On 8 May 2018, President Trump announced his decision to withdraw the United States from the Join Comprehensive Plan of Action (JCPOA) and to impose once again on Iran several sanctions which were lifted in January 2016 under the JCPOA.
This is a significant change of scenario to non-U.S. entities allowed to trade Iran, particularly to shipping industry.
The decision taken by U.S. administration affects chartering business, including spot fixtures, voyage charterparties and time charterparties. Other forms of shipping-related contracts, including ship sale and purchase, contracts of affreightment and brokerage agreements shall be touched. A consideration on a case-by-case basis is required, taking into account criteria recently issued by Office of Foreign Assets Control (OFAC).
U.S. administration established a 90 day and 180 day wind down period, as applicable, for activities involving Iran which were consistent with the U.S. sanctions relief provided for under the JCPOA, and in respect of which sanctions will now be re-imposed, namely the secondary sanctions which will directly impact on the ability of non-U.S. persons and entities to trade Iran.
Under the JCPOA hundreds of individuals and entities were removed from the U.S. sanctions lists (or were no longer subject to secondary sanctions). These parties will now be relisted no later than 5 November 2018.
After a 90-day wind down period which ends on 6 August 2018, sanctions will be re-imposed on:
- The purchase or acquisition of U.S. dollar banknotes by the Government of Iran;
- Iran’s trade in gold or precious metals;
- The direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes
- Significant transactions related to the purchase or sale of Iranian currency, or the maintenance of significant funds or accounts outside the territory of Iran that occurs in Iranian currency;
- The purchase, subscription to, or facilitation of the issuance of Iran sovereign debt;
- Iran’s automotive sector.
After a 180-day wind down period which ends on 4 November 2018, sanctions will be re-imposed on:
- Iran’s port operators and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line, or their affiliates;
- Petroleum related transactions, with, among others, the National Iranian Oil Company (“NIOC”), Naftiran Intertrade Company (“NICO”), and National Iranian Tanker Company (“NITC”) including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
- Transactions by foreign financial institutions with the Central Bank of Iran and other foreign financial institutions that have been designated under NDAA Section 1245;
- The provision of specialized financial messaging services to the Central Bank of Iran and other Iranian financial institutions;
- The provision of underwriting services, insurance, or reinsurance; and
- Iran’s energy sector.
The May 8 decision will have a significant impact on maritime trade with Iran and the insurance of such a trade. The re-imposed secondary sanctions target non-U.S. persons engaged in certain activities with Iran. Such entities will, depending on the type of activity, have 90 or 180 days to mitigate the effects of the re-imposed sanctions and wind down their sanctionable activities.
The International Group of P&I Clubs will continue to closely monitor developments and potetinal effects in terms of cover. Meanwhile, the American Club has recently circulated a web alert, stressing that there is no cover for unlawful voyages of for voyages where the extension of cover would violate, or pose a risk of violating, sanction prohibitions.
“Extreme caution” e “due diligence” are the most frequent suggestions.
Due to the re-imposition of secondary sanctions and 180-day wind down period affecting the shipping industry, all entities trading Iran are called to seek advice on their own potential exposure to enforcement action by OFAC as well as to consider contractual position vis-à-vis any counterparties.
As of 5 November 2018, the United States will re-impose secondary sanctions on the shipping sector. To avoid incurring negative attention from OFAC, from this date vessels should not call Iran for any business, whatever date the charterparty was entered into. Similarly, no services should be provided in support of Iran-related shipping business from 5 November 2018.
Where charters post-date 8 May 2018, it is highly likely that calls to Iran should be avoided.
Where charters pre-date 8 May 2018, vessels may be permitted to call Iran up to and including 4 November 2018, subject to consideration of certain factors, including the nature of the contract and in particular whether it is a spot fixture or a longer-term time charter, the date when instructions were received, and whether the call would otherwise be compliant with the pre-8 May 2018 U.S. sanctions position. Similar analysis would apply to other shipping-related business, such as the delivery of ships pursuant to a sale contract or the provision of services pursuant to a brokerage agreement.
