It may be a happy coincidence that the UK Office of Financial Sanctions Implementation (OFSI) chose this week to issue new guidance for import and export businesses on complying with financial sanctions.
This follows the US announcing its withdrawal from the Joint Comprehensive Plan of Action (JCPoA) agreed in July 2015 to limit Iran’s nuclear programme, the reimposition of sanctions lifted in 2016, and new wide-ranging US sanctions against Russian firms and businesspeople being announced by President Trump.
The OFSI guidance includes direction on how to identify individuals and companies subject to sanctions and how UK companies should deal with those entities, and it underlines the risk of sanctions breaches to those engaged in importing and exporting products and services.
The guide is significant because it shows that OFSI does not see sanctions compliance purely as a matter for banks and payment processors and the enforcement net is likely to be cast far and wide.
Given that firms commit a criminal offence if they do business that is connected with a sanctioned person when there is “reasonable cause to suspect”, importers and exporters should carefully consider the recommended compliance steps, which include screening suppliers, contractors and customers against sanctions lists, and being alert to the red flags listed in the guide.
This guide is published against the backdrop of OFSI’s relatively new power to impose significant monetary penalties of the greater of £1 million or 50 per cent of the total breach. It is therefore more important than ever for businesses to understand their obligations under the UK’s financial sanctions regime and what action to take on identifying a breach.
US sanctions preventing business with Iran had continued to apply to US firms and people over the last three years – the sanctions being reimposed are “secondary”, applying to non-US businesses and people for non-US dealings that occur entirely outside the US. Enforcement action for breaching the secondary sanctions include the loss of eligibility to receive US export licences.
The process of reimposing sanctions on Iran and any company doing business there will be implemented in two stages on 6 August and 4 November this year, with wind-down periods allowing for currently-lawful activities and contractual commitments to be brought to an end.
Companies would be wise not to enter into any new contracts related to Iran business without first obtaining legal advice, even if the contracts are due to be concluded by the end of the wind-down period. As well as not starting new contracts, businesses should take legal advice on any existing contracts about steps that can be taken to protect their interests in the event that the US position does not change.
The JCPoA has a dispute resolution procedure that ultimately leads to the UN Security Council, which would vote on whether to continue the lifting of sanctions. However, given the role of the US on the Security Council, the dispute-resolution procedure is unlikely to result in any change in policy. Iran may consider referring the case to the International Court of Justice, but neither Iran nor the US has declared that it follows decisions of the court and therefore any decision would only be advisory in nature.
While the UK Government encourages British business to trade with Iran, doing so will expose British companies to being sanctioned by the US authorities and effectively blocked from US and international markets. The UK Government’s warm words of encouragement to continuing Iranian-related business are therefore dangerous, and British businesses are unlikely to proceed with trade in Iran due to the perilous position created by the long reach of US sanctions.
Tom Stocker, partner and regulatory expert at law firm Pinsent Masons.