existing service providers (transportation, banking and insurance)? If not, what is your contingency plan?
  • If future performance of contracts is problematic due to sanctions, do your contractual terms excuse performance e.g. do you have sanctions and / or force majeure clauses in your contracts?
  • Consider alternative trading structures, currencies, methods of payment and payment terms.

For practical legal advice specific to your business, contact Hesketh Henry’s specialist Transport and Trade team:

https://www.heskethhenry.co.nz/Our+Services/Transport+and+Trade.html.

Simon CartwrightHelen Macfarlane
PartnerPartner

Simon is a trade and transport specialist.  He is qualified in New Zealand and England. 

Previously a partner with an international law firm and based in Dubai, he has extensive experience advising on trade issues, including sanctions.

Helen is qualified in New Zealand and the US.

Helen has experience working with US regulatory authorities and institutions such as the World Bank. 

She has previously advised clients in relation to sanctions requirements with respect to doing business with Iranian entities. 

Simon.Cartwright@heskethhenry.co.nz

Tel: +64 9 375 8727

Mobile: +64 22 301 9870

helen.macfarlane@heskethhenry.co.nz

Tel: +64 9 375 8711

Mobile: +64 21 538 604

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Kerry
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

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