Iran sanctions relaxed: Opportunities and risks

IAEA director general Yukiya Amano and Iranian Vice-President Ali Akhbar Salehi sign a roadmap for the clarification of past and present issues regarding Iran’s nuclear program in Vienna. (Photo: D.Calma/IAEA)

IAEA director general Yukiya Amano and Iranian Vice-President Ali Akhbar Salehi sign a roadmap for the clarification of past and present issues regarding Iran’s nuclear program in Vienna. (Photo: D.Calma/IAEA)

In early February, Global Affairs Minister Stéphane Dion announced that Canada had amended its economic sanctions against Iran. This implements the Liberal government’s response to the January determination by the International Atomic Energy Agency that Iran has met the requirements for sanctions relief to begin under the Joint Comprehensive Plan of Action (JCPOA).
A number of Canada’s allies, including the European Union, the United States, Australia and Japan, have already announced that they would lift economic sanctions against Iran to varying degrees. Canadian firms, especially those in the oil and gas, aerospace, mining, automotive, financial services and high-tech sectors, should be carefully assessing the emerging trade and investment opportunities in Iran to ensure full compliance with the remaining patchwork of sanctions and export control measures.
Until the February announcement, Canada maintained a broad trade embargo against Iran, including supply and sourcing bans and prohibitions against providing or acquiring financial services to, from or for the benefit of persons in Iran. These measures also included prohibitions against engaging in activities with any of the more than 600 individuals and entities that were classified as “designated persons.”
Canada has made significant revisions to the list of designated persons, now referred to as “listed persons,” who are subject to a general asset freeze and transaction ban. The number of listed individuals has been halved, from 83 to 41. The number of listed entities has been reduced from 530 to only 161.
However, there have also been additions to the list of sanctioned persons and entities. Canada has followed the course of action taken by the United States in placing restrictions on Iran’s ballistic missile program. To that end, Canada has added six individuals and one entity to its list of sanctioned persons.
The United Nations’ list of designated persons has also been significantly reduced. These changes are also reflected in Canada’s Regulations Implementing the United Nations Resolutions on Iran.

A heavy water reactor in Arak, Iran.  (Photo: Nanking2012)

A heavy water reactor in Arak, Iran. (Photo: Nanking2012)

Trade embargo liberalization
The trade embargo has been substantially liberalized. The prohibitions against making investments in Iran, restricting port services to Iranian vessels, or providing flagging or classification services to Iranian oil tankers or cargo vessels have all been completely repealed. Also repealed are the prohibitions against importing or purchasing any goods from Iran and the blanket financial services ban.
Canada has lifted the general supply ban by repealing that section and replacing it with a prohibition on supplying goods and technology, which lists 41 categories of items commonly used in nuclear, biological and chemical weapons programs, including certain centrifuges, autoclaves, fibrous or filamentary materials, gamma-ray spectrometers and specialty metals.
Canadian companies also need to review the remaining restrictions in place under Canada’s Regulations Implementing the United Nations Resolutions on Iran. These relate to activities involving nuclear proliferation, military and conventional arms programs and ballistic missile development.
Export controls
Canadian corporations must remain vigilant regarding the need to obtain appropriate export permits under the Export and Import Permits Act for any goods or technology listed on Canada’s Export Control List (ECL). Even though trade with Iran is now possible, the Canada Border Services Agency will likely continue to scrutinize exports to Iran to ensure compliance with economic sanctions and export controls.
For exports or transfers of ECL-controlled items to Iran, the government has issued a notice to exporters (No. 196.) This notice clarifies the policy of the Export Controls Division that, while all permits for transfers of controlled items to Iran will be considered, those for certain sensitive items will likely be denied. The denial list includes items from each ECL Group. This includes certain dual-use items, all items on the munitions list, the nuclear non-proliferation list and nuclear-related dual-use list. Missile technology is also on the denial list, other than certain specifically enumerated components.
Although the government’s notice makes no mention of U.S.-origin items, it is important to note that all goods or technology of U.S. origin, regardless of sensitivity, to be exported or transferred to Iran require a permit from the Export Controls Division. Any proposed transfer to Iran of such items should be carefully reviewed by Canadian companies prior to transfer to determine whether a permit is necessary.

