Friday, June 25, 2010

Iran sanctions - a perspective

Over the past few weeks I have started to become more and more familiar with a topic that has started to receive quite a lot of attention recently: the Iranian sanctions.

Living in the United Arab Emirates makes this topic a hot one. The UAE is in fact a key trade partner of Iran and the relationship between the two countries go well beyond trading since much of the local population in the country is of Persian descent. It makes matter politically more complicated since the two countries are great trading partners but they share a territorial dispute over a group of island located in the Gulf. Now even the way the Gulf is called is cause of controversy since one side calls it the Arabian Gulf and the other call it the Persian Gulf.

I will not pass a judgement on the value of the sanctions per se but I would rather focus my attention on the practical matter behind them.
I have had several conversations with business men in the west that I am afraid have develop knowledge about the sanctions from the media (CNN, Sky News, BBC, etc) and that is cause of concern as sometimes the necessity to create bold news goes beyond its substance.

I recommend all the people interested to download and read the latest sanctions (June 9, 2010 - Resolution 1929) at the following link:

Contrary to what many people think: the sanctions don't preclude commerce of trade with Iran. They regulate trade of specific items listed in the various UN resolutions started with the one of 2006.
My statement doesn't want to minimize the importance and implications of the sanctions but rather put them under the right perspectives.

Other countries or other specific supernational bodies establish unilateral sanctions beyond the one passed by the UN resolutions: specifically, the United States, United Kingdom and the European Union. 
These set of regulations tend to establish more restrictive guidelines than the one established by the UN.
Companies take it upon themselves to develop the range of their action in line with the sanctions. 
It goes without saying that certain companies or financial institutions have taken it upon themselves to go beyond the sanctions and stopped providing services to Iranian companies and/or Iranian nationals.

More specifically with regards to the existing UN sanctions:
  • The Resolution expands existing sanctions on Iran by:
  • identifying additional persons (individuals and entities) subject to an asset freeze; 
  • identifying additional persons subject to a travel ban; 
  • banning the provision of financial services (including insurance and reinsurance) to Iran in certain cases;
  • banning the sale or transfer of specified equipment and related services and technical data; 
  • calling for inspections of cargo to and from Iran where there is a reason to believe the cargo contains prohibited material; 
  • banning bunkering services to vessels owned by or contracted to, Iranian persons, where the vessels are transporting prohibited cargo; and 
  • prohibiting Iran from acquiring any commercial interest in uranium “mining, production or use of nuclear materials” and specified technology.
To monitor UN members’ compliance with this Resolution, the Security Council has also established a panel of up to eight experts. The panel will collect and review reports, due by August 8, from members detailing how they have implemented their obligations under UNSCR 1929.
Meanwhile, the European Union is considering further tightening sanctions against Iran, and the U.S. Congress continues to negotiate with the Obama administration about the scope of additional sanctions against third- country companies in the Iran Sanctions, Accountability and Divestment bill, currently in a House-Senate conference committee.

Asset Freeze
UNSCR 1929 calls on States to freeze the funds, financial assets and economic resources of:
  • Persons designated in Annex I (see below) to the Resolution because of their involvement in Iran’s nuclear or ballistic missile activities;
  • The Islamic Revolutionary Guard Corps; 
  • Persons acting for, or at the direction of, persons identified in Annex I (see below) to the Resolution or the Islamic Revolutionary Guard Corps; 
  • Any persons the Council identifies as having assisted designated persons in evading or violating Resolutions 1737 (2006), 1747 (2007), 1803 (2008) or 1929 (2010); and First East Export Bank, P.L.C., (designated a subsidiary of Bank Mellat) Irano Hind Shipping Company, IRISL Benelux NV and South Shipping Line Iran (SSL) (designated subsidiaries of IRISL).

Travel Ban
UNSCR 1929 also imposes a travel ban on persons identified in Annexes I and II (see below) of the Resolution and in Resolutions 1737 (2006), 1747 (2007) and 1803 (2008), given concern over participation by these persons in Iran’s nuclear or ballistic missile programs.

Financial Services Ban
UNSCR 1929 restricts Iran’s use of the international financial system to fund proliferation and nuclear activities. Specifically, it calls upon States to:
  • Prevent the provision of financial services (including insurance or re-insurance) or the transfer to, through, or from their territory, or to or by their nationals or entities organized under their laws (including branches abroad) of any financial or other assets or resources, including by freezing any financial or other assets or resources in their territories or that come within their territories;
  • Prohibit Iranian banks from establishing new joint ventures, taking an ownership interest in or establishing or maintaining correspondent relationships with banks in their jurisdiction; and
  • Prohibit financial institutions within their territories from opening representative offices or subsidiaries or banking accounts in Iran.
  • All these prohibitions, however, are conditioned upon reasonable grounds for believing that the targeted activity could contribute to Iran’s proliferation-sensitive nuclear activities.

