Articles

Dealing with Iranian "snap back" sanctions in finance documentation

Dealing with Iranian "snap back" sanctions in finance documentation

Dealing with Iranian "snap back" sanctions in finance documentation

22.12.2015 NL law

EU and US legislation lifting or waiving current sanctions applicable to the Iranian market will be without prejudice to the reintroduction of restrictive measures in the event of significant non-performance by Iran of its commitments under the JCPOA (Joint Comprehensive Plan of Action). 

 

Taking these "snap back" provisions into account, finance documentation underlying future Iranian deals will require careful drafting of termination and mandatory repayment clauses, mirroring the applicability of the EU grace period or alternatively the absence of US grandfathering should sanctions indeed "snap back".

On 18 October 2015, the European Union adopted framework legislation in order to terminate its nuclear-related economic and financial sanctions against Iran (Council Regulation (EU) 2015/1861Council Implementing Regulation (EU) 2015/1862 and Council Decision (CFSP) 2015-1863). This framework legislation will amend the existing nuclear-related sanctions towards Iran and related entities and persons under Council Regulation (EU) 267/2012 and come into force on implementation day, following which a number of the existing EU sanctions measures will be lifted. The United States government also issued certain sanction waivers on 18 October 2015, which will come into effect on implementation day. Finally the Swiss government, announced on 21 October 2015 that it would also ease its sanctions measures on implementation day, in line with the EU/UN.

The EU legislation provides, however, that its commitment to lift current sanctions is without prejudice to the reintroduction of restrictive measures in the event of significant non-performance by Iran of its commitments under the JCPOA (Joint Comprehensive Plan of Action). These so called "snap back" provisions would be reintroduced in accordance with normal sanction procedures, following Iran breaking the provisions of the JCPOA. As with the EU sanctions, if Iran violates the JCPOA, U.S. sanctions may also “snap back” into effect and apply in the same manner as they applied before the JCPOA.

 

A significant difference between the "snap back" of EU and U.S. sanction provisions is however, that Regulation 2015/1861 provides that, in the event that sanctions are reintroduced, adequate protection will be provided for the execution of contracts concluded whilst the sanctions were lifted. The U.S. government has, however, indicated that it will not “grandfather” Iran-related agreements entered into between implementation day and the moment snap back of U.S. sanctions is effective. Thus, Iran-related activities pursued after the reinstatement of U.S. sanctions could potentially be sanctionable following the moment of snap back, while EU sanctions allow for a grace period.

In either case, companies signing deals with Iran after implementation day should carefully determine the wording of the termination clauses in their contracts with Iran, providing that the contract could be terminated in the event sanctions were snapped back. Companies only subject to EU sanctions could mirror their termination clauses to the current "breach of sanction" provisions commonly found in Dutch law governed finance documentation, which provisions allow for a mandatory prepayment or event of default following a breach of sanctions (e.g. following a snap back). The mandatory prepayment of outstanding commitments would in itself be permitted, provided such prepayment takes place during the grace period and constitutes an adequate protection in accordance with  Regulation 2015/1861. Companies also, or only, subject to U.S. sanctions may, however, not be as lucky given the absence of any grandfathering and the seemingly impossibility of getting prepaid by a sanction party that was perfectly acceptable a day earlier.

It will prove interesting to see if and how Dutch law governed finance documentation will tackle these termination clauses and the effects of snap back sanctions, not only because institutions such as the LMA have thus far not yet shown a great inclination to establish standardized sanction wording, let alone wording appropriate for snap back of such sanctions, but even more so because the burden costs of such termination would fall with the Iranian counterparty. The latter may prove the biggest hurdle of them all, as rumor has it that Iranian contract law does not recognize the imposition of sanctions as a force majeure event.

This article was published in the Banking and Finance Update of December 2015.

Related news

15.10.2021 NL law
BRRD II implementation in the Netherlands

Short Reads - Recently, the Dutch bill for the implementation of BRRD II (i.e. Directive (EU) 2014/59 establishing a framework for the recovery and resolution of credit institutions and investment firms, as amended by Directive (EU) 2019/879) in the Netherlands was submitted to Dutch Parliament, where it is currently under debate.

Read more

01.10.2021 NL law
Vanaf 1 oktober strengere regelgeving voor verkoop van turbo’s aan particuliere beleggers

Short Reads - Turbobeleggers nemen veel risico’s en verliezen gemiddeld veel geld. De AFM vindt dat particuliere beleggers onvoldoende beschermd worden tegen de risico’s van turbo’s. De verkoop van turbo’s aan deze beleggers wordt daarom aan banden gelegd. Met ingang van 1 oktober geldt een hefboombeperking, een verplichte risicowaarschuwing en een verbod op handelsbonussen. Daarmee wil de Autoriteit Financiële Markten (AFM) particuliere beleggers beter beschermen tegen de risico’s van turbo’s.

Read more

14.10.2021 NL law
NFTs: New legal challenges on the horizon

Short Reads - Non-Fungible Tokens, widely known as NFTs, have recently gained much attention due to their role in the transfer of digital artworks. The market for NFTs grew from USD 13.5m in the first six months of 2020 to USD 2.5bn in the first half of 2021 and is still growing at an expansive rate. Notwithstanding their increasing popularity in the world of art, NFTs have many potential applications. In this blog Maciek Bednarski, Annemijn Witkam and Roderik Vrolijk explain what NFTs are and describe some of the legal challenges they will bring about.

Read more

20.09.2021 NL law
AFM: Beleggingsfondsen kunnen beleggers beter informeren over duurzaamheid

Articles - Beleggingsfondsen kunnen beleggers beter informeren over duurzaamheid. De informatieverschaffing van fondsen over duurzaamheidsrisico’s en duurzaamheidskenmerken is nog vaak te algemeen, daardoor krijgen beleggers te weinig inzicht in waar ze in investeren. Dat is een van de conclusies van de Autoriteit Financiële Markten (AFM) in een verkennend onderzoek naar de toepassing van de Sustainable Finance Disclosure Regulation (SFDR).

Read more

11.10.2021 NL law
Vervolgonderzoek van de AFM naar incidentmeldingen door asset managers

Articles - Sinds de uitbraak van het coronavirus wordt ook in de financiële sector meer op afstand samengewerkt. Dat brengt specifieke risico’s met zich mee. De Autoriteit Financiële Markten (AFM) gaat daarom vervolgonderzoek doen naar het melden van incidenten door asset managers. De reden is het uitblijven van een stijging van het aantal incidentmeldingen ondanks herhaalde oproepen daartoe.

Read more