Frequently Asked Questions on U.S. sanctions affecting non-U.S. members, 11 June 2013

Background
With limited exceptions for certain humanitarian shipments, U.S. companies, and any non-U.S. entity owned or controlled by a U.S. company, cannot engage directly or indirectly in any trade with Iran. However, many of the U.S. sanctions on Iran apply extraterritorially to non-U.S. shipowners, operators, and insurers. Hence, any voyage to or from Iran, or carrying Iranian-origin cargo, requires particular care, as the Member may risk violating these sanctions and thereby may risk voiding insurance coverage for such voyage under Gard Rules. We note that in this regard, there are additional U.S. sanctions pertaining specifically to insurers.

The following FAQs will focus on those U.S. sanctions that may potentially affect non-U.S. members (i.e., not U.S. persons.) The FAQs are not comprehensive and they should be read in conjunction with Gard’s circulars on the Gard website at http://www.gard.no/web/publications/content?p_document_id=20651677. We caution that each Member should undertake its own review to ascertain compliance, as U.S. sanctions are complex, are changing at a rapid pace, and are dependant on the facts and circumstances of a particular voyage or transaction. Therefore, these FAQs should not be construed as legal advice by Holland & Knight LLP or Gard with respect to any particular voyage or transaction, or proof of coverage under Gard policies with respect to any particular voyage.

See also International Group US Iran FAQ dated 30 May 2013 (updated June 2013): http://www.igpandi.org/downloadables/news/news/US%20sanctions%20FAQs%20-%20Rev%201%202013%2005%2030.pdf.

Frequently Asked Questions

1. Can we transport petroleum and petrochemicals being exported from Iran? 
Non-U.S. vessel owners/operators may be sanctioned for transporting crude oil, petroleum products, or petrochemicals from Iran to third countries. This prohibition does not apply to the carriage of crude oil and petroleum products to certain countries that have received temporary waivers from the President of the United States under Section 1245 of The National Defense Authorization Act (NDAA), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/ndaa_publaw.pdf

2. Which Countries are Subject to NDAA Waivers, and when do they expire?
The President has twice issued waivers covering 20 countries. Waivers that are in effect as of the date of this Q&A:

• Until 9 September 2013, for Belgium, Czech Republic, France, Germany, Greece, Italy, Japan, The Netherlands, Poland, Spain, and the United Kingdom.
• Until 2 December 2013, for China, India, Malaysia, Turkey, South Korea, Singapore, South Africa, Sri Lanka, and Taiwan*    

* The exception to sanctions applicable to these countries as outlined in section 1245 of the National Defense Authorization Act (NDAA) for Fiscal Year 2012, have been extended for a period of 180 days from 5 June 2013 and is potentially renewable for a further period of 180 days. (Updated 11 June 2013)

3. If I am carrying oil to a country subject to an NDAA Waiver what other restrictions apply?
The waiver effectively only applies if the transaction involves (i) the export of crude oil or petroleum products from Iran to a waiver country as listed in FAQ#2; (ii) this transaction must be bilateral trade between Iran and that waiver country; (iii) funds cannot be  repatriated to Iran but must be credited to an account in the waiver country; and (iv) there can be no facilitation by a bank in a third-country. Further, as discussed in FAQ #5, you cannot engage in the transaction if the transaction involves an Iranian Specially Designated National (SDN), such as Tidewater Marine and Bank Tejarat, in addition to many Iranian entities in the marine and finance sector, with certain limited exceptions.

4. Can we carry refined petroleum or petrochemicals for import into Iran? 
Non-U.S. vessel owners/operators may be sanctioned for transporting to Iran refined petroleum products, most petrochemicals and equipment, supplies, or other goods that may be used to support Iran’s ability to develop petroleum resources, or support Iran’s ability to refine petroleum or produce petrochemicals.  While there may be instances where the value of services provided does not meet dollar thresholds (USD 250,000 for petrochemicals and USD 1 million for petroleum products), it is unlikely that a voyage would fail to trigger a potential sanctions violations. Further, see discussion of new sanctions under the Iran Freedom and Counter-Proliferation Act of 2012 (IFCPA) (See FAQ #13).

