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VIDEO: What Does Lifting of Iran Sanctions Mean Now?

Aug.17.2016

In this four-part video alert series, Crowell & Moring Partner Cari Stinebower discusses the lifting of Iran sanctions and what it means; its impact on U.S. companies, subsidiaries, and European companies; diversion risks and protections for U.S. companies; and its impact on U.S. automotive companies and other business interests.

Part 1: Impact on U.S. Companies, Subsidiaries, and European Companies


Part 2: Diversion Risks and Protections for U.S. Companies


Part 3: U.S. Automotive Companies Are Big Target


Part 4: Other Business Interests


Transcript

Where are we with respect to Iranian sanctions?

Implementation day happened on January 16th and that meant a lot to the Iranian economy because it meant for the first time in a long time that they were welcome back into the financial sector. What that means for a European company and for a U.S. company is two very different things. The Iranian market is open for European goods for most European goods. It also means that Iranian financial institutions have access to swift and to traditional banking mechanisms. That’s not what it means for U.S. businesses at all. The Iranian market remains completely off limits for U.S. headquartered businesses except in very limited circumstances like exports of agricultural commodities, certain medical devices and food and medicine. Certain imports from Iran are now permissible – food stuffs, Iranian pistachios, some Iranian carpets are also allowed to come into the United States.

What does it mean for U.S. subsidiaries?

U.S. subsidiaries for the first time in a couple years are allowed to re-enter the Iranian market under certain circumstances. What this means is that they’re back on par with some of the European competitors but it means that they have to take very severe compliance steps in order to make sure that they’re not inadvertently exposing U.S. persons or U.S. origin goods to the Iranian market, because the Iranian market is still fairly non-transparent. The corruption risk and the money laundering risk as a financial institution is increasingly higher than it would have been a couple of years ago when Iran was completely off limits. What this means is that if a company – a foreign subsidiary of a U.S. entity or a European company is considering re-entering the Iranian market, they’ve got to take into account beefing up compliance programs in the anti-money laundering and corruption space.

How are U.S. goods getting into Iran even though they should not be there?

There’s a couple of ways that we’ve seen a U.S. origin goods ending up in Iran. Of course, there’s general licenses for certain items, like agricultural commodities and certain types of medicine and medical devices. But, realistically what we’ve seen for a lot of our clients – particularly in the automotive sector – is that U.S. origin goods are ending up in Iran not under license but because they’re being diverted there through multiple sources. We’ve had a number of clients that have found that their products have ended up in Iran through diversion by distributors, or through smuggling, or in some cases through counterfeiting.

What protections are there for U.S. companies whose goods end up in Iran anyway?

The good thing about the current sanctions in the United States is that they do have provisions for protection of intellectual property rights. So a number of clients have worked with local Iranian lawyers, law firms and investigators in order to figure out how their goods are getting into Iran and have taken steps in order to protect themselves legally in Iran or in the jurisdictions through which their products are being diverted. So it is very important for American businesses to be aware whether when and how their products are getting into Iran and to take steps to protect their intellectual property rights.

U.S. automotive companies and goods are a particular target in Iran. Why is that?

The Iranian automotive industry has made it explicitly clear that they are very interested in western products and that they’re very interested in creating a soup to nuts industry within Iran. They don’t want to rely on knock-down kits that they had pre-sanctions. What this means is that they’re very hungry for U.S. origin technology and components. What we’re seeing is that the Iranians are getting very creative in getting ahold of U.S. origin good and technology and they’re doing it by setting up front companies in numerous jurisdictions and they’re getting ahold of U.S. products through diversion.

What are U.S. automotive clients hearing from Iranian distributors?

We’ve seen in numerous cases where U.S. businesses have received letters of intent or request for invoicing or request for contract and the Iranians have actually been fairly aggressive saying that sanctions are off and that the U.S. businesses may in fact do business with Iran. The important thing here is that sanctions have not been lifted for most U.S. businesses. We’ve seen cases where less than sophisticated clients, small businesses providing parts and services for the automotive industry are receiving very aggressive requests for business from the Iranians and it’s very important for these small businesses to realize that they need to consult with counsel before they even consider re-entering the Iranian market because in most cases, those representations from the Iranian distributors are actually not accurate.

What is the impact on U.S. dollar clearing services for Iranian crude oil transactions?

What’s very interesting about that is that the U.S. correspondent function still comes into play because oil is traded generally in U.S. dollars and U.S. dollars still clear through U.S. financial institutions in most circumstances. So what we’ve seen is that even though the sanctions on the Iranian petroleum sector have been lifted overseas outside of the United States, realistically the sanctions are still largely in place because of the problem that oil is traded in dollars. What’s interesting is what’s going to happen next. We don’t know if the Iranians are going to try to trade in Euro or in some other currency that’s trying to cut off the U.S. markets, or whether there’s going to be some way as there had been in the past to continue to trade in dollars but to cut the U.S. correspondent system off from access to the those U.S. dollar transactions.

What are the issues for European headquartered businesses using their U.S. compliance function and offices to prepare to re-enter Iranian market?

Well, the European businesses now, because the European sanctions have been rolled back are allowed to re-enter the Iranian market. In many cases they’ve on-shored, or brought the compliance function into the United States. What’s ended up happening inadvertently is that the compliance function is now housed in the United States. The knowledge base is in the United States and so the European-headquartered business wants to use the U.S. knowledge base in order to help it navigate appropriately and re-enter the Iranian market consistent with both European and U.S. law. But they cannot use the U.S. compliance officers to do so unless they have specific authorization from Treasury.

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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Cari N. Stinebower
Partner – Washington, D.C.
Phone: +1 202.624.2757
Email: cstinebower@crowell.com