By Ravi P. Jawani

We have been closely monitoring the tough sanctions proposed to be levied on dealing with Iran and/or Iranian entities.

US Executive Order EO13382, which came into effect from 10 September 2008 states that a number of Iranian shipping companies, including the Islamic Republic of Iran Shipping Lines (“IRISL”) and a number of its subsidiary and affiliated companies, turned into a Specially Designated National (SDN). US persons and companies, and persons and companies located in the US are prohibited from dealing with SDNs, which would include the provision of insurance services to them. All property of the SDN in the US is blocked. Similarly, The UK Financial Restrictions (Iran) Order 2009, which came into effect on 12 October 2009, prohibited the provision of insurance cover to IRISL owned/controlled/operated vessels.

In the United States, The Comprehensive Iran Sanctions, Accountability and Divestment Act (S.2799), was recently passed by the Senate and is expected to be voted on in the House of Representatives. A companion Bill, Iran Refined Petroleum Sanctions Act (H.R.2194) (‘IRPSA’), was passed in the House of Representatives in December 2009, and has just recently been referred to the Senate Committee on Banking, Housing and Urban Affairs. 

Each of these bills would sanction individuals or companies, apart from IRISL, that have knowingly made investments of USD 20 million or more that “directly and significantly contributes” to the enhancement of Iran’s ability to develop petroleum resources. The legislation would similarly sanction individuals who knowingly sell, lease or provide to Iran any goods, services, technology, information or support worth USD 200,000 or more (or has an aggregate value of USD 1,000,000 or more during a 12-month period) which would allow Iran to maintain/expand its domestic production of refined petroleum products. 

The proposed sanctions could be imposed against both domestic and foreign entities (persons) who with actual knowledge provide Iran with refined petroleum resources or engage in any activity that could contribute to the enhancement of Iran’s ability to import refined petroleum resources, including;

(a)     providing ships or shipping services to deliver refined petroleum resources to Iran; or

(b)     providing goods, services, technology, information or support relating to the shipping or other transportation of refined petroleum products to Iran; or

(c)     any individual or company underwriting or otherwise providing insurance or reinsurance for such goods, services, etc. who finances or brokers the sale, lease or provision of such goods or services;

(d)     prohibition of any transactions in foreign exchange by the sanctioned person; prohibition of any banking transactions involving any interest of the sanctioned person; and prohibition of any person from entering into any transactions with respect to any property in which the sanctioned person has an interest.

In relation to the shipping activity, it is to be noted that the wide scope of the wording in the draft bills could include owners, charterers, managers, crew, and, in relation to insurance cover, could include the P&I Club in which an offending vessel is entered, as well as its reinsurers. As drafted, the sanctions would apply in relation to any vessel(s), regardless of country of flag/registry/beneficial ownership, trading refined products into Iran even where, as a matter of the law governing the relevant contracts of carriage, the adventure is lawful.

Possible penalties for transgression could include barring sanctioned persons/companies from access to US financial institutions, and the blocking of assets and dollar transactions of an offending insurer within, or routed through, the United States.

Our associates confirm that although the Senate has passed Bill Number S.2799, the bill must now be voted on in the U.S. House of Representatives before it may be presented to the President and signed into law.  The Senate has only just recently passed this Bill (on January 28, 2010) and it has not yet been referred to a committee in the House of Representatives. Likewise, Bill Number H.R.2194 must be considered by the referred Committee and put to a vote by the Senate before it can be signed into law by the President. 

Even though it is not yet certain that the proposed “IRPSA” legislation in the US will in fact be enacted, nor if it is, precisely how it will be implemented, the International Group of Clubs (‘IG Clubs’) have decided that they will not be able to insure vessels carrying refined petroleum products to Iran if the provision of such insurance will expose the Clubs and its reinsurers to sanctions by the US Government.

Moreover, according to the IG Clubs there is a high risk that the other governments, including the UK, may take steps to implement further sanctions, whether directed against trade to Iran or activities elsewhere in the world, the Managers of the Association recommended to the Club Board that changes to the Club’s Rules should be considered, in an attempt to protect the Club itself from becoming a designated sanctions target as a result of action taken by States or other international organisations because of the  activities of any of the Club’s Members, or the trades in which Members’ vessels are employed.

These sanctions have raised some concerns especially by the Shipowners, Charterers, oil traders, insurance companies who worry about the following:

1)    In case the US introduces such measures, would the vessels calling at Iranian ports be subject to fines or even be detained if calling at US ports?

2)    Would there be a risk of being blacklisted from calling US ports, if the Shipowners are involved in the petroleum trade with Iran?

3)    Who will bear costs for breach of charterparty agreements? Will this scenario fall under Force Majeure?

4)    Would the Shipowners require re-structuring their corporate structure?

5)    How can charterers protect their contracts?

6)    How can cargo interest be protected?

In any event, as these bills are passed, they will still need to be signed into law by the President and they will not go into effect until at least 120 days from the date of the enactment of the bill. As of the present moment only the negotiations between Iran, US and UK will advise the future of the trade with Iran.

We are continuing to monitor developments in relation to these pending legislation and will advise further of any material developments. For any clarifications and/or more information, please feel free to contact Ravi P. Jawani on ravi.jawani@fichtelegal.com.