5. Can we engage in voyages involving SDNs or other sanctioned entities?
Non-U.S. vessel owners/operators may be sanctioned if they provide goods or services to, or engage in transactions with, certain individuals and entities that have been designated as SDNs or otherwise identified for specific sanctions. These SDNs include persons identified by the United States as supporting Iran’s development of weapons of mass destruction, international terrorism, or otherwise sanctioned, and include among others: NIOC, NaftIran Trading Company, the Islamic Republic of Iran Shipping Lines, Tidewater Middle East Co., entities affiliated with the Iranian Revolutionary Guard Corp., and certain Iranian banks and insurers. These sanctions also apply to any entity owned or controlled by an SDN.  Further, there are specific insurance prohibitions relating to the National Iranian Tanker Company and NIOC.          

6. Can we carry commercial goods being exported from Iran?
Current U.S. sanctions generally do not apply to the transport of most commercial goods from Iran to third countries, provided the goods are not barred items, such as weapons or goods that could be used to develop weapons of mass destruction, and there are no SDNs involved in the transaction. Such trade, however, may not be possible because non-U.S. banks are prohibited from engaging in significant financial transactions directly or indirectly with Iranian financial institutions.

7. Can we carry commercial goods to Iran?
Current U.S. sanctions generally do not apply to the carriage of commercial goods to Iran by a non-U.S. vessel owner/operator. However, the U.S. does prohibit: (i) the transshipment of goods from the United States to Iran through third countries; (ii) the reexport of certain U.S.-origin goods to Iran; and (iii) the transport to Iran of goods that could be used for development of weapons of mass destruction, or in the petroleum, petrochemical sectors, or be used to monitor or repress the Iranian people.   

8. Can we carry agricultural products, medicine, basic medical supplies, and other humanitarian items to Iran? 
The U.S. sanctions have broad humanitarian exceptions, and generally would not sanction non-U.S. ship owners/operators transporting food (including many bulk agriculture products), medicine, and basic medical supplies to Iran, provided the transactions do not involve certain SDN entities.  However, except in limited circumstances, U.S. banks cannot process US Dollar (USD) transactions related to such shipments. OFAC (Office of Foreign Assets Control, an agency of the U.S. Treasury Department) has issued a general license allowing U.S. persons to engage in transactions with Iran for food and basic medical supplies. However, U.S. persons are required to obtain a license from OFAC to “broker” sales of food from third countries to Iran. The use of such licenses may be beneficial in that it allows payments to be made in USD for the food and costs incidental to transport of the food to Iran.  

9. Are there particular sanctions for offloading Iranian-origin oil, or otherwise assisting Iranian entities in transactions?
The U.S. Government has indicated that it will target non-U.S. vessel owners/operators that assist Iranian entities in evading U.S. sanctions.  In particular, a non-U.S. vessel owner/operator could be sanctioned for:  (i) offloading Iranian crude oil offshore or in third countries where there is an intent to conceal the origin of the crude oil; or (ii) assisting Iranian shipping companies in disguising the ownership or location of their vessels. An owner who violates these sanctions could be sanctioned by having any vessel beneficially owned by that owner barred from entering the United States for two years.   In addition, a non-U.S. entity could be sanctioned if it acts as an intermediary for the transfer of funds from Iran entities to third parties.  For example, where the Iranian entity may wire funds to a Chinese company unrelated to the transaction in one currency and then the Chinese company makes the USD payment for the goods or services without reference to the underlying Iranian transaction or parties.  See OFAC Advisory of 10 Jan 2013 at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/20130110_iran_advisory_exchange_house.pdf.

10. How does the fact that my company has U.S. offices or other U.S. nexus affect this analysis? 
U.S. companies are essentially prohibited from participating directly or indirectly in any transactions with Iran, with limited exceptions for humanitarian items. 

• The fact that a non-U.S. company has U.S. subsidiaries or affiliates creates additional compliance issues where the U.S. company is the parent, and/or where the U.S. affiliate will in some way facilitate the transactions with Iran (e.g., by providing voyage planning, contracting support, etc.)
• As of 9 October 2012, any non-U.S. entity owned or controlled by a U.S. company is also subject to the same prohibitions as its U.S. parent. Further, the U.S. parent will be liable for violations by its non-U.S. subsidiary or affiliate. 
• Any company publically traded on a U.S. Stock Exchange (which includes many non-U.S. companies) must make public filings of its (and its affiliates) activities relating to Iran, and new specific reporting requirements go into effect on 6 February 2013.

