The EU has privately warned Iran that it will be forced to begin the process of withdrawing from the JCPOA in November if Iran goes ahead with its threat to take new steps away from the deal. If it does then the EU has stated its next step would be to commence the JCPOA’s dispute resolution mechanism, which can be instigated if a JCPOA participant believes that another participant is not meeting its agreed commitments. The mechanism provides an opportunity for the issue to be resolved. If it is not and the issue is deemed to constitute “significant non-performance”, then the UN Security Council will be asked to vote on whether sanctions relief should continue under the JCPOA. A UN Security Council resolution is adopted if: (i) 9 of the 15 Security Council members vote for the resolution; and (ii) no veto is received from any of the five permanent members (United States, United Kingdom, France, Russia, and China). Businesses will be observing developments closely as it could result in the reintroduction of tighter sanctions against Iran by the UN, the EU and other countries.
Following the snap-back of US sanctions on 5 November 2018, Foreign and Finance Ministers from the UK, France, Germany and the EU published a joint statement in which they expressed their “regret” at the re-imposition of sanctions on Iran by the US and also reiterated their “aim to protect European Economic operators engaged with legitimate business with Iran”. These comments suggest that the EU is determined to continue economic relations with Iran and that the proposed Special Purpose Vehicle (“SPV“), announced by the EU on 24 September, is still under consideration.
Little detail has been forthcoming in terms of how the SPV would work operationally since the EU’s announcement regarding the decision to establish the SPV. At the time of the EU’s announcement, the SPV was described as a legal entity that would facilitate “legitimate financial transactions with Iran” in order to allow European companies to continue trading with Iran despite the threat of US sanctions. It was also suggested that the SPV may be opened to companies in other countries in order for them to engage in Iran-related transactions.
Practically, it is likely the SPV would engage in Iran-related transactions on behalf of companies and the SPV would therefore assume the risks that would otherwise be taken on by individual companies when engaging in Iran-related transactions. Furthermore, we envisage that the SPV would operate outside of the US dollar financial system, especially in light of the Trump administration’s comments on 2 November that the financial messaging service SWIFT could be targeted by sanctions for providing services to Iranian financial institutions. SWIFT has since announced that it will be suspending certain Iranian banks from accessing its messaging system.
However, it has been reported that the EU is struggling to find a country to host the SPV with reports indicating that Austria had refused. As such, the SPV appears to be a long way from creation.
Please join us at Baker McKenzie’s UAE sanctions roadshow on the 2nd and 3rd of October. The event is free for all to attend and topics will include:
- the US sanctions against Iran, EU blocking measures to prevent US sanctions compliance, and the future of the JCPOA;
- the latest US sanctions against Russia, the EU’s possible next moves, and Russian countermeasures;
- an update on the economic boycott of Qatar, and
- other hot topics in sanctions compliance, particularly for those operating in the Middle East.
Invitations can be found on our website, LinkedIn and Twitter:
UK Foreign Secretary, Jeremy Hunt, started his three-day visit to the US last week by calling on the EU to follow the US in imposing sanctions on Russia in response to the Salisbury nerve agent attack that happened earlier this year.
On 6 August 2018, the US State Department accused Russia of contravening international law by using the chemical nerve agent “Novichok” on foreign soil and, on 24 August 2018, gave notice that the US Government will be imposing new sanctions on Russia (under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991). These sanctions will include the termination on arms sales financing, denial of US Government credit or other financial assistance, and prohibition on certain exports including for national security-sensitive goods. We recently published a blog on these measures.
Significantly, on his first visit to Washington DC as Foreign Secretary, Mr Hunt called for the EU to stand with “one voice” and apply further pressure by imposing “comprehensive” sanctions to ensure Russia abides by international law.
The EU Viewpoint
As a unanimous decision is needed by all 28 EU countries in order to bring further sanctions into force, the UK may face challenges in persuading all fellow EU countries to follow the decision made by the US. The EU has recently struggled to speak with a unified voice on matters relating to Russia, with some governments such as Italy and Greece wanting to draw a line and not increase the pressure by using sanctions. Additionally, Austria was one of the few EU countries that refused to expel Russian diplomats after the nerve agent attack, with the Austrian Government now calling for the reduction of the sanctions against the Russian government.
Nonetheless, it will be interesting to see the next steps that the EU takes following the US State Department’s announcement of measures against Russia.