Sanctions Round-Up: First Quarter 2014

Author:Mr Philip Urofsky, Danforth Newcomb, Stephen Fishbein, Richard J.B. Price, Brian Burke, Christopher L. LaVigne and Barnabas W.B. Reynolds
Profession:Shearman & Sterling LLP

The first quarter of 2014 opened with a continued focus on Iran, as US authorities somewhat contradictorily took steps both to ease certain Iranian sanctions, as agreed under the Joint Plan of Action, and to target a number of additional Iranian persons under existing sanctions. The quarter then drew to a close with a flurry of US and EU sanctions activity targeting Russian and Ukrainian persons - and the looming possibility of broader sanctions to follow. US authorities otherwise continued to issue narcotics and terrorism-related sanctions, while the EU amended a handful of country-specific sanctions, including a suspension of the majority of sanctions targeting Zimbabwe.

Included in this quarter's update are reports on:

Implementation of the Joint Plan of Action with Iran Additional US Iran-Related Sanctions and Licenses OFAC Civil Settlements US and EU Sanctions in Response to the Situation in Ukraine US Drug- and Terror-Related Sanctions Suspension and Amendment of Certain EU Sanctions US and EU Implement Temporary Sanctions Relief under Joint Plan of Action

On January 20, following verification by the International Atomic Energy Agency that Iran had undertaken its initial commitments under the interim Joint Plan of Action, the United States and the European Union took steps to provide Iran with limited and targeted sanctions relief for an initial six-month period. In accordance with the agreement announced in November 2013, Iran has, at least for now, suspended enrichment of its most advanced uranium fuel along with other sensitive elements of its nuclear program. In return, the United States has paused its efforts to further reduce Iranian crude oil exports and will allow the six current customers of Iranian oil to maintain their purchases at current reduced levels for the duration of the six-month period. Secondary sanctions on non-US persons engaged in transactions related to Iran's petrochemical exports, certain trade in gold and precious metals, and the provision of goods and services to Iran's automotive sector have been suspended.1 The US will also grant licenses for transactions involving goods and services related to the safety in the Iranian aviation sector. OFAC has published guidance on the specific sanctions relief granted under the JPA, including answers to frequently asked questions and a statement of licensing policy on activities related to Iran's civil aviation industry. Notably, OFAC has emphasized that it will continue to fully enforce all sanctions that have not been explicitly suspended, and US persons and their foreign subsidiaries remain prohibited from carrying out transactions with Iran.

On March 12, President Obama published notice stating that the national emergency with respect to Iran that was declared on March 15, 1995, is to continue in effect beyond March 15, 2014. Obama noted that despite the recent progress marked by the Joint Plan of Action, the ongoing actions and policies of the Government Iran warranted continuation of the national emergency and corresponding sanctions. Absent such notice, the national emergency and corresponding sanctions against Iran were set to expire within 90 days.

Meanwhile, the European Union has suspended its ban on reinsuring tankers hauling Iranian oil to those countries that continue to purchase crude oil from Iran - a step that affects the vast majority of the world's tankers, as 90 percent of all merchant vessels are covered by members of the London-based International Group of P&I Clubs. The EU bans on transactions for the acquisition of petrochemicals and gold and precious metals from Iran have also been suspended, and restrictions on money transfers have been relaxed. Transfers for humanitarian purposes will now be allowed up to €1,000,000 without authorization, and personal remittances will be allowed up to €400,000, a tenfold increase from prior levels; however, these transactions may not involve specific identified Iranian banks that remain subject to EU sanctions. Iran will also be granted access, in installments, to $4.2 billion of $100 billion in funds currently held in blocked accounts overseas;

Iran received the first $550 million installment on February 1, and an additional two payments in March totaling $1 billion. Future payments will be contingent on Iran diluting its stockpile of 20 percent enriched uranium to no more than 5 percent enriched uranium.

Those interested in more background on the interim Joint Plan of Action may wish to review "Opportunities and Pitfalls of Proposed Easing of Iran Sanctions", published December 5, 2013.

US Targets Additional Iranian Persons under Existing Sanctions Authorities

On February 6, OFAC designated a number of entities and individuals located around the world for evading US sanctions targeting Iran, aiding Iranian nuclear and missile proliferation, and supporting terrorism. Pursuant to E.O. 13608, "Prohibiting Certain Transactions With and Suspending Entry into the United States of Foreign Sanctions Evaders with Respect to Iran and Syria," OFAC sanctioned Georgia-based Pourya Nayebi, Houshang Hosseinpour, and Houshang Farsoudeh along with eight companies owned or controlled by these individuals. OFAC alleged that these three individuals have used companies and financial institutions in multiple countries to facilitate deceptive transactions for or on behalf of persons subject to US sanctions targeting Iran. For instance, in 2011, these individuals acquired a majority stake in a Georgian bank with direct correspondent ties to other international financial institutions through a Liechtenstein-based foundation under their control. The Georgian bank was then used to facilitate transactions worth the equivalent of tens of millions of US dollars for multiple designated Iranian banks. The eight sanctioned companies owned or controlled by these three individuals, together or individually, include Caucasus Energy (Georgia), Orchidea Gulf Trading (UAE and/or Turkey), Georgian Business Development (Georgia and/or UAE), Great Business Deals (Georgia and/or UAE), KSN Foundation (Liechtenstein), New York General Trading (UAE), New York Money Exchange (UAE and/or Georgia), and European Oil Traders (Switzerland).

In conjunction with these new designations, OFAC introduced the Foreign Sanctions Evaders List to identify foreign persons who have been sanctioned under E.O. 13608 since it was issued in May 2012. US persons are generally prohibited from all transactions or dealings, whether direct or indirect, involving persons identified on the FSE List. While E.O. 13608 does not require the blocking of property or interests in property, persons sanctioned under E.O. 13608 may also be subject to other sanctions; such persons will have additional program tags...

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