11. What is the effect of U.S. sanctions on USD transactions & sanctions on foreign financial institutions?
Virtually all USD wire transactions pass through a U.S. bank. With limited exceptions, these U.S. banks are obligated to block or reject transactions involving Iran or SDNs and report this to U.S. authorities. Non-U.S. banks and other financial institutions are subject to sanctions if they facilitate significant transactions with Iranian banks, or facilitate transactions relating to petroleum or petrochemical exports or involving certain blocked entities. Hence, many non-U.S. banks place restrictions on transactions relating to Iran, or simply refuse to process such transactions.    

We caution that attempting to disguise the nature of a wire transfer request regarding Iran is not only itself a violation of U.S. sanctions, but U.S. banks are especially vigilant particularly on vessel-related transactions, with inquiries regarding the vessel identification and the particulars of the voyage. Further, larger banks are being more aggressive in refusing to handle ANY wire transfers or to continue to do business with non-U.S. customers that they suspect are engaging in transactions related to Iran, and which could trigger sanctions against the bank.

12. Can my vessel call at a Tidewater Marine Facility?
Tidewater Middle East Co. and affiliates (Tidewater) were designated as SDNs in June 2011 under existing sanctions, and therefore any U.S. persons that provide goods, services, or material or financial support for Tidewater are subject to sanction. To date, the U.S. has not sanctioned any ship owners/operators for merely lading/unlading at Tidewater facilities. However, on 1 July 2013, the President must provide a list to the U.S. Congress of large/significant vessels that have called on ports controlled by Tidewater in the previous 180 days. The implication is that Congress may require the President to sanction owners/operators of large/significant vessels that call on Tidewater facilities.

13. I understand new sanctions go into effect 1 July 2013. What is the effect? And what can I do to prepare?
On 2 January 2012, the President signed into law The Iran Freedom and Counter-Proliferation Act of 2012 (IFCPA). See Sections 1241 et. Seq. at http://www.gpo.gov/fdsys/pkg/BILLS-112hr4310enr/pdf/BILLS-112hr4310enr.pdf. Effective 1 July 2013, the IFCPA will impose a number of sanctions that will directly affect non-U.S. shipowners/operators that call on Iran. In particular, the IFCPA targets the Iranian energy, shipbuilding, shipping, and ports sectors, requiring the President to block all Iranian entities in these sectors. With limited exceptions, non-U.S. shipowners/operators that sell or supply significant goods or services, or provide significant material or technological support to or for the benefit of these Iranian sectors, will also be subject to sanction. Effectively, this means that as of July 1, 2013, the carriage of goods destined for these Iranian sectors will be prohibited. Similarly, chartering a vessel to an Iranian shipping company would violate these sanctions.

While, we anticipate that the U.S. Government will issue guidance on these IFCPA provisions prior to 1 July 2013, shipowners/operators should review carefully any existing or future charter agreement to ensure that it has the contractual right to refuse voyages that may violate this law.

14. Given the complexity of U.S. sanctions, how do I determine if a voyage will run afoul of U.S sanctions?
Given the complexity and rapid pace of change in U.S. sanctions, one must examine the facts of each voyage relating to Iran, including voyages between other countries carrying Iranian-origin goods or with goods ultimately destined for Iran.  Some factors to consider include:

• Are there one or more U.S. connections (e.g., U.S. parties, U.S. parent companies, U.S. public companies, USD transactions, and U.S.-origin goods)?
• Are any of the parties SDNs or are owned or controlled by SDNs (including banks issuing letters of credit, port operators, etc.)?
• Are the goods or services being provided subject to sanction (e.g., petroleum, petrochemical products)?
• Is the intended voyage allowed under the vessels insurance policies, ship mortgage, or bareboat charter?
• Is there anything suspicious about the transaction that indicates that there may be a risk of diversion or an attempt to evade U.S. sanctions (e.g., by making payments through third country non-bank entities unrelated to the transaction)?

Disclaimer – This document provides a general summary of the subject, is not and should not be construed as legal advice by Gard or Holland & Knight LLP, or a determination of coverage/non-coverage of a particular voyage by Gard.

The FAQs were prepared by Jonathan Epstein, Esq., of the Washington Office of Holland & Knight LLP.  Phone: 1.202.828.1870; E-mail: jonathan.epstein@hklaw.com