In previous years Russia and Iran have been highlighted for a number of negative reasons including Russia’s annexation of Crimea in 2014 and Iran’s nuclear program which resulted in embargoes and sanctions being imposed on both countries. EU restrictive measures can be imposed to further foreign and security policy, to uphold respect for human rights, democracy and the rule of law.
So why consider Iran or Russia as a potential market?
With the current protectionism stance in the US, together with developments in the EU with Brexit and the upcoming elections in the Netherlands, France and Germany, it is becoming more important for companies to seek out new and developing markets and opportunities to grow their business and limit their exposure to a dramatic change in trading terms imposed on a prime market such as the UK leaving the EU.
With a population of 80 million and a GDP of €372billion, Iran has great potential as a high-growth marketplace. Its economy is second in the Middle East behind rival Saudi Arabia. In 2016, imports from the EU included; agricultural products €728m, food and raw materials €781m, chemicals €1,829m, machinery €3,807m and textiles and clothing €75m.
Russia the world’ largest nation by area and with a population in excess of 140 million people, imported over €200billion worth of goods in 2016. The principle imports included; machinery, pharmaceuticals, medical instruments, steel/metal semi-finished products and consumer goods.
Since many of the EU sanctions on Iran were lifted by the signing of the Joint Comprehensive Plan of Action (JCPOA) which was implemented in January 2016, many EU companies have been taking advantage of the resulting trading opportunities. Some of the more high profile examples of this include; Siemens AG’s investments in the Iranian energy sector and rail network and Airbus signing a contract to supply aircraft to Iran Air.
What checks are needed?
While companies should not entirely be put off doing business in countries where sanctions exist, extra vigilance is required to ensure that they do not fall foul of control or licencing requirements as the penalties for non-compliance can be severe.
While it should be clear whether or not your product is “specially designed for military use” what may not be clear is if your product has both a civilian and a military version and therefore falls into the “dual use” regulations. Dual use items are listed under a number of categories including; Materials processing, electronics, computers, telecommunications and information security and navigation and avionics.
A comprehensive know your customer review needs to be performed. Many of the checks required here are common to the standard practice for anti-money laundering procedures and know your client risk analysis which most companies are familiar with. The current EU restrictive measures in place against Iran are contained in Council Regulation (EU) 2015/1861 and Implementing Regulation 2015/1862. If your customer raises end use concerns, i.e. listed as a denied party, requests unusual terms of business or any number of other red flags, you should consider if dealing with this customer will expose you to an end use risk. Following your due diligence you should be able to confidently say that you “did not know nor had reasonable cause to suspect” that you were dealing with a denied party.
An examination should also be carried out of the financial or economic sanctions are in place. Both Iran and Russia have been subject to economic sanctions in recent years. Therefore, while many of these sanctions have been lifted, it is important to discuss payment terms with your customer and agree this with your bank to ensure that they will accept payments from the named bank and currency. After all, you will want to get paid for providing your goods or services!
What US considerations are required?
It is also important to consider if US sanctions will have an impact on the deal. Common things to look out for here are; US subsidiary companies involved, key employees of US citizenship, sales agent or broker involved who is a US citizen, payment to be received in US dollars or if the product supplied contains any US origin materials. In the case of US origin materials a “de-minimis” rule often applies whereby a licence may not be required if the product contains less than 10% by value US materials.
As the legislation in relation to these issues is often long and complex and is subject to change, it is important to seek professional advice when determining if your product or market will be subject to control or licencing obligations.
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