Following our article in July 2016 which examined encouraging developments for UK and foreign businesses seeking to explore business opportunities in Iran we now consider the Iranian market in the wake of the election of Donald Trump as US President Elect, together with further recent sanctions guidance issued by the US Treasury Department's Office of Foreign Assets Control (OFAC).
Trump's Stance on Iran
Much was made during the US election campaign and subsequently of President Elect Trump's perceived stance on the Iran Nuclear Deal. Particular focus has been placed on Trump's claim that the Joint Comprehensive Plan of Action ("the JCPOA") was "one of the worst deals ever made by any country in history" and a "disastrous deal" that he would rip up. In reality, Trump's stance on the JCPOA appears to be far more nuanced.
Indeed, in the same speech in which he claimed that he would rip up the deal, Trump went on to say that he would enforce the deal "to hold Iran totally accountable". The focus may well land on enforcing Iran's commitments under the JCPOA rather than dismantling the deal.
Even if Trump attempted to "rip up" the deal that is easier said than done. His attempt will be fraught with difficulty. The JCPOA is not a bilateral agreement but a multilateral agreement also signed by China, France, Germany, Russia and the UK and approved by the UN Security Council. All countries are obliged to comply with the agreement. Any unilateral US withdrawal from the deal could have a limited impact, not least due to opposition from the other signatories who all value and welcome the deal and would likely continue to build relations with Iran in the event of US withdrawal. This is reinforced by the recent press release issued by the EU which reiterates its commitment to the JCPOA and welcomes the implementation of the deal by all sides.
It is anticipated that pragmatism will win over. In the past Trump has indicated that he is not fond of sanctions given the restrictions they impose on American contractors in embracing economic opportunities. Given his business background and his focus on putting America first President Elect Trump may well come to realise the importance of keeping the nuclear deal intact. Preserving the deal gives the potential for American companies to gain access to Iran's markets in future. Further, there are key security implications. The current CIA director John Brennan has warned that it would be "the height of folly" to tear up the JCPOA and that abandoning the deal would make nuclear proliferation in the Middle East more likely. At the very least, it is likely that Iran would resume and accelerate its nuclear program if the US failed to abide by the terms of the deal. Further, Trump has repeatedly stated he will seek a better working relationship with Russian President Vladimir Putin, including working with Russia to combat Islamic State. Abandoning the JCPOA would put Trump in direct conflict with President Putin, an ally of Iran.
Trump's election has yet to deter companies currently seeking to engage in business with Iran, even US connected companies. Since Trump's election major deals have been announced including an agreement awarded to DNO, a Norwegian oil and gas operator to study oil fields in Iran. Likewise, Schlumberger, the world's largest oilfield services company has signed a memorandum of understanding with the National Iranian Oil Company to study Iranian oil fields. On the day of the US election, Total SA, a French Oil and Gas company announced a deal with Iran connected to the development of the world's largest gas field. Total SA has since stated "we have always said that we are interested in returning to Iran…the election that took place in the United States does not change anything."
The opportunities for business in Iran remain clear and especially so for companies in the energy sector.
Further reassuring guidance from OFAC
OFAC has issued further guidance this Autumn to clarify its position on banking practices related to Iran and on activities by US-owned or controlled foreign companies pursuant to General Licence H (see our articles in February and July 2016 for further discussion of General Licence H). The updated guidance sets out the following key points:
- OFAC has reiterated its position that non-US financial institutions may process transactions denominated in US dollars or maintain US dollar denominated accounts involving Iran, provided that such transactions or accounts do not involve the US financial system, any US person or any person on OFAC's Specially Designated Nationals List ("SDN List"). In reality foreign companies will find it easier to transact with Iran in currencies other than US dollars. This is because non-US financial institutions are still prohibited from clearing US dollar transactions through the US financial system unless such transfers are authorised by OFAC, and most US Dollar transactions will necessarily touch the US financial system.
- Clarification is given that General Licence H authorises a US person to change the operating policies and procedures of a US entity or its owned or controlled foreign entity on multiple occasions in order to enable the foreign entity to engage in transactions with Iran, provided that the changes are not to facilitate any particular transaction involving Iran.
- OFAC previously underlined the need for non-US persons to carry out due diligence to ensure they are not knowingly engaging with a person on the SDN list. Queries were raised as to the scope of due diligence required and whether it was enough to establish that the counterparty to the transaction was not on the SDN list or whether it was necessary to ensure that the counterparty was not ultimately owned by a person on the SDN list. Whilst it is not necessarily sanctionable for non-US persons to engage in transactions with entities that are minority owned or controlled by a person on the SDN list, OFAC now recommends exercising caution to ensure that such transactions do not involve persons on the SDN list.
- For non-US persons conducting due diligence, screening the names of Iranian counterparties against the SDN list is expected but not necessarily sufficient. However, non-US financial institutions are not generally required to conduct due diligence on their customers' Iranian customers, unless there is reason to believe that the customers' due diligence was inadequate. Additional due diligence should be based on best practices in the relevant industry.
Whilst the world waits to see the policies that will actually be pursued by President Elect Trump, past rhetoric should not deter UK and foreign companies from continuing to seek out business opportunities in Iran. With extensive experience of acting for Middle Eastern clients and with offices in the UK, across Europe and in the US and China we are uniquely placed to assist those interested in forging links with Iran. If you would like to discuss any aspect of the Iranian sanctions or are exploring business opportunities in Iran, please do not hesitate to contact us.
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