Iranian Sanctions Compliance Strategies Meeting Strict and Rapidly - - PowerPoint PPT Presentation

Iranian Sanctions Compliance Strategies

Meeting Strict and Rapidly Changing U.S. and EU Sanctions Requirements Today’s faculty features:

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THURSDAY, DECEMBER 20, 2012

Presenting a live 90-minute webinar with interactive Q&A

Thaddeus R. McBride, Partner, Sheppard Mullin Richter & Hampton, Washington, D.C. Mario Mancuso, Partner, Fried Frank Harris Shriver & Jacobson, Washington, D.C. Philip Triggs, AML and Sanctions Policy Manager, UK Retail and Business Banking Compliance, Barclays, London, England

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Iranian Sanctions Compliance Strategies

Strafford Publications December 20, 2012

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Agenda

• Introduction
• Overview of current sanctions
• US perspective
• EU/UK perspective
• Compliance pitfalls and guidance
• Questions / Discussion

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Overview

• Understanding sanctions
• Dynamic regulatory scheme
• Vigorous enforcement
• Protect national security
• Increasingly international

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US Policy Observations

• US efforts to squeeze Iran both unilaterally and

internationally

• Iran Threat Reduction and Syria Human Rights Act
• National Defense Authorization Act
• UN Security Council action
• Other steps

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US Policy (cont’d)

• Obama Administration

– Public opposition to proposed NDAA sanctions provisions as curtailment on Executive discretion to conduct foreign policy in careful, calibrated manner – Yet hails current arsenal of US sanctions for efficacy – Rumored Obama nominees for top positions differ on sanctions

• Sen. John Kerry for US Sec. of State (record of voting for

sanctions)

• Former Sen. Chuck Hagel for US Sec. of Defense (record of

voting against sanctions)

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US Policy (cont’d)

• Congress

– NDAA sanctions advocates (Sen. Menendez (D-NJ);

• Sen. Kirk (R-IL); and Sen. Lieberman (I-CT)) represent

broad bipartisan effort to build on momentum of existing extraterritorial sanctions bill passed unanimously in Senate (after heel-dragging from Sen. Rand Paul) – One of the most vocal critics to sanctions is Rep. Dennis Kucinich – Appear resolved to reduce Presidential flexibility to ensure sanctions have teeth

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US Policy (cont’d)

• EU and Other Stakeholders

– EU concern over impact of inflexible US extraterritorial measures

• n European companies with legacy business interests in Iran

– EU sanctions continue to expand but remain targeted and direct, as opposed to extraterritorial in nature

• Return to Bargaining Table?

– Press accounts of proposed talks (as early as next week but more likely after the New Year) between Iran and P5+1 (USA, France, UK, China, Russia, and Germany) – Nuclear concessions for sanctions easing measures may be on table – Effect of Congressional skepticism and impatience unclear

EU Policy Observations

• EU has gradually introduced comprehensive

restrictive measures since 2007

– Response to ‘deep and increasing concerns’ about Iran's proliferation-sensitive nuclear activities

• Original approach taken by Member States

– Absent evidence of proliferation, doing business with Iran and its state institutions (e.g., NOCs and banks) was acceptable

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EU Policy (cont’d)

• Approach has changed since 2008:

– Broader unilateral sanctions disrupting direct trade (e.g., oil, gas, fund transfers, SWIFT) – Human rights concerns – Greater co-ordination with US

• There are difficulties:

– Some Members have had more to lose

• Exports in 2011 (compared to 2005): Germany €3.0bn (-

29.2%), Italy € 1.86bn (-17.3%), France € 1.65bn (-17.4%), UK € 0.2bn (-68.2%) – Data sharing – Patchy implementation – US measures

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UK Political Landscape

• With France and Germany, the UK has taken a

leading roll in sponsoring UNSCRs demanding that Iran suspend uranium enrichment and imposing sanctions for Iran’s failure to comply

• Relations have deteriorated:

– March 2007 hostage crisis – Diplomatic tension following 2009 presidential elections – 2011 termination of diplomatic ties

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UK Landscape (cont’d)

• UK Government currently ‘does not encourage trade with,
• r investment in Iran. We also do not offer any commercial

services for companies wanting to do business with Iran. We do not give financial support for trade promotion activities and we do not organise trade missions.’

