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The Impact of International Boycott Rules against Iran on the Iranian Business of the Foreign Establishment in the Islamic Republic of Iran

Guiding Principles  

Iran is under several international sanctions over its refusal to suspend uranium enrichment. These sanctions have considerable influence on the Iranian business of those foreign establishments which are registered in Iran and/or conduct financial transaction with the Iranian market. Many foreign establishments have suspended their transaction with Iran and some of them proceed to close down their legal companies, branch or rep. offices in Iran.  

A. International Sanctions against Iran
Iran is under several international sanctions over its refusal to suspend uranium enrichment. The United States, Europe and Israel fear that Iran wants to use nuclear technology to build a bomb but Tehran insists that its program is a peaceful drive to produce civilian energy. Sanctions against Iran notably bar nuclear, missile and many military exports to Iran and target investments in oil, gas and petrochemicals, exports of refined petroleum products, as well as the Iranian Republican Guard Corps, banks, insurance, financial transactions and shipping.  

The influence of the international sanctions on the Iranian business of foreign establishments which are registered in Iran and/or conduct financial transaction with the Iranian market is studied in this article.  

Sanctions against Iran have been imposed by the following bodies:

  • UN sanctions against Iran
  • Multinational sanctions against Iran
  • National sanctions against Iran

I. UN Sanctions against Iran
United Nations Security Council passed the following resolutions against Iran for failing to stop its uranium enrichment program:  

  • United Nations Security Council Resolution 1737 – passed on 23 December 2006.
  • United Nations Security Council Resolution 1747 – passed on 24 March 2007.
  • United Nations Security Council Resolution 1803 – passed on 3 March 2008.
  • United Nations Security Council Resolution 1929 – passed on 9 June 2010.

The main provisions of the last resolution (i.e. Resolution 1929) are as follow:  

  • Iran could not participate in any activities related to ballistic missiles.
  • A ban on all countries providing military vehicles, aircraft or warships and missiles or missile systems and related materiel to Iran;
  • A ban on training, financing or assistance related to such arms and materiel and restraint over the sale of other arms and material to Iran;
  • A travel ban on individuals listed in the annexes of the resolution, with exceptions decided by the Committee established in Resolution 1737; and
  • The freezing of funds and assets of the Army of the Guardians of the Islamic Revolution and Islamic Republic of Iran Shipping Lines.

UN sanctions include those activities related to the military fields and Iranian uranium enrichment programs. In case the above-mentioned banned activities are not in the scope of the activity of a foreign establishment registered in Iran and/or conduct transaction with Iranian market, no UN resolutions would be infringed.  

II. Multinational Sanctions against Iran
European Union sanctions are the most important multinational sanctions against Iran.1 The European Union has imposed sanctions against Iran over Iranian nuclear program. These sanctions which have been described as the toughest EU sanctions imposed against any other country by European officials were last strengthened on 27 October 2010 within by the EU Council under Council Regulation (EU) No 961/2010. This replaces and updates the previous Council Regulation 423/2007 that was published on 27 July 2010. The new sanctions put restrictions on foreign trade, financial services, energy sectors and technologies and include a ban on the provision of insurance and reinsurance by EU insurers to the State of Iran and Iranian owned companies.  

Council Regulation (EU) No 961/2010 (‘the Regulation’) implements additional restrictive measures against Iran, the main of which are as follow:  

  • Freezing of funds and economic resources of specific Iranian persons and entities;
  • Restrictions on transfers of funds to and from an Iranian person, entity or body;
  • Vigilance over activities with Iranian banks;
  • Dealing with the Iranian banking sector;
  • Restrictions on Iran’s access to the EU’s bonds markets;
  • Restrictions on Iran’s access to the EU’s insurance and reinsurance markets; and
  • Restrictions on financing certain Iranian enterprises.

A copy of the Regulation can be found at:
http://www.hm-treasury.gov.uk/d/council_regulation_eu_961_251010.pdf
The Regulation imposes no ban on a foreign establishment, the activity of which does not involve the above mentioned restrictions. Nevertheless the Regulation places some restriction on financial and banking affairs of such foreign establishment. Article 21 of the Regulation sets out restrictions on the transfers of funds to and from an Iranian person, entity or body, and how transfers shall be processed.