Export ban: equipment and related services and technical data

As an expansion of the export ban established in Resolution 1737 (2006) (which called on States to prevent the supply, sale or transfer to Iran of goods and technology that would contribute to enrichment-related, reprocessing or heavy water-related activities and the development of nuclear weapon delivery systems) the new Resolution calls on Member States to prevent:
  • The sale or transfer to Iran of battle tanks, armored combat vehicles, large caliber artillery systems, combat aircraft, attack helicopters, warships, missiles or missile systems;
  • The sale or transfer to Iran of material related to the above, including spare parts; 
  • The transfer to Iran of technical training, financial resources or services, advice, other services or assistance related to the supply, sale, transfer, provision, manufacture, maintenance or use of such arms or related materiel; and 
  • The transfer to Iran of technology or technical assistance related to ballistic missiles capable of delivering nuclear weapons.
Inspections of Cargo

To enforce the export restrictions listed above, UNSCR 1929 calls for the inspection of cargo to and from Iran where States have information that provides reasonable grounds to believe the cargo contains items prohibited by Resolutions 1737, 1747 or 1803.Such items include those which relate to Iran’s enrichment-related reprocessing or heavy water-related activities, and the development of nuclear weapon delivery systems, arms and related material, or nuclear related dual-use material.
The Resolution also authorizes States to seize and dispose of prohibited cargo identified during authorized inspections.

To further enforce the export ban, UNSCR 1929 calls on States to prohibit the provision of bunkering services by their nationals or from their territory, including the provision of fuel or supplies, or other servicing of vessels, to Iranian-owned or Iranian–contracted vessels, including chartered vessels, where there is reason to believe that the cargo is prohibited by specified sections of Resolutions 1737, 1747 or 1803.

Interests in Uranium Mining or Production or Use of Nuclear Materials
UNSCR 1929 also calls on States to prohibit any Iranian investment (Iranian investment includes investment by Iran, Iranian nationals, entities incorporated in Iran or subject to its jurisdiction, persons or entities acting on their behalf or at their direction, or entities owned or controlled by any of the above) within their jurisdictions relating to uranium mining, production or use of nuclear materials and technology, including uranium-enrichment and reprocessing activities, all heavy-water activities or technology related to ballistic missiles capable of delivering nuclear weapons.

Annex I to UNSCR 1929 - Individuals and entities involved in nuclear or ballistic missile activities
Amin Industrial Complex
Armament Industries Group
Defense Technology and Science Research Center
Doostan International Company
Farasakht Industries
First East Export Bank
P.L.C Kaveh Cutting Tools Company
M. Babaie Industries
Malek Ashtar University
Ministry of Defense Logistics Export
Mizan Machinery Manufacturing
Modern Industries Technique Company
Nuclear Research Center for Agriculture and Medicine
Pejman Industrial Services Corporation 
Sabalan Company
Sahand Aluminum Parts Industrial Company (SAPICO)
Shahid Karrazi Industries
Shahid Satarri Industries
Shahid Sayyade Shirazi Industries
Special Industries Group
Tiz Pars
Yazd Metallurgy Industries
Javad Rahiqi

Annex II to UNSCR 1929 - Entities owned, controlled, or acting on behalf of the Islamic Revolutionary Guard Corps

Fater (or Faater) Institute
Gharagahe Sazandegi Ghaem 
Ghorb Karbala
Ghorb Nooh
Hara Company
Imensazan Consultant Engineers Institute
Khatam al-Anbiya Construction


Omran Sahel

Oriental Oil Kish

Rah Sahel

Rahab Engineering Institute

Sahel Consultant Engineers


Sepasad Engineering Company

Further US sanctions

Despite the passage of additional UN sanctions, the U.S. Congress appears committed to passing additional Iran- related sanctions legislation later this month. The Obama administration continues to negotiate with the House- Senate conference committee on the pending bill to amend the Iran Sanctions Act.

The legislation under consideration may:

  • Require sanctions on any entity worldwide that provides Iran with refined petroleum resources or engages in an activity that could contribute to Iran's ability to import such resources.

  • Require sanctions on entities worldwide that invest more than a specified amount of money in businesses involved in Iran's petroleum industry.

  • Prohibit efforts to expand or improve Iran's oil production or refinery capacity and any related shipments.

If enacted, certain provisions will be extra territorial in their potential impact. It could catch a London based trader, shipowner, ship broker, financial institution, P & I Club or other insurer/reinsurer. The targeting of ships and related services may also cover ship managers, class societies, ship registries, bunker suppliers and chandlers.

As such, any company or individual worldwide found to have violated these provisions would be unable to lawfully conduct foreign exchange, banking or property transactions with any person required to comply with U.S. law – effectively ending that person’s ability to do business in U.S. dollars.

The European Union
The European Union will discuss imposing sanctions going beyond Resolution 1929 at meetings scheduled to take place earlier this week in Luxembourg and on June 17-18 in Brussels. No binding EU action is expected before July.

Summary of sanctions for Resolution 1929 kindly provided by Nigel Kushner.

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