Alongside brief commentary on recent developments, this article reviews some important but increasingly forgotten background matters.

Sanctions are part of the heavy artillery of economic warfare, and ban or curtail commerce in order to pressurise offending regimes. With severe penalties for breach they are strict - and often strict liability - provisions which can have a huge impact on trade.

Developments

On 2nd August the U.S. took further such steps against long standing targets Iran and North Korea and relative newcomer Russia. President Trump signed into law H.R. 3364, Countering America's Adversaries Through Sanctions Act (the “Act”) which requires the imposition of additional U.S. economic sanctions with respect to Iran, North Korea and Russia. The latter is revisited for its continuing activities in the Crimea and Ukraine and alleged involvement in the U.S. election, and the former two for missile development, which in North Korea’s case has more recently outpaced all measures, at least in seizing world headlines.

North Korea is so long and heavily sanctioned that (in terms of legal commentary) further ratcheting, which, following the apparent hydrogen bomb that North Korea is believed to have detonated underground on Sunday 3rd September, appears to be imminent, surely makes no difference. However, Russia sees a tightening of rules in place since only March 2014, and Iran is further sanctioned just after the second anniversary of the derestricting JCPOA and less than seven months beyond its Implementation Day.

Russia

The portion of the Act dealing with Russia is entitled Countering Russian Influence in Europe and Eurasia Act of 2017 (the “New Russia Sanctions Act”), builds upon existing Ukraine-related sanctions and effectively codifies them. By measures including asset-blocking, exclusion from the U.S. and direct financial steps, Russia faces new sanctions in respect of pipeline development, railway, metals and mining activities, defence and intelligence agency transactions, cybersecurity and certain crude oil projects. There is also specific adjustment to some of the main Crimea/Ukraine-related provisions, which are unusual in that, rather than forbidding certain activities, they restrict how they may be done. Under the previous measures it was lawful to deal with many of the listed entities, provided only that one allowed less than 90, or in some cases 30, days credit. A major change will reduce 30 days to 14 and 90 to 60.
  
The New Russia Sanctions Act also expands the scope of prohibited transactions with respect to the financial services and energy sectors (Sectoral Sanctions and their Directives), introducing a lower (to the previous 50% or more) threshold of interest of 33% or more for sanctions targeting. A Russian energy project, for example, in which a sanctioned person holds 33% or more interest will be a sanctions target.

Aimed at Russia’s financial system, these sectoral sanctions, as they are known, plainly mean that great care is needed when selling, or chartering out, to any affected entity. The contract or fixture must mandate payment of all sums (e.g. the purchase price, demurrage, deviation expenses and any freight balance) within the relevant period, or risk breach. The above would mean for example very careful consideration of common terms that make a freight balance payable a short time after the voyage.

Post charter (or other contract) follow-up must also be rigorous, and should involve procedures that prevent forbearance or informality evolving or simply slipping into an ancillary settlement deal allowing impermissible credit.

Iran

On 14th July 2015 the JCPOA was concluded. Adoption Day followed on 18th October, and Implementation Day three months later saw the lifting of all nuclear-related restrictions. But that is still subject to conditions and exceptions, and a number of other sanctions remain, including those concerning missile technology and weapons of mass destruction (WMD) sanctions (the restriction will continue to be in place until Transition Day in October 2023), arms embargo, alleged human rights abuses, activities connected to the so-called regional destabilization (Syria, Yemen) and restrictions regarding the trade control licensing requirements for export credit and (re)insurance for export to Iran of certain goods and technology related to nuclear items, graphite, metals and software designed for use in nuclear and military industries.

This theme continues; the section of the Act dealing with Iran is entitled Countering Iran's Destabilizing Activities Act of 2017 (the “New Iran Sanctions Act”) and builds upon existing U.S. sanctions against Iran, with further (largely blocking and exclusion) measures directed at the Revolutionary Guard, provisions that seek to counter the development of ballistic missile program, WMD and additional arms embargo.

Just as for Russia, a number of individuals and companies are wholly proscribed, such that it is illegal to deal with them at all. This is the list of Specially Designated Nationals - SDNs, in OFAC shorthand. Though probably imminent, there has been no further addition to this yet, and no relaxation, either. If people or bodies are caught by any current sanction structure, dealing with them remains unlawful. It makes no difference that sanctions that applied for some other reason have been lifted.

Nationality and territory

The key sanction trigger of “U.S. persons” was and remains expressly outside the JCPOA. Subject only to specific licensing, that lifting of nuclear-related sanctions is confined to "those directed towards non-U.S. persons", i.e. anyone/thing not within a detailed listing very much like, though not identical to, the OFAC definition.

The new measures define a “United States person”, again in a way that is similar but not the same. Thus, parties should, as previously, first carefully consider these provisions and identify what, and crucially who, their own relevant people or entities are.

It does not stop there. The existing and wide concept of "facilitation" finds echo here in extraterritorial provisions which penalise any “foreign person” (in essence not a “United States person”) who commits or causes a breach of the legislation and extensive other provisions referred to in it.

It must be remembered, too, that sanctions are specific in origin, and not universal in effect. For topical example, the U.S. sanctions Venezuela but the EU does not, and with Tunisia it is the other way round. Similarly here, the recent sanctions are by the U.S. There is nothing new from the EU.

In adding new measures, amending some previous rules and tightening others that have perhaps now become dangerously familiar, this legislation has added a further layer of complexity to an already difficult matrix. Parties should (i) ensure that their counterparty identity checks are thorough, so they know who they are dealing with (ii) measure their commercial activities against the new scope of sanctions and (iii) promptly seek advice if in any doubt.

OFAC will issue regulations implementing the new sanctions.

If you would like to discuss any point or topic in this article please contact Maryam Taher and Paris Pantelis.