2020 vision - Current core sanctions issues are a good guide to what next year will bring

Sanctions regimes continue to target countries who would otherwise be main players in the hydrocarbon and other commodity markets - for example, Venezuela and Iran have indisputably major oil reserves, and in gas Russia and Iran top the list.

US sanctions against Iran have been in place since 1979, amid a fractious relationship that moved right back into the limelight with the US withdrawal from the JCPOA in May 2018. The effects of that have been felt all throughout this year, with US-Iran tension closely matching that of four decades ago. 

The August 2018 reintroduction of the moribund 1996 EU Blocking Regulation was supposed to neutralise any relevant non EU provision or decision, make compliance with any such illegal (Article 5) and secure compensation for anyone incurring losses due to US action. However, its practical effects have to date been muted, with no visible trend of either enforcement or recovery.

Conversely, in Mamancochet Mining v Aegis [2018] EWHC 2643 (Comm) the judge observed (without deciding) that declining an insurance policy payment under a sanctions provision was just application of the clause, not contravention of the Blocking Regulation.

It is possible, moreover, that some banks are in breach in refusing to process perfectly valid payments, perhaps fearing secondary US action that might neuter their US-dollar denominated transactions. Such things equate to sanctions that are unwritten, but no less effective. 

Sanctions are key weapons in economic warfare, and the enforcement enthusiasm of those who wield them is not waning. On the contrary, an already aggressive sanctions policy has been further intensified under President Trump. While the EU has traditionally sought to limit scope to specific individuals and entities, the US prefers to sanction countries, often with financial restrictions that affect an entire economy. Visible success means that these trends are likely to continue in 2020.

The same is true of secondary sanctions, whether they are real or merely perceived, codified or just feared. A benchmark of efficacy, this US outreach has attracted attention and criticism, but detectably little else, and the decision in Lamesa Investments Ltd -v- Cynergy Bank Ltd [2019] EWHC 1877 (Comm) is a very recent example of cross-border influence. 

Very briefly, in a case with no US nexus apart from acute need to preserve dollar facilities, the claimant lender sought to show that the borrower bank had to make interest payments, even though its UBO had become sanctioned. On the wording of the relevant clause, the judge ruled that the borrower was entitled to withhold because of the risk of being exposed to US secondary sanctions.

This is not very far from saying that the US can now influence the construction - and thus from now also the drafting - of English law contracts with no material US connection, and in 2020 we will very likely see more issues (and also decisions) like this amid an ever increasing ambit of US secondary sanctions.

If you need specific advice or would like generally to discuss any point or topic in this note please contact Helen Schlemminger (h.schlemminger@mtaher.com) or Tim Stephenson (t.stephenson@mtaher.com).



Category: News


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