Practical tips for doing business with Iran
Numerous New Zealand businesses have entered the Iranian market since the removal of most international trade and financial sanctions targeting the country in January 2016. While Iran presents a variety of attractive opportunities, it remains a challenging and complex market in which to do business.
From a legal perspective, ensuring compliance with remaining sanctions (and notably United States sanctions) and securing financial services to support transactions with Iran can be difficult.
This alert highlights some of the key challenges and provides practical tips for overcoming them. These tips are equally relevant to New Zealand businesses transacting with other sanctioned markets.
While the Iran Nuclear Deal ("Deal") prompted the removal of most domestic and foreign sanctions targeting Iran on 16 January 2016, a complex web of sanctions remains that must be complied with.
New Zealand's remaining sanctions are relatively straightforward and narrow in scope. They impose restrictions on the trade in nuclear-related material, equipment or technology, ballistic missile related technology and conventional arms.1 They also maintain asset freezes and travel bans on specific individuals and entities designated by the United Nations (UN). Outside of these areas, the New Zealand Government has been actively supporting and encouraging local businesses to develop trade and economic relationships with Iranian counterparties.2
In contrast, the remaining sanctions imposed unilaterally by certain foreign governments3 are, in some cases, broad in scope, complex to navigate and strictly enforced. These foreign sanctions regimes can apply to and penalise New Zealand-based individuals and businesses because they have 'extra-territorial effect'.4
Ensuring compliance with remaining United States (US) sanctions targeting Iran has proven particularly difficult for some New Zealand exporters and trade facilitators. This is because the US sanctions are:
- extensive (e.g. Most US "primary sanctions" remain in place, so US persons are still broadly prohibited from engaging in transactions or dealings with Iran);
- subject to exceptions, exemptions and licensing rules;
- contained in numerous Acts, Regulations and Executive Orders;
- enforced by multiple US Government agencies; and
- subject to frequent and sudden change (e.g. Last week, President Trump imposed fresh sanctions on 14 individuals and entities over alleged human rights abuses. He also indicated that the US's pre-Deal sanctions might be reimposed within three months if the Deal is not amended to his satisfaction within that time).
Practical tips for ensuring compliance with remaining sanctions
New Zealand businesses looking to transact with Iranian counterparties may want to consider these practical tips for ensuring compliance with remaining sanctions:
Understand your business
- Determine the nationalities of your beneficial owners, shareholders, directors and officers, with a view to determining which foreign sanctions regimes apply to your business.
- Determine the origin of your goods, services or capital (including any components) and take particular care if re-exporting US-origin items.5
- Check whether your goods, services or capital are subject to sector-specific restrictions. For example, if your products are subject to export controls, ensure that all necessary export licences have been obtained.
- Given the specific nature of your business, consider how likely you are to be subject to a sanctions investigation and the potential financial and reputational consequences that could have.
Know your counterparties
- Ensure that due diligence screening covers all counterparties you propose to deal with, as well as their beneficial owners, shareholders, directors and officers, as appropriate. When screening individuals, be sure to identify dual nationals and run checks on all passports they hold. Keep records of your due diligence screening and repeat it periodically if contract negotiations are protracted.
- Beware of shell companies and intermediaries operating opaque businesses, particularly in the Gulf region and Turkey.
- Understand what your customer intends to do with your goods, services or capital. If appropriate (and certainly in the case of sensitive or dual use items), consider requiring an end user declaration.
Structure deals carefully
- For exporters and their agents, be sure to identify trade facilitators (e.g. banks, freight forwarders, international carriers and insurance companies) and trade routes that are not subject to, or unduly bound by, sanctions. Ports owned by Tidewater Middle East Company (such as Bandar Abbas) are best avoided.
- Consider whether it is possible to remove any US nexus of a proposed transaction (e.g. recusing US nationals, entities or permanent residents from involvement).
- Wherever possible, secure payment upfront and avoid transacting in US dollars.6 Most New Zealand banks are reluctant to deal with Iranian banks directly, and prefer to settle with intermediaries in EUR, AUD or AED.
- Consider opting for short-term contracts or projects, as these are less vulnerable to the potential deterioration of relations with Iran and the re-imposition of comprehensive sanctions (e.g. US sanctions "snap-back").7
- Include suitable sanctions related exclusions, warranties and indemnities in contracts with parties associated to high-risk jurisdictions. Also, consider including sanctions-related termination and force majeure clauses, which may offer protection if a contract cannot be performed without breaching sanctions. Remember that, generally speaking, regulators do not consider contractual safeguards to be a substitute for appropriate customer due diligence.
- Take care when making financial arrangements. Speak with your bank(s) about proposed transactions at an early stage. Each New Zealand-based bank attaches a slightly different risk profile to transacting with Iran. At one end of the spectrum, some banks will refuse to facilitate such transactions, irrespective of who the customer is. At the other end of the spectrum, some banks will facilitate transactions without charging additional fees, so long as appropriate due diligence has been done by the customer.
- Consider the merits of obtaining appropriate insurance or guarantees to secure export sales and mitigate payment risk.
For businesses at high-risk of breaching domestic and/or foreign sanctions
- Consider developing a sanctions compliance programme. This should demonstrate management's commitment to sanctions compliance and outline the practical steps that will be taken to ensure compliance (e.g. risk assessments, compliance training, screening procedures, record-keeping, monitoring and auditing, reporting, escalating potential violations, and taking corrective actions, etc).
For added protection, involve your in-house (or external) legal counsel in discussions at an early stage in order to maximise the benefit of legal professional privilege.
How we can help you
Russell McVeagh has extensive experience of advising on sanctions compliance and enforcement related matters. We routinely assist clients to conduct customer and transaction due diligence and screening processes, and develop or refine their sanctions compliance programmes. We also represent clients in sanctions investigations undertaken by the Customs Service, the UN, and the United Kingdom (UK) and US governments. We have represented clients in sanctions-related judicial proceedings in New Zealand and the UK. We work closely with partner firms in other jurisdictions when foreign legal advice is required.
This publication is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.