News Are Swedish companies prepared for more business with Iran?

May 02, 2016 Highlight HD

Under the heading Vinge insight, we share our views on and analysis of matters from a business law perspective.

On 16 January 2016th, the sanctions against Iran which pertain to its nuclear program were relieved. As a result, Iran is once again entering the global economic scene. What does this mean from an export control perspective and what should Swedish companies be thinking about? Caroline Dackö, Head of Export Control at Vinge, provides her insight.

"From a global perspective, the sanctions relief against Iran is a major event. The sanctions relief has opened up a large and hitherto blocked market for trade. Vast amounts of money which have been frozen as a result of the sanctions can now be put to use. Historically, Iran has been a major trading partner for Swedish industrial products and large Swedish and German companies enjoy a great reputation in Iran. A lot of industries are in a poor state of disrepair and the first wave of trading is expected to focus on repairs and spare parts for existing infrastructure."

What possibilities and risks do you see for companies who want to go into Iran?

"There are major possibilities for companies who want to do business in Iran, but there are also risks. In the short-term, the biggest risk is of breaching applicable sanctions or export controls by trading with individuals or companies which remain subject to sanctions, that goods are exported which are covered by export licenses, or that there is a connection to the US (US citizens, US dollars, or trading in US goods). There is also the risk that your bank in Sweden does not accept payments from business partners or their bank. You can alleviate this risk by formulating internal procedures and going through all of the phases before you start or before you give the all clear. One important step is that you perform due diligence on proposed business partners, e.g. who owns and controls the company with which you intend to do business. You should also take into account the associated corruption risks in this context."

Do you see any risks from a longer perspective?

"From a slightly longer term perspective the biggest risk is that Iran breaches the agreement and the sanctions are reimposed through so-called snapback. In such event, it is advisable that you make provision for this in your agreements with your Iranian business partners. Moreover, the geopolitical situation could worsen and other sanctions could be imposed or the scope of existing ones expanded so that it is once again difficult to trade with Iran. It is a good idea to appoint someone as part of the internal procedure who is close to the deal and who is familiar with the sanctions and can follow developments on a daily basis, especially in light of the fact that it is difficult to foresee what will happen in the long-term, not least due to the war in Syria and Iran’s conflict with Saudi Arabia. Even if it is possible to trade with Iran at the moment, the political situation plays a major role in any decisions concerning long-term investments."

What are your comments in relation to the media’s picture of the lifting of sanctions against Iran?

"In summary, it can be stated that the media has not provided a completely true picture when they state that it is now possible to trade with Iran. It is important to remember that the term of the agreement is ten years and it is more correct to speak in terms of sanctions relief instead of the lifting thereof. At UN level, the sanctions will not be completely lifted until after the expiration of this ten year period. If Iran breaches the agreement during this ten year period then the sanctions can be quickly reimposed."

"Another important aspect is that the US has not eased its sanctions for American companies but has only promised to ease the sanctions which might affect non-US companies outside the US. In light of this, we have also noticed that EU banks are very restrictive in their trading with Iran and impose fairly stringent requirements on their customers in relation to receipt of payments from Iran. Finally, but equally important, there are still sanctions against Iran due to Iran’s infringement of human rights. These sanctions are not affected at all by the agreement and remain in force. Moreover, there are sanctions against terrorist organizations which may have some links with Iran, not least al-Qaida and ISIS."

What concrete advice would you give to companies that want to start exporting to Iran now?

"Prior to the deal you need to go through a number of steps and ask yourself a number of questions. Who am I dealing with? There are still prohibitions against dealing with certain named individuals and companies, including banks and organizations. What will we be exporting? Certain products, software and technology require export licenses. How will we get paid? Many banks impose requirements that you have to demonstrate what internal controls have been  performed before you are entitled to accept payments. In addition, the transaction should be cut off from any American involvement."

Background

The sanctions against Iran reached their summit in 2012 when the EU imposed restrictions against oil and the oil industry and prohibited bank transfers and Iran has been outside the world economy ever since. The EU, USA, China and Russia jointly negotiated the agreement (JCPOA, Joint Comprehensive Plan of Action), which was also secured with a UN resolution. This also shows that sanctions are currently viewed as an effective means of influencing and forcing change. In this case, the prospect of sanctions relief was employed to bring Iran to the negotiating table and agree to allow inspections and adapt its nuclear program.