Iran Sanctions Circular on the Extension of Sanctions Relief under the Joint Plan of Action
Circular 10 – 2014 1st August 2014 To All Members,
This circular should be read in conjunction with the circular published on 28th January 2014 regarding the temporary relief of EU and US sanctions measures relating principally to transportation and insurance of petrochemical cargoes from Iran and Iranian crude to NDAA1 waiver countries.
By way of background, on 24th November 2013, China, France, Germany, the Russian Federation, the United Kingdom and the United States (the P5+1) reached an agreement with Iran on its nuclear programme and jointly published a Joint Plan of Action (JPOA) which included the implementation of a temporary suspension of certain transportation and insurance prohibitions measures for a period of six months with effect from 20th January 2014.
Timing
The six month temporary suspension period expired on 20th July 2014. Subject to the parties to the JPOA meeting certain conditions, it has been agreed that a further period of temporary suspension of prohibition measures will apply until 24th November 2014. The United States has issued FAQs and Guidance through the Office of Foreign Assets Control and Department for State. The European Union has issued Council Decision 2014/480/CFSP of 21st July 2014, which remains in force in its original form, but has now been extended to 24th November 2014. It should also be noted that the temporary suspension of prohibitions may be withdrawn and the prohibitions reinstated with immediate effect if the commitments and undertakings on the part of Iran in the JPOA are not fulfilled.
General issues to note
In reviewing the extension of the sanctions suspension measures discussed briefly below, two important points in relation to these measures should be borne in mind by vessel owners and Clubs:
(i) Period of suspension of current measures
It is important to note that the extension of the suspension of sanctions measures is for a defined period until 24th November 2014. To the extent that vessel owners wish to take advantage of the extension period and enter into transportation contracts, they are advised to ensure that any contract/s will be fully executed by 24th November 2014 at the very latest.
(ii) Transactions with Designated Entities
The extension of the suspension of sanctions will not provide relief from the current prohibitions concerning transactions with US and or EU designated persons or entities (identified on lists published by OFAC and HMT in the UK.)
What is the practical effect of the extension of the Joint Plan of Action on Insurance for Owners and Clubs?
The wider position as regards insurance cover during the period up to 24th November 2014 is different in the US and EU.
US
Following earlier engagement with the Group the US Department for State has now confirmed that:
“Insurance payments for claims arising from incidents that occur during the JPOA period and/or the extended JPOA period may be paid after November 24, 2014, so long as the underlying transactions and activities conform to all others aspects of the sanctions remaining in place and the terms of the sanctions relief provided by the JPOA. Insurance and reinsurance companies should contact the USG directly with any inquiries. US persons and US-owned or controlled foreign entities remain prohibited from participating in the provision of insurance or reinsurance services to or for the benefit of Iran or sanctioned entities, including with respect to all elements of the sanctions relief provided pursuant to the JPOA, unless specifically authorized by OFAC”.
US participants on the Group’s reinsurance contract may therefore continue to be prohibited from participation in the event of a claim or claims triggering their involvement.
Members should be aware that the Club’s cover excludes liabilities and losses to the extent that such liabilities and losses are not recoverable from reinsurers by reason of sanctions, and that a possible shortfall of this kind is therefore a risk for the Member’s own account.
EU
At the time of writing the European Union has not made the same or a similar concession to that of the US, and it may be prohibited for EU regulated, incorporated or domiciled insurers to pay claims after 24th November 2014.
The International Group has voiced concerns with the European Commission regarding the lack of provision permitting insurers to respond to liabilities incurred during the suspension period but which were not pursued or paid until after the suspension period. The IG will continue efforts to engage the European Commission with a view to aligning European Union policy with the US and further updates will be provided if the situation changes.
However, in the absence of satisfactory clarification by EU member states on this fundamental issue, Clubs are in no better position than they were prior to the US clarification.
At this point, all Clubs in the International Group will therefore continue to warn their Members that cover for claims arising during the extended JPOA period could be adversely affected by reinsurance shortfalls or by an inability to make payments after 24th November.
Members should also be mindful that, notwithstanding the JPOA period, the ability of Clubs to respond to any incident arising from trading to Iran, including the provision of security, remains limited, not least by the reluctance of banks and other service providers to be involved in business related to Iran.
We strongly recommend that Members do not enter into contracts for transportation of crude oil, petroleum oil and petrochemical products which for a limited period, (up to 24th November 2014), are permissible by virtue of the US/EU suspension of prohibitions on the carriage of such cargoes without undertaking due diligence in order to satisfy themselves that they do not expose their operations or the Club to sanctions.