Transfer value    Requirements   
€10,000 or less   No requirements. These can be made as normal unless there are a series of transactions below €10,000 that appear to be linked. If this is the case, they should be notified to a competent authority.  
More than €10,000 but less than €40,000   Must be notified in advance to a competent authority, whatever the transaction is for.  
€40,000 or above   If they relate to foodstuffs, healthcare, medical equipment or humanitarian purposes, they must be notified in advance to a competent authority. They do not require prior authorisation from a competent authority.  
If they are for any other purpose, they must be submitted to a competent authority in advance for authorisation. They cannot be undertaken without prior authorisation.  

‘Iranian person, entity or body’ is defined in Article 1 of the Regulation and means:

  • the State of Iran or any public authority thereof;
  • any natural person in, or resident in, Iran;
  • any legal person, entity or body having its registered office in Iran;
  • any legal person, entity or body, inside or outside Iran, owned or controlled directly or indirectly by one or more of the above mentioned persons or bodies.

Any foreign establishment registered in Iran is considered as Iranian entity in Iran, so the provision of Article 21 should be observed in all financial transaction of the foreign establishment.  

III. National Sanctions against Iran
One of the most important national sanctions against Iran include an embargo on dealings with Iran by the United States and a ban on selling aircraft and repair parts to Iranian aviation companies. Since July 2010, Canada, Australia, South Korea and Japan have also set unilateral sanctions against Iran.  

The Iran and Libya Sanctions Act of 1996 (ILSA) was a 1996 act of Congress that imposed economic sanctions on firms doing business with Iran and Libya. According to which all foreign companies that provide investments over $20 million for the development of petroleum resources in Iran, two out of seven possible penalties will be imposed against them by the U.S. On September 30, 2006, the act was renamed to the Iran Sanctions Act (ISA), as it no longer applied to Libya, and extended until December 31, 2011. As of March 2008, ISA sanctions had not been enforced against any non-US company; the act allows the president to waive sanctions on a case-by-case basis, though this waiver is subject to renewal every six months.  

In June 2007, the U.S. state of Florida enacted a boycott on companies trading with Iran and Sudan, while New Jersey’s state legislature was considering similar action.
On June 24, 2010, the United States Senate and House of Representatives passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), which President Obama signed into a law on July 1, 2010.  

Major provisions of CISADA as summarized by the Congressional Research Service are as follow:  

  • Amending the Iran Sanctions Act of 1996 to direct the President to impose two or more current sanctions under such Act if a person has, with actual knowledge, made an investment of $20 million or more (or any combination of investments of at least $5 million which in the aggregate equals or exceeds $20 million in any 12-month period) that directly and significantly contributed to Iran’s ability to develop its petroleum resources.
  • Directs the President to impose: (1) sanctions established under this Act (in addition to any current sanctions imposed under the Iran Sanctions Act of 1996) if a person has, with actual knowledge, sold, leased, or provided to Iran any goods, services, technology, information, or support that would allow Iran to maintain or expand its domestic production of refined petroleum resources, including any assistance in refinery construction, modernization, or repair; and (2) sanctions established under this Act if a person has, with actual knowledge, provided Iran with refined petroleum resources or engaged in any activity that could contribute to Iran’s ability to import refined petroleum resources, including providing shipping, insurance, or financing services for such activity.
  • Establishes additional sanctions prohibiting specified foreign exchange, banking, and property transactions.

U.S. sanctions mainly include those activities and services related to the petroleum resources. In case the scope of foreign establishments, registered in Iran and/or conduct transition with Iranian market, is not the above banned activities, the U.S. sanctions would not been infringed, although as it was referred some States like Florida and New Jersey enacted a boycott on companies trading with Iran in general.  

B. Conclusion
Based on the conclusion was drawn in the last part, in case the Iranian business of the foreign establishment, does not involve any field related to the Iranian military fields, uranium enrichment programs and petroleum resources and furthermore all financial transaction of the foreign establishment be conducted by observing all aforementioned sanctions regulations against Iran, the foreign establishment would not violate the international sanctions laws, have been passed against Iran so far unless some U.S. States’ embargo regulation. 

January, 2011    Zahra Tahsili, LL.M.
    Meyer-Reumann & Partners – Dubai Office  
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