November 3, 2010
On October 27, 2010, the European Union adopted a sanctions regime against the Islamic Republic of Iran in furtherance of diplomatic efforts to find a negotiated solution to ensure that the country’s nuclear program is exclusively for peaceful purposes. Regulation 961/2010[1] (“the Regulation”) implements Common Foreign and Security Policy Decision 2010/413/CFSP[2] and United Nations Security Council Resolution 1929.[3] It repeals and replaces the previous European Union regulation imposing sanctions on Iran (Regulation 423/2007/EC).[4]
In particular, the Regulation contains a prohibition on the sale, supply, transfer or export of dual-use goods and technology. The Regulation also restricts trade with Iran in relation to the following important sectors: investment; the oil and gas industry; uranium mining; the insurance and bonds sector; the financial services industry; and transport. Moreover, the Regulation provides for the freezing of funds of certain named individuals and entities designated by the United Nations Security Council Sanctions Committee.
Dual-Use Goods
The Regulation brings dual-use goods within the ambit of the sanctions regime in so broad a manner as to prohibit the sale or export of the vast majority of the categories of goods contained in the Dual-Use Regulation.[5] Dual-use goods are defined as items that can be used for both civil and military purposes, including non-explosive uses, and that assist in any way the manufacture of nuclear weapons or other nuclear explosive devices. “Equipment which might be used for internal repression” is now also included within the extended trade prohibition.
Investments
The Regulation proscribes investment in any Iranian enterprise engaged in the production of prohibited goods or technology. The extension of financial loans, the creation of joint ventures or acquisition of Iranian enterprises are thus all subject to the prohibition. “Iranian enterprises” are inclusively defined as any legal person, entity or body having its registered office in Iran, or any legal person, entity or body, inside or outside Iran, owned or controlled directly or indirectly by the Iranian State or any natural or legal person established in Iran.
Oil and Gas
The Regulation forbids the sale, supply, transport or export of any technology or equipment relevant to the oil and gas industry to any Iranian person or for use in Iran. The Regulation also prohibits the financing of any Iranian person, entity or body engaged in the exploration or production of crude oil and natural gas, the refining of fuels or the liquefaction of natural gas.
Insurance and Bonds
The Regulation prohibits the insurance or reinsurance of any Iranian body or entity. It also prohibits the insurance of natural persons acting as the representative of one of the former bodies or entities, except where the natural person is acting in a private capacity. In addition, it is forbidden to sell or purchase, either directly or indirectly, publicly issued or guaranteed bonds either to or from any Iranian person, entity or body since the date of the initial Common Foreign and Security Policy Decision, 26 July 2010.
Financial Services
The Regulation establishes a system of notifications for the transfer of funds between the European Union and Iran of a sum between €10,000 and €40,000. Transfers of more than €40,000 are subject to authorization by Member State Authorities empowered by the Regulation. The empowered Member State Authorities must be satisfied that the relevant transfer of funds will not contribute to either the Iranian oil and gas industry or to the development of weapons of mass destruction before giving authorization.
Transport
The Regulation imposes restrictions on the provision of transport services aimed at preventing the import or export of proscribed goods or technology. An obligation to supply pre-arrival and pre-departure information to Member State Customs Authorities now applies in respect of all goods transported between the European Union and Iran.
Extension to Services
Brokering services as well as financial or technical assistance are prohibited in respect of the goods and technology proscribed by the Regulation insofar as they are supplied to an Iranian body, entity or person.
Freezing of Funds
The Regulation prevents certain named individuals and legal persons from accessing financial assets by means of the freezing of funds. This latest Iran sanctions regulation comes in the wake of the recent General Court judgment in Kadi,[6] which annulled a regulation providing for sanctions in respect of individuals designated by the United Nations Security Council Sanctions Committee as being connected with the Al-Qaeda terrorist organization. The General Court’s judgment, which confirmed the reasoning of the European Court of Justice’s seminal ruling in Kadi and Al Barakaat,[7] held that the human rights safeguards for the designation of listed individuals remained inadequate. It remains to be seen whether Regulation 961/2010 will precipitate a series of challenges following the logic of the General Court Judgment in Kadi.
Member State Implementation
While pursuant to Article 288 of the Treaty on the Functioning of the European Union Regulation 961/2010 has legal effect in the legal systems of the Member States following its publication in the Official Journal on October 27, 2010, Member State legislation will, in many respects, determine the precise scope of the sanctions imposed. The nature of the derogations to the Regulation as well as penalties for its infringement are, in particular, to be laid down by the Member States. The modus operandi of the authorization and notification system for the transfer of funds will also be elaborated upon by Member State rules.
In addition, the Regulation contains a large number of qualifications and exceptions to the sanctions for which it provides, which will be clarified in time. In this respect, the extent of these most recent new sanctions against Iran will be truly defined by how they are enforced in practice by the Member States.
These sanctions are among the most comprehensive of any adopted by the European Union in implementation of a United Nations Security Council Resolution. The passage of this latest sanctions Regulation can be expected to have a significant impact on those sectors enumerated in the many trade prohibitions it contains.
[1] Council Regulation (EU) No. 961/2010 of 25 October 2010 on restrictive measures against Iran and repealing Regulation (EC), OJ L 281, 27.10.2010, p.1.
[2] Council Decision 2010/413/CFSP of 26 July 2010 concerning restrictive measures against Iran and repealing Common Position 2007/140/CFSP, OJ L 195, 27.7.2010, p.39.
If you would like more information on Regulation 961/2010 and the sanctions it brings into effect, our team at Gibson, Dunn and Crutcher LLP is ready to provide detailed advice. Please contact the Gibson Dunn attorney with whom you work, or any member of the firm’s International Trade Regulation and Compliance Practice Group or the firm’s Antitrust and Trade Regulation Practice Group for further, in-depth assistance. Any of the following lawyers in the firm’s Washington, D.C. or Brussels offices are specifically available to assist:
Judith A. Lee (202-887-3591, [email protected])
Peter Alexiadis (32-2-554-7200, [email protected])
Daniel J. Plaine (202-955-8286, [email protected])
John J. Sullivan (202-955-8565, [email protected])
Jim Slear (202-955-8578, [email protected])
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