• UK has always had less to lose – only UK EUR 0.67bn

exports to Iran in 2005

• But:

– BP’s pre-zero exposure is an issue – As with the EU, the ITRSHRA poses problems – Standard Chartered as case study of US bellicosity against City of London?

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US Sanctions Overview

• Administered by U.S. Treasury Department,

Office of Foreign Assets Control (OFAC)

• Approximately 25 different U.S. sanctions

programs at present

• Some comprehensive, e.g., Cuba, Iran, and

some selective, e.g., Burma, Zimbabwe

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Iran Sanctions Jurisdiction - US

• Apply to actions by U.S. persons and persons

subject to U.S. jurisdiction, as follows:

– All U.S. citizens and residents, wherever located – All U.S.-organized or incorporated companies or entities – All persons in United States, regardless of nationality – Entities owned/controlled by U.S. person (ITRSHRA)

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Jurisdiction (cont’d)

• Under recent statutory amendment (IEEPA

Enhancement Act), any person who “causes” a violation can be subject to liability

• Lloyds - $350 million (2009)
• Credit Suisse - $536 million (2009)
• Standard Chartered - $327 million (2012)

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Export of Services

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• Prohibition on direct and indirect provision of

services to sanctions targets

• Providing service anywhere may be prohibited if

benefit of service is received by sanctioned party

• r in sanctioned country

– Example: Cannot give consulting or marketing advice to a non-U.S. company related to its business in Iran

Facilitation

• Facilitation is specifically prohibited
• U.S. persons are prohibited from facilitating

action that would be prohibited if performed by U.S. person

• Broadly defined – covers virtually any assistance

to a prohibited transaction

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Facilitation (cont’d)

• Specific prohibitions from regulations
• Changing policies or procedures to allow foreign entity to

conduct transaction prohibited to the U.S. person

• Referring prohibited business deals to a foreign person
• Financing / insuring a foreign subsidiary’s trade with

sanctioned country

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Jurisdiction: Examples

• European subsidiary of U.S. manufacturer
• Chinese national executive while in United States
• Iranian national graduate student doing work

beyond scope of visa

• Brazilian bank that transfers Iranian entity’s money

through New York

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EU Sanctions

• Significant asset freezes against designated persons

including:

• Iranian banks including Markazi
• IRISL
• Key energy companies and their subsidiaries
• Export and Import Restrictions (sale, supply, transfer
• r export of goods or technology):
• Dual use
• Nuclear
• Military
• Exploration / production of crude oil and natural gas
• Refining
• Liquefaction of natural gas
• Crude oil, petroleum products, petrochemical products
• Gold, precious metals, diamonds (to / from Government of Iran)

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EU Sanctions (cont’d)

• Financial restrictions:
• Brokering, financing, financial assistance, insurance,

investments

• Prohibition on supply of specialised financial messaging

services used to exchange financial data (SWIFT)

• Financial institutions are prohibited from:
• Opening a new account with an Iranian bank or a new

correspondent relationship

• Opening new representative office, branch or subsidiary in Iran
• Establish a new joint venture

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EU Sanctions (cont’d)

• Transport restrictions:
• Unloading / loading IRISL vessels
• Bunkering, supply or servicing of Iranian owned vessel

where there is suspicion

• Engineering and maintenance of Iranian owned aircraft

where there is suspicion

• Authorisation / notification of fund transfers
• Introduced to ensure compliance with restrictions
• Cause of significant delays (4 weeks)
• This is a strict liability regime

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EU Sanctions (cont’d)

• Future prohibitions
• Purchase, import or transport from Iran of natural

gas

• Construction of oil tankers and cargo vessels
• Additional nuclear equipment (including graphite,

raw or semi-finished metals such as aluminium and steel, and software for integrating industrial processes)

• Supply of vessels designed for the storage or

transport of oil and petrochemical products

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EU Sanctions (cont’d)

