Circular 2018 001 – Sanctions Iran and the USA
On 8 May 2018 the American President announced that the US would cease its participation in the Joint Comprehensive Plan of Action (JCPOA) that the US, EU and other world powers agreed in 2015 (implemented 2016) that eased Sanctions against Iran in return for Iran stopping its Nuclear Weapons programme.
Since the implementation date in January 2016 the Club has been able to cover trade with Iran subject to a sanction screening policy and amended terms that were highlighted on each policy of Insurance. Unfortunately, because of the US stance this position now changes with immediate effect.
The US Position
There is snapback of previous legislation with orders being given to reinstate the previous position as quickly as possible. Grace periods have been granted to the US Treasury and State Department to give time for parties to terminate existing arrangements that are once again in breach of sanctions, the first grace period is 90 days and the second grace period is 180 days. It is the nature of the underlying activity that determines which grace period applies. From a trading and insurance perspective the position appears to be as follows:
90-day grace period
After 6 August 2018 US sanctions will apply to the trade in gold and precious metals and the direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminium, steel and coal.
180-day grace period
After 4 November 2018 US sanctions will apply to Iranian ports, the shipping and energy sectors and the provision of financial services, including insurance.
Full information, as per the US treasury Bulletin can be found here Link to US Treasury
Has the JCPOA been disbanded?
No, the JCPOA has not been disbanded, other countries that are party to the JCPOA remain committed to the process. At this stage the US decision to withdraw is a unilateral one and it is only US sanctions that are being reinstated through the so-called ‘snapback’ provisions. At this stage it is not clear how the EU, China and Russia might react. The other parties to the JCPOA have lobbied hard to prevent the US taking this route, so at face value they are unlikely to follow suit.
So everything is OK with my Club cover if I’m not subject to US jurisdiction?
No, unfortunately it’s not that easy. The US also has a regime of secondary sanctions that applies to non-US entities, such as banks and insurance companies, which restricts them from providing services that involve activities in breach of US sanctions. The US legal system has long tentacles and most major financial institutions, particularly in Europe, have a US presence or connection. In the past very heavy fines have been levied against European banks that have been deemed to be in breach of secondary sanctions.
The Grace periods are in place to allow the orderly runoff of contracts that were in place before 8 May 2018, therefore entering into new contracts involving trade to Iran after 8 May is likely to be in breach of US secondary sanctions ie the sanctions that impact the banking and Insurance Industries. We recommend that Assureds take specific legal advice on this issue as we will need to see this if we are asked to cover voyages or shipments that were not in place before 8 May 2018 and within the respective grace periods.
So what happens now as far as my Club cover is concerned?
That depends on the nature of the trade and the relevant grace periods. Within the respective grace periods we can prospectively continue to give cover, however, each voyage or declaration will require prior approval by the Club and the period of insurance in respect of any voyage or declaration must terminate within the relevant grace period.
Every policy of Insurance contains an “approval clause” regarding Iran and our ability to approve voyages to Iran will depend on individual circumstances, we recommend that you contact the Club before you commit to either freight, hire or cargoes that may involve Iran or Iranian interests.
Please ensure that you have subscribed to our circulars, bulletins and that you review our website, Twitter and LinkedIn feeds as we will update clients as and when the position changes or greater clarity is provided.
On a final note
The US is at odds with the other countries that are party to the JCPOA. The issue for us and our Assureds, is the exposure to secondary sanctions. EU countries such as the UK and Germany are vehemently opposed to the US withdrawal. In response to the US position the EU has even suggested that measures might be taken against US interests in Europe if the issue of secondary sanctions against the lawful activities of EU interests cannot be resolved. This is a novel twist and we will be watching the position closely to determine what action needs to be taken.
The contents of this circular are accurate at the time of publishing but the situation is likely to evolve quickly please check back regularly for further updates.
Michael Else and Company Limited, as Managers
E & O.E. Dated London 13 May 2018