In all cases, extremely careful consideration and due diligence should be given to any position, considering potential exposure to enforcement action by OFAC. Needless to stress that getting it wrong can result in regulatory risk as well as the risk of the United States imposing secondary sanctions on business.
OFAC has not clarified waht activities are allowed during the wind down periods. In any case, the US administration stated that when it considers a potential enforcement or sanctions action with regard to activities that occurred after the end of the wind down period, it will evaluate the efforts taken during the wind down period. Conversely, transactions that appear to be new business will increase businesses’ culpability.
The gray zone, considering the potetial exposure to sanctions regime, concerns the 180-day wind down period, from 8 May to 4 November 2018.
Is it allowed to continue to trade Iran and call Iranian ports within the above timeframe?
With regards to voyage charterparties entered into prior to 8 May 2018, calls to Iran should be permissible up until and including 4 November 2018, provided such calls are in compliance with the pre-8 May 2018 U.S. sanctions position. Such business is unlikely to be considered “new business”, even where the instructions to call an Iranian port, which has been chosen from a range of contractually permissible options, come after 8 May 2018.
With regards to spot fixtures agreed post 8 May 2018, these are at high risk of being considered “new business”, carrying with them all the risks as outlined above. Advice should be immediately sought as to whether the fixture can be safely carried out, and indeed where that leaves you with regards to your contractual counterparty.
The position relating to time charters is potentially more complicated. The date of the contract is only part of the puzzle. It is worth taking into account the date when instructions are received and the entire related contract. Whether, pursuant to a time charter dated prior to 8 May 2018, a vessel may continue to call Iran must be considered on a case-by-case basis. There is, clearly, a risk that such business would be considered “new business”, and leave you exposed to reputational risk and enforcement action by OFAC. And, as with voyage charters, where a time charter is dated after 8 May 2018, calls to Iran pursuant to such a contract are at significant risk of negative attention from OFAC.
Frequently Asked Questions (FAQ) recently issued by OFAC expressly refer to payments and transactions during the wind down periods.
In the event that a non-U.S, non-Iranian person is owed payment after the conclusion of the wind-down period on August 6, 2018, or November 4, 2018, as applicable, for goods or services fully provided or delivered to an Iranian counterparty prior to August 6, 2018, or November 4, 2018, as applicable, pursuant to a written contract or written agreement entered into prior to May 8, 2018, and such activities were consistent with U.S. sanctions in effect at the time of delivery or provision, the U.S. government would allow the nonU.S., non-Iranian person to receive payment for those goods or services according to the terms of the written contract or written agreement.
Similarly, if a non-U.S., non-Iranian person is owed repayment after August 6, 2018, or November 4, 2018, as applicable, for loans or credits extended to an Iranian counterparty prior to the end of the 90-day or 180day wind-down period, as applicable, provided that such loans or credits were extended pursuant to a written contract or written agreement entered into prior to May 8, 2018, and such activities were consistent with U.S. sanctions in effect at the time the loans or credits were extended, the U.S. government would allow the non-U.S., non-Iranian person to receive repayment of the related debt or obligation according to the terms of the written contract or written agreement.
Any payments would need to be consistent with U.S. sanctions, including that payments could not involve U.S. persons or the U.S. financial system, unless the transactions are exempt from regulation or authorized by OFAC.
Consistent with the conditions described above, OFAC will take steps to allow U.S. persons and U.S.-owned or -controlled foreign entities until August 6, 2018, or November 4, 2018, as applicable, to wind down operations in or business involving Iran conducted pursuant to an OFAC authorization, and to receive payments according to the terms of the written contract or written agreement entered into prior to May 8, 2018, for goods or services fully provided or delivered pursuant to an OFAC authorization
Such considerations may have significant impact on demurrage or despatch money whether one or more involved entities should be subject to the sanctions regime now re-imposed by the United States.
It will be now necessary to monitor how other parties of JCPOA (namely China, Russia, France, UK, Germany and EU) will approach the new scenario, considering that many entities belonging to such States largely invested in Iran.