• Who must comply with EU sanctions?
• Any person within the territory of the Union, including its

airspace

• Any person inside or outside the territory of the Union who is a

national of a Member State

• Any legal person, entity or body, inside or outside the territory
• f the Union, which is incorporated or constituted under the

law of a Member State

• Any legal person, entity or body in respect of any business

done in whole or in part within the Union

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UK Sanctions

• UK sanctions mirror those imposed by EU except for one major

addition

• On 21 November 2011, a new Direction under the Counter-

Terrorism Act 2008, the Financial Restrictions (Iran) Order 2011 came into force

• Direction requires all UK credit and financial institutions and their

branches, wherever located, to cease transactions and business relationships with all Iranian banks including subsidiaries and branches of Iranian banks wherever located

• The Direction effectively cut off the Iranian financial sector from the

UK financial sector

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UK Sanctions (cont’d)

• The EU has decided to introduce a similar prohibition
• 15 October 2012, EU Foreign Affairs Council action:
• Action “prohibiting transactions with Iranian banks

and financial institutions unless specifically authorised or exempt (for example, for humanitarian purposes) and increasing government scrutiny of financial transactions with Iranian banks”

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Compliance Challenges

• US Persons/Companies

– Already subject to comprehensive prohibitions against doing business with Iran – Must now comply with expanded ITRSHRA jurisdiction over

• wned/controlled non-US subsidiaries

– Publicly traded companies must disclose in required public filings to SEC potentially prohibited/sanctionable activities involving Iran

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Challenges (cont’d)

• Non-US/Multinational Companies

– Face US extraterritorial sanctions for a complex and potentially expanding range of activities related to legacy/continued business with Iran

• Energy sector most significantly impacted, but new and

proposed measures have wider impact – Publicly traded companies must disclose in required public filings to SEC potentially prohibited/sanctionable activities involving Iran – Doing business with Iran carries more risks than ever under US law

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Challenges (cont’d)

• Universal Compliance Challenges

– Facilitation by US persons of non-US activities involving Iran a perennial risk – Screening/due diligence of counterparties to identify and properly address ongoing and emerging Iran sanctions risks – Understanding and reacting properly to increasingly complex and

• verlapping legislation, executive orders, and regulations requires

expert guidance and strong internal controls – Publicly traded companies subject to SEC reporting requirements must ensure that sanctions compliance and SEC disclosure functions properly converge

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Specific Challenges

• Actions of your non-US subsidiary?
• Conduct of US Board Member of a non-US

company?

• Shipments to Dubai?
• Can you get an OFAC license if you need one?

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Compliance Strategies

• Risk Assessment
• Where are you exposed to Iran sanctions risks?
• What types of risks exist?
• What do indicia of exposure look like?
• Is a new assessment needed based on ITRSHRA?

What about based on EU/UK sanctions?

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Strategies (cont’d)

• Policies and Procedures
• Modify them to account for new jurisdictional reach,

EU/UK considerations

• Training for different / more employees
• Ensure compliance personnel understand new

restrictions

• Develop procedures that can be revised quickly as

changes arise

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Strategies (cont’d)

• Monitoring and Screening
• Alter screening mechanisms, new screening scoring as

needed

• Diligence on partners:
• Connection to Iranian Revolutionary Guard Corps?
• Does distributor predominantly supply Iran / other sanctioned

countries?

• Is prospective agent a dual national?
• Does partner have office / operations in Iran?

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Compliance Strategies (cont’d)

• Regulatory obligations / considerations

– Seek license to conduct transactions with Iran? – Report to regulator on possible violations? – New reporting obligations to SEC? – Seek meeting with government regarding actions to comply with law, especially ITRSHRA?

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Thank you

Thad McBride Sheppard Mullin Tel: +1 202.253-2518 tmcbride@sheppardmullin.com Mario Mancuso Fried Frank Tel: +1.202.639-7055 Mario.Mancuso@friedfrank.com Phil Triggs Barclays Tel: + 44 (0)207 116 3859 philip.triggs@barclays.com

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