On 16 January 2016, the Joint Comprehensive Program of Action (JCPOA)1 was implemented in accordance with the Iran nuclear deal concluded on 14 July 2015 as a result of the negotiations between China, France, Germany, the Russian Federation, the United Kingdom, the United States, the EU and the Islamic Republic of Iran.
The landmark deal lifted international sanctions on Iran,2 although restrictions remained on certain activities.
Consequently, the Monetary Authority of Singapore (MAS) issued the MAS (Sanctions and Freezing of Assets of Persons — Iran) Regulations 2016, lifting Singapore's sanctions on Iran effective 17 June 2016, in accordance with UNSC resolution 2231 (2015). At the same time, the Regulation of Imports and Exports (Amendment) Regulations 2017 allowed Singapore businesses to resume trade with Iran.
The US withdraws from JPCOA
On 8 May 2018, the United States announced its decision to withdraw from the JPCOA and re-impose “secondary” sanctions targeting non-US person3 dealings relating to Iran sanctions in two tranches (see our 9 May 2018 Legal Update).
- Starting from 6 August 2018: Re-imposition of all secondary sanctions lifted under the nuclear deal except those stated in (ii) below, including transactions relating to Iran’s automotive sector, industrial and raw materials, trade in gold and precious metals, the Iranian government's purchase or acquisition of US dollar banknotes, the purchase or sale of Iranian rials and Iranian sovereign debt.
The US will also block the export and re-export of commercial passenger aircraft and related parts and services and the importation of certain Iranian products.
The US President issued Executive Order of 6 August 2018 “Reimposing Certain Sanctions With Respect to Iran” (here) to implement the first tranche of re-imposed US sanctions against Iran, effective 7 August 2018.
- Starting from 4 November 2018: Re-imposition of secondary sanctions targeting certain energy, financial, insurance and shipping-related activities.
In addition, the government of Iran and various persons and entities previously removed pursuant to the JCPOA will be re-added to the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC)'s List of Specially Designated Nationals (SDN List).
The 8 May announcement and the two waiver periods described above do not impact other significant US sanctions and export control restrictions that have been in place throughout the nuclear deal, including the primary US trade embargo against Iran, US export controls and certain secondary sanctions that remained intact under the JCPOA.
Reactions of other countries
The US' withdrawal came despite the concerns of many other countries, including the other parties to the JCPOA. To date, all other UN members continue to adhere to UNSC resolution 2231 (2015), including Singapore. In fact, the European Union announced the activation of its Blocking Statute,4 intending to "shield" EU nationals, EU residents, EU-incorporated companies, non-EU nationals or entities acting professionally in the European Union, and EU-controlled shipping companies domiciled outside the European Union from the extra-territorial reach of the US sanctions laws on Iran. The EU blocking statute has also comes into force 7 August 2018 (Fact Sheet published by the European Commission here and see our 7 August 2018 Legal Update).
What is Singapore's response?
Following the implementation of the JCPOA, Singapore lifted its Iran sanctions, in accordance to the UNSC resolution 2231 (2015):
- 2016 MAS Regulations on Iran – Financial institutions in Singapore are not prohibited from providing financial assistance such as investment, brokering, other financial services or other related services, including insurance or reinsurance, funds, financial assets, economic resources transfer services to:
- The Iranian government;
- Iranian nationals;
- Entities incorporated in Iran or subject to its jurisdiction;
- Individuals or entities acting on behalf of, or on the direction of, any of the three persons identified above; and
- Entities owned or controlled, directly or indirectly, by any of the three persons identified above.
- Prohibitions remain on "designated persons" identified in the UN List, as well as on “sanctioned activities” related to the design or technology of ballistic missiles capable of delivering nuclear weapons. Prohibitions also remain on "designated items" including any item which could contribute to uranium reprocessing or enrichment related or heavy water related activities.
Non-financial institutions and natural persons in Singapore are similarly subject to the sanctions requirements.
- Regulation of Imports and Exports (Amendment) Regulations 2017 – Singapore allows the trade in non-prohibited goods with Iran, subject to a customs permit requirement. Import of arms and related materials from Iran, and the export of "designated items", which are items that could contribute to the development of nuclear weapon delivery system and arms and related materials to Iran, continue to be prohibited.
Following the US decision to withdraw from the JCPOA, Singapore has not reinstated the Iran sanctions. In general, Singapore does not enforce unilateral sanctions adopted by other countries, such as the US. Accordingly, the above mentioned provisions remain in force.
The reality for businesses in Singapore
With the lifting of the Iran sanctions, the Singapore government has been active in promoting bilateral ties with Iran, including signing a bilateral investment treaty (BIT) and encouraging Singapore businesses to venture into Iran.
However, Singapore companies could be hit by the extra-territorial application of the US sanctions. We identify a few of the practical implications below.
- The US market is one of Singapore's largest export markets. Only Singapore businesses which do not have links with the US market (whether through physical presence, financial ties or through supply and distribution chains) will be able keep their access to the Iranian market.
- The US dollar is the basis of a large proportion of trade in Singapore. Settlement of transactions involving Iran may not be denominated in US dollars. In addition to the existing restrictions on US dollar-denominated transactions involving Iran, the secondary sanctions are expected to target some of Iran’s most significant financial institutions. This will significantly complicate payment arrangements that may expose Singapore companies to potential commercial risk in addition to the risk of secondary sanctions associated with such trade.
- The global importance of the US financial system and the international nature of Singapore's financial system mean that many banks do not want to deal with Iran even though the transactions are completely legal in Singapore. This makes it a great challenge for Singapore businesses to gain access to trade finance, credit facility, insurance, etc.
- Many carriers want to avoid being caught up in the US sanctions. Singapore businesses may have difficulties finding container lines that would ply the Iran-Singapore trade lane.
Businesses should take compliance with US sanctions and export control laws seriously. Taking actions to mask an Iran-related transaction and inducing a US entity or person to be involved can expose the business to severe penalties for breaching US sanctions. At the same time, not all transactions involving Iran will subject Singapore entities to sanctions exposure. It is advisable that Singapore companies with interests in the Iranian market carefully assess the risks associated with their respective activities.
1 On 20 July 2015, the Security Council unanimously adopted resolution 2231 (2015) endorsing the JCPOA. The JCPOA was implemented after the UN Security Council received the report from the International Atomic Energy Agency (IAEA) confirming that Iran has complied with specific requirements.
2 Sanctions imposed under UNSC resolutions 1696 (2006), 1737 (2006), 1747 (2007), 1803 (2008) and 1929 (2010) were terminated.
3 Non-US persons include non-US subsidiaries of US persons. US persons generally include US citizens and permanent residents; entities organized under US law, including foreign branches; and any person located in the United States.
4 Council Regulation 2271/96, also referred to as the “Blocking Statute”, was initially adopted to “oppose” the extraterritorial reach of the US’ Helms-Burton Act and 1996 Iran-Libya Sanctions Act (ILSA).