In November 2011, the International Atomic Energy Agency (IAEA) reported that the Islamic Republic of Iran has violated its international obligations by conducting activities relevant to developing a nuclear explosive device. Prior to the release of that report, the Financial Action Task Force (FATF) issued a statement outlining Iran's failure to resolve the threats of terrorist financing in its banking sector and calling once again for countries to implement effective counter-measures to protect financial sectors from the money laundering and terrorist financing risks that Iran's financial sector poses.
In response, the United States, the United Kingdom, and Canada expanded their existing Iran sanctions programs. As of today, Australia has also introduced additional Iran sanctions. According to the President of the European Council, the European Union (EU) is currently developing expanded sanctions against Iran, although the exact nature of those expanded sanctions is not yet known. We are keeping EU developments under close review.
The United States expanded its existing sanctions against Iran through three separate but coordinated measures.
First, President Obama signed Executive Order 13590, which calls for additional sanctions related to the Iranian energy industry. The Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) previously imposed sanctions on the Iranian energy industry, but this executive order expands on those existing sanctions by targeting provision of goods and services rather than simply large-scale investments that significantly contribute to Iran's development of its petroleum resources, lowering the transactional amounts for sanctioned activities relating to petroleum resources, and targeting Iran's petrochemical industry.
Executive Order 13590 authorizes the Secretary of State to impose sanctions on persons who knowingly sell, lease, or provide certain goods, services, technology, and support that "could directly and significantly contribute to the maintenance or enhancement of Iran's ability to develop petroleum resources located in Iran" or "could directly and significantly contribute to the maintenance or expansion of Iran's domestic production of petrochemical products." Petroleum resources include petroleum, oil, natural gas, liquefied natural gas, and refined petroleum products. The Executive Order authorizes the Secretary of State to create these sanctions in consultation with the Secretaries of the Treasury and Commerce, the United States Trade Representative, the President of the Export-Import Bank, the Chairman of the Board of Governors of the Federal Reserve System, and other agencies and officials as appropriate.
Sanctions can only be imposed if the fair market value of the goods, services, technology, or support that could contribute to the development of petroleum resources in Iran is greater than or equal to $1,000,000 or has an aggregate fair market value greater than or equal to $5,000,000 over a twelve-month period. Similarly, sanctions can only be imposed if the fair market value of the goods, services, technology, or support that could contribute to the maintenance or expansion of Iran's domestic production of petrochemical products is greater than or equal to $250,000 or has an aggregate fair market value greater than or equal to $1,000,000 during a twelve-month period.
After determining that a person meets these criteria, the Secretary of State will select any of the following sanctions, as necessary, and the heads of relevant agencies shall then take the appropriate action:
- Denial of the Board of Directors of the Export-Import Bank's approval of "the issuance of any guarantee, insurance, extension of credit, or participation in an extension of credit in connection with the export of any goods or services to the sanctioned person."
- Refusal to issue specific licenses or permission pursuant to statutes requiring the United States' Government's prior review and approval for export or re-export of goods or technology to the sanctioned person.
- In the event that a sanctioned person is a financial institution:
- The Chairman of the Board of Governors of the Federal Reserve System and the President of the Federal Reserve Bank of New York shall take whatever actions they believe are appropriate; the Executive Order specifies that such actions may include denying or terminating designation of the sanctioned person as a primary dealer in United States Government debt instruments.
- Agencies shall not allow the sanctioned person to serve as a United States Government agent or as a repository for United States Government funds.
- Agencies shall not procure goods or services from the sanctioned person or enter into a procurement contract with the sanctioned person.
- The Secretary of the Treasury shall, in consultation with the Secretary of State, take the following actions as necessary:
- Prohibiting United States financial institutions from providing the sanctioned person with loans or credits totaling in excess of $10,000,000 in any 12-month period, except that such loans or credits may be provided in support of sanctioned person's activities to relieve human suffering.
- Prohibiting transactions in foreign exchange in which transaction a sanctioned person has any interest, so long as the transaction is subject to United States jurisdiction.
- Prohibiting transfers of credit or payment between, by, through, or to any financial institution(s) if the transfers or payments involve any interest of the sanctioned person and are subject to the United States jurisdiction.
- Blocking and freezing all of sanctioned persons' property and interests in property that are in the United States, come into the United States, or are or come within the possession or control of a United States person or a foreign branch of a United States entity. Transactions prohibitions made pursuant to this sanction would include contributing or providing funds, goods, or services to a sanctioned person or for that person's benefit, as well as receiving funds, goods, or services from a sanctioned person. President Obama determined that donations of articles, such as food, medicine, and clothing, intended to alleviate human suffering and made to sanctioned persons or for their benefit would seriously impair his ability to deal with a previously declared national emergency; therefore, such donations are prohibited.
- Restricting or prohibiting direct and indirect importation of goods, technology, or services from the sanctioned person into the United States.
As a separate measure, the Departments of State and the Treasury together designated eleven individuals and entities under Executive Order 13382, which blocks the assets of those believed to be engaged in or contributing to the proliferation of weapons of mass destructions and further prohibits United States persons from engaging in transactions involving designated individuals and entities. The eleven individuals and entities designated are important parts of Iran's nuclear procurement network and research and development activities related to nuclear technology. The full list of newly designated individuals is available at the link below.
