Allens

International Business Obligations

Focus: New autonomous sanctions against Iran proposed

14 June 2012

In brief: Australian individuals and companies that have business dealings with Iran in relation to a range of industries, notably oil and gas, financial services, and diamonds and precious metals, should be aware of the Federal Government's proposed new autonomous sanctions against that country. Partner Anthony Patten (view CV), Lawyer Roslyn Stein and Law Graduate Tim Farhall look at the changes to Australia's autonomous sanctions regime.

How does it affect you?

  • Australian businesses with activities concerning the crude oil, gas, or petrochemical industry in Iran, or with Iranian companies operating in these industries anywhere in the world, should be aware that certain of their dealings will soon be prohibited.
  • Many dealings in financial services in Iran, and relationships with Iranian financial institutions, will also be prohibited under the new sanctions.
  • Selling gold, diamonds and precious metals to the Iranian government, its corporations and agencies, or the Central Bank of Iran will be prohibited.
  • Companies with activities in Iran or involving Iranian companies or individuals should review their dealings to consider whether they are prohibited by these proposed sanctions, and whether it will be necessary to apply for an authorisation permit once the proposed sanctions come into force.

Background

The Australian Government has announced that it will introduce new sanctions relating to Iran. These sanctions will extend those already in place under Australia's United Nations Security Council and autonomous sanctions regulatory regimes. These regimes provide that certain business conduct connected to Iran, and engagement with certain persons connected to Iran, is prohibited. Subject to certain requirements, however, this prohibited activity may be engaged in, with prior authorisation from the Minister for Foreign Affairs. As with the current regulations, the new regulations will apply to any Australian person or body corporate, including a foreign body corporate controlled by an Australian entity. In order to determine whether a foreign body corporate is controlled by an Australian entity, the Department of Foreign Affairs and Trade (DFAT) is considering introducing a 'standard proportional ownership' definition of control to the Autonomous Sanctions Regulations 2011 (Cth).

The aim of the proposed regulations is to ensure that Australia's sanctions are consistent with those imposed on Iran by other members of the international community. The proposed sanctions will prohibit Australian companies operating in sectors of the Iranian economy that are already prohibited to other companies around the world. Such restrictions imposed by other states include those imposed by the US under its Iran Sanctions Act, and by the European Union. DFAT is aiming for the proposed sanctions to come into force by July 2012.

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Oil and gas

The proposed sanctions will prohibit a range of commercial activities in the Iranian oil, gas and petrochemical industry, including:

  • offering financial assistance or financial services in relation to the import, purchase or transport of Iranian oil, petroleum and petrochemical products;
  • making available to the Iranian government or an Iranian company or citizen, an interest in commercial activities in the oil and gas industry in Australia;
  • establishing or participating in a joint venture with an entity in Iran involved in the oil and gas industry or providing financial credit or assistance to such an entity; or
  • establishing or participating in a joint venture with an Iranian-owned company involved in the oil and gas industry or providing financial credit or assistance to such an entity.

Note that the proposed sanctions will prohibit this conduct in Iran with both Iranian and non-Iranian companies involved in the oil and gas industry, as well as conduct with Iranian companies involved in the oil and gas industry anywhere in the world. According to DFAT, it is anticipated that the list of sanctioned oil, gas and petrochemical products will be very similar to the list adopted by the European Union earlier this year.

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Financial services

The proposed sanctions will also prohibit a range of activities relevant to the financial services industry. In particular, the following activities will be prohibited:

  • entering into or ongoing commercial arrangements with a financial institution operated directly or indirectly by the Iranian government or an Iranian company or citizen, including opening a branch or office in Australia, establishing a joint venture with an Iranian entity, or an Iranian entity or individual acquiring an interest in an Australian financial institution;
  • an Australian financial institution opening a branch, office, subsidiary or bank account in Iran; or
  • dealing in new Iranian-denominated bank notes or coinage on behalf of the Central Bank of Iran.

DFAT proposes to introduce a definition of 'financial institution' to the Autonomous Sanctions Regulations that is consistent with international definitions, such as that used by the Financial Action Task Force.

Proposed amendments to the definition of financial service

The definition of 'financial service' in the Autonomous Sanctions Regulations will be amended to include derivatives. At present, the definition of financial services includes: an investment service, providing financial advice, brokering services, and insurance and reinsurance. This new definition will apply to all sanctioned services under the Autonomous Sanctions Regulations currently in place.

Note, that transactions between Australia and Iran of more than $20,000 already require approval from DFAT under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). This restriction continues to apply.

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Gold, diamonds and precious metals

The proposed sanctions will also prohibit the sale, directly or indirectly, of gold, diamonds and precious metals to the Iranian government, its corporations and agencies, and to the Central Bank of Iran. This prohibition will not apply in respect of dealings with private companies or individuals.

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Authorisation for prohibited activities beyond 1 July 2012

For Australian businesses with ongoing contractual obligations that may be prohibited under the proposed sanctions, the Australian government proposes an authorisation process, which would allow Australian businesses six months from the commencement of the proposed sanctions to divest their interests. The proposed authorisation process will require Australian businesses to apply to the Minister for Foreign Affairs for an authorisation permit.

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The importance of due diligence

The wide scope of prohibited conduct means that companies engaged in the oil and gas industry, the financial services industry and the gold, diamonds and precious metals industry should conduct all relevant due diligence to ascertain whether ongoing business activities or any proposed sale or purchase of businesses, goods or services are likely to be caught by these proposed sanctions. It will also be critical for companies to conduct due diligence on third parties with which it does business who may have dealings with the Iranian government. Companies with foreign subsidiaries will also need to monitor their behaviour closely, as the prohibitions will also apply to foreign bodies corporate that are owned by an Australian entity.

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Conclusion

DFAT anticipates that the text of the draft Regulations will soon be available for comment, and that the timeframe for public comment on this draft will be quite short.

Companies involved in dealings with Iran should review their sanctions compliance program in light of these developments. Given the short timeframe for introduction, and broad categories of conduct that will be prohibited, affected companies should take all necessary steps to ensure they will be able to comply with the proposed sanctions.

For further information, please contact:

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