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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

European Signatories Trigger Dispute Resolution Mechanism Under The Iran Nuclear Deal

On 14 January 2020 the United Kingdom, France and Germany (the E3) activated the dispute resolution mechanism under the Iran Nuclear deal (or JCPOA), the outcome of which could result in a "snap back" of UN sanctions against Iran. This follows a series of high-profile political events that culminated in Iran's announcement on 5 January 2020 that it would discard "the last key component of its limitations in the JCPOA”.

In a public statement issued in Brussels, High Representative Borrell confirmed on 14 January 2020 that the Foreign Ministers of France, Germany and the United Kingdom have referred a dispute concerning the implementation of Iran's nuclear commitments under the JCPOA to the Joint Commission for resolution.

Dispute Mechanism

The E3's decision sets in motion a complex multi-tiered dispute resolution process, to be overseen by High Representative Borrell.

In the first instance, the matter will be referred to the Joint Commission (comprised of representatives of all signatories of the Iran deal), which has 15 days to resolve the issue. Any participant may subsequently refer the dispute to the Ministers of Foreign Affairs, and/or a three-person Advisory Board to provide a non-binding opinion on the matter within 15 days. If the issue remains unresolved after this 30-day period has passed, the Joint Commission has a further 5 days to resolve the matter; failing which the E3 could choose to treat Iran's behaviour as grounds to cease performing their commitments under the JCPOA in whole or in part, and/or formally notify the UN Security Council that they believe it "constitutes significant non-performance".

Each stage of escalation requires a political decision – meaning the 35-day timetable envisaged by the JCPOA should be viewed as the quickest time in which the dispute resolution procedure could be concluded, rather than a deadline for its completion. In that context, it is worth noting that the E3 have restated their "sincere hope of finding a way forward to resolve the impasse through constructive diplomatic dialogue".

Snap Back

Given the US has already re-imposed comprehensive secondary sanctions on Iran, the re-adoption of UN sanctions would principally affect the EU sanctions regime. Whilst the notoriously chilling effect of US sanctions may limit the impact of such changes (particularly on multinational actors with significant exposure to the US), it is worth noting that "snap back" could see the return of EU sanctions on the following areas of activity:

  • transfers of funds between EU persons and entities, including financial institutions, and Iranian persons and entities, including financial institutions;
  • banking activities, including the establishment of new correspondent banking relationships and the opening of new branches and subsidiaries of Iranian banks in the territories of EU Member States;
  • the provision of insurance and reinsurance;
  • supply of specialised financial messaging services for listed Iranian financial institutions;
  • financial support for trade with Iran (export, guarantees or insurance);
  • commitments for grants, financial assistance and concessional loans to the Iranian Government;
  • transactions in public or public-guaranteed bonds;
  • the import and transport of Iranian oil, petroleum products, gas and petrochemical products;
  • the export of key equipment or technology for the oil, gas and petrochemical sectors;
  • investment in the oil, gas and petrochemical sectors;
  • export of key naval equipment and technology;
  • design and construction of cargo vessels and oil tankers;
  • provision of flagging and classification services;
  • access to EU airports of Iranian cargo flights;
  • the export of gold, precious metals and diamonds;
  • delivery of Iranian banknotes and coinage;
  • export of graphite, raw or semi-finished metals such as aluminium and steel, and export of software for integrating industrial processes;
  • designation of certain (but not all) persons, entities and bodies (i.e. the asset freeze restrictions); and
  • associated services for each of the categories above.

Potential Risk Exposure

The EU has previously indicated that in the event of a "snap back", a reasonable period of time will be permitted to allow participants to wind up any activities which have subsequently become sanctioned. This may catalyse the conclusion of any business with Iran that is currently permitted, but which could become sanctioned if the "snap back" mechanism is invoked. Parties involved in such negotiations may wish to ensure their contracts make provision for the event that the relevant business is not completed before any relevant transition period expires.

It is also possible that the EU would accompany any reimplementation of UN sanctions with a reduction in the scope of the EU Blocking Regulation, to remove the civil and criminal liability currently risked by EU-incorporated companies, EU nationals and others within the EU who comply with US sanctions against Iran. However, such a move is by no means a requirement of the "snap back" mechanism or a necessary consequence of it, and may be at odds with the EU's political objection to the US's unilateral re-imposition of sanctions outside of the JCPOA dispute resolution mechanism. In the same vein, the future of the INSTEX initiative also seems uncertain.

Market participants should continue to monitor their regulatory obligations in both the EU and US spheres, where the prospect of "snap back" may have other legislative consequences.

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