Finally, the Department of the Treasury exercised its authority under Section 311 of the USA PATRIOT Act to designate Iran as a jurisdiction of primary laundering concern based on its factual findings. Pursuant to Section 311 of the USA Patriot Act, the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) has issued a notice of proposed rulemaking outlining the special measures it proposes against Iran. Unlike existing sanctions against Iran, the special measures proposed under Section 311 would require United States financial institutions to take affirmative action and implement due diligence measures to prevent Iranian banking institutions from improperly gaining indirect access to correspondent accounts in the United States.
The United Kingdom's new sanctions target the Iranian financial sector. They sit alongside and are in addition to existing sanctions against Iran, in particular Council Regulation (EU) No 961/2010 (25 October 2010), which extends the sanctions in UN Security Resolution 1929 (2010).
The Direction given in the Financial Restrictions (Iran) Order 2011 applies to all financial or credit institutions operating in the United Kingdom and all of their branches, regardless of location. These persons are described as "relevant persons" in the Direction. The Direction does not apply to subsidiaries incorporated outside the UK or subsidiaries that are not financial or credit institutions.
As of November 21, 2011 at 3:00 p.m., all relevant persons were required to terminate all transactions and existing business relationships with all credit institutions (including banks) incorporated in Iran, all subsidiaries and branches of credit institutions incorporated in Iran regardless of location, and the Central Bank of Iran. The Direction refers to these entities as "designated persons."
The prohibitions on transactions are broad and include those conducted through one or more intermediaries. The prohibitions also cover the provision of insurance to Iranian banks covered by the Direction, unless the insurance falls within the limited general license provided for cases in which insurance money must be paid to banks under an insurance scheme that is exempt from the European Union's general ban on provision of insurance to Iranian entities. However, if a relevant person participates in a prohibited transaction after taking all reasonable steps and conducting proper due diligence, no offense will be deemed to have been committed and no civil penalty will be imposed.
Existing relationships between UK financial and credit institutions and Iranian banks may continue under the limited general licenses provided by HM Treasury, or relevant persons may seek a license to continue a specific relationship. However, HM Treasury has indicated that in light of the critical public policy interests at stake, it is unlikely to grant a license for the creation of new business relationships or contracts.
The UK has also updated the list of individuals and entities who are subject to sanctions to bring the list into line with EU sanctions requirements.
Following the disturbances at British Embassy premises in Iran on November 29, 2011 in response to the new sanctions being imposed, the British government has closed its embassy in Iran, and has required the Iranian government to close its embassy in the UK as of December 2, 2011.
The new sanctions do not amount to a trade ban but, in practice, they will make trade between the UK and Iran more difficult. As a matter of policy, the UK Government does not encourage trade between the UK and Iran.
In response to the IAEA report, and "in close consultation with like-minded partners," the Canadian government implemented additional sanctions pursuant to the Special Economic Measures Act.
Like the United States sanctions, the expanded Canadian sanctions target both Iran's energy industry and its financial sector. Canada now prohibits its residents and any Canadian located outside Canada from exporting, selling, supplying, or shipping "any goods used in the petrochemical, oil or natural gas industry" unless such dealings are necessary to complete a contract entered into prior to November 22, 2011. In addition, the new sanctions prohibit Canadian residents and Canadians living outside the country from providing Iran or any person in Iran with financial services, acquiring financial services from Iran or any person in Iran, or providing or acquiring financial services from any person at the direction or order of Iran or any person in Iran or for the benefit of Iran or any person in Iran. The new sanctions provide several limited exceptions to this prohibition.
In addition, Canada added dozens of additional individuals and entities to Schedule 1 of the Special Economic Measures (Iran Regulations). Canadian residents and Canadian citizens living abroad may not deal in these designated persons' property, directly or indirectly enter into or facilitate transactions with respect to designated persons' property, provide financial or related services to designated persons, provide financial services for the benefit of designated persons, or make goods available to designated persons. A full list of the newly designated individuals and entities is available at the link below. Several of the designated individuals and entities were also designated by the United States pursuant to Executive Order 13382.
 The Direction contains six general licenses. First, there is a general license for transfers of less than € 40,000 for the purposes of conducting certain humanitarian activities, including the provision of healthcare, medicine, and food, so long as transfers of funds greater than € 10,000 are reported to HM Treasury. Second, there is a general license for personal remittances of less than € 40,000, so long as any transaction greater than € 10,000 is reported to HM Treasury and no funds are paid to entities already subject to an asset freeze. Third, there is a general license allowing the transfer of funds to or from designated persons as part of insurance schemes permitted by Article 26(2) and (3) of the EU Regulation. Fourth, there is a general license permitting UK financial institutions to hold asset-frozen banks' accounts and conduct transactions necessary for crediting those accounts or conducting activities permitted by the EU Regulation. Fifth, UK financial institutions may continue to hold Iranian banks' accounts but must report details of such accounts as soon as possible and, at the very latest, within fourteen days; the Treasury may subsequently issue licenses for the transfer of account balances and the closing of accounts. Sixth, relevant persons were permitted to complete payments to or from designated persons if those payments were in progress immediately prior to the Direction and were completed by midnight on November 28, 2011.
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