EU sanctions eased
The EU has relaxed its prohibitions on a wide variety of transactions with Iran, including those with the Iranian oil and gas sector, provision of engineering and maintenance services to cargo aircraft, supply services to Iranian vessels and related services. The EU has also lifted restrictions on certain financial services, including prohibitions on trading in Iranian government bonds and prohibiting insurance and re-insurance in Iran or to Iranian persons.
However, certain EU prohibitions, while they have technically been removed, have been replaced with a prior authorization and licensing scheme. Such authorizations would be in the hands of the individual member states of the EU, some of which may be more forthcoming than others. In particular, dealings in dual-use equipment — equipment having both military and civilian uses — precious metals, diamonds and graphite have been targeted as needing prior authorization.
U.S. embargo remains largely intact
U.S. sanctions relief has been mostly confined to “secondary sanctions,” namely sanctions placed on non-U.S. persons. The U.S. embargo remains in effect and it is still illegal to clear transactions involving Iranian persons or entities through U.S. financial institutions. The embargo will be subject to new exceptions for carpets, foodstuffs and aircraft parts and maintenance.
The United States has also issued a licence that authorizes certain transactions with Iran by U.S.-owned foreign affiliates and subsidiaries that are otherwise prohibited for U.S. persons under the continuing embargo. Certain transactions continue to be forbidden for U.S.-owned foreign affiliates, including the export or re-export of U.S. goods and services, transferring funds through, to, or from the U.S. financial system, engaging in transactions with individuals on the list of specially designated nationals (SDN) or foreign sanctions evaders list, engaging in transactions with any military, paramilitary, intelligence or law enforcement officials or agents of Iran, or activity proscribed under certain elements of the U.S. sanctions regime.
In either case, neither the U.S. nor the EU has completely removed Iranian entities or individuals from their respective blacklists of designated nationals. In particular, the U.S. recently added additional Iranians to the U.S. Office of Foreign Asset Control’s SDN list in response to an Iranian ballistic missile test. Others remaining under sanction include entities and individuals with close ties to the IRGC and the Quds Force, in particular.

The path ahead
Canadian companies considering business opportunities in Iran should review and consider the remaining patchwork of potentially applicable trade control measures, including:

• determining whether the proposed transactions involve any goods, services and technology prohibited under the special economic measures (Iran) regulations or listed on Canada’s ECL (including all U.S.-origin goods and technology);
• determining whether the activities involve any entities or individuals blacklisted under Canada’s autonomous or UN-based sanctions measures; and
• assessing whether the opportunities involve any connections with the U.S. or EU, such that their sanctions might apply, including the involvement of goods, services or technology from those jurisdictions or U.S. or EU nationals.
With international economic sanctions falling away, Iran’s re-entry into the world economy presents significant opportunities for Canadian businesses across the range of sectors listed above. For example, Dion said in January that Bombardier would be allowed to do business with Iran in order to compete with Airbus, a European company. Numerous sources, including officials in the Italian government, have indicated that Airbus is already engaged in negotiations to sell more than 100 planes to Iranian airlines following sanctions relief.
Those firms that understand and mitigate the risks that arise from economic sanctions measures that remain in place will have a competitive advantage in pursuing these trade and investment opportunities.

This piece is reprinted with permission. John W. Boscariol is a partner and Robert A. Glasgow is an associate in the International Trade and Investment Law Group at McCarthy Tétrault’s Toronto office.

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John W. Boscariol is a partner and Robert A. Glasgow is an associate in the International Trade and Investment Law Group at McCarthy Tétrault’s Toronto office.

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