Looser Sanctions with Iran Opens Doors to Business

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Looser Sanctions with Iran Opens Doors to Business

In early February, the Canadian government eased restrictions on trade with Iran. The amendments to the economic sanctions were brought into force following Iran’s promise to comply with imposed restrictions regarding its nuclear proliferation activities under the Joint Comprehensive Plan of Action presented by the P5+1 countries. In addition, the UN Security Council also eased its sanctions and many countries including the United States and the EU have agreed to lessen their economic sanctions.

Canada’s way ahead in regards to trade relations with Iran is what the government is calling “controlled economic re-engagement”, which essentially means that legal constraints on doing business with Iran are eased but certain notable constraints remain in place in various reasons. For someone who may be thinking about exploring the idea of engaging in trade activities in Iran, the remaining constraints may seem like risky road to go down, but here are a few answers that might just help you.

Sanctions: what are they?

There are currently two economic sanctions enforced against Iran in Canada: one mandated by the UN Security Council and the other under the Special Economic Measures Act (SEMA). The first were implemented in Canada through the regulations Implementing the United Nations Resolution on Iran (SOR/2007-04) brought under the United Nations Act (R.S.C., 1985, c-U-2). In a nutshell, these sanctions aim Iran’s military and nuclear proliferation activities and outline a list of groups and individuals with who doing business is prohibited and also a list of arms, nuclear-related goods and military technology that cannot be sold to Iran. As a bonus to the UN sanctions, the SEMA regulations lay out unilateral economic sanctions against Iran which have had the most significant impact on business dealing between both countries in recent years.

Changes in sanction on Iran

The restrictions lifted by Canada will have repercussions on trade, financial transactions and investments engaged with Iran which were previously framed in the SEMA Regulations. Therefore, business with Iran will generally be allowed unless:

  1. the client or any intermediary is listed in the restricted persons / entities (Schedule 1) of the amended SEMA Regulations or is designated as a restricted party by the UN;
  2. the product being sold is listed in Schedule 2 of the SEMA Regulations or are referenced in the lists compiled by the United Nations and included in the SEMA amendments;

If the Canadian government was able to move forward with the amendments, the fact that the U.S. Office of Foreign Asset has recently issued General License H which essentially removed the application of American sanctions on Iran to independently operated foreign subsidiaries of U.S. companies. Consequently, in all comes down to the fact that Canadian companies now have more leeway to engage in trading and investing in Iran.

What’s in it for business owners?

It means business with Iran is possible – if you do your homework. The major point to consider when planning on future business with Iran is to confirm that none of your company’s activities, goods or services are listed in the abovementioned remaining restrictions. Seeking proper legal advice will help you avoid complications. It’s also important to consider who you’re looking to engage with; as many Iranian assets have a link to the state, figuring out exactly who’s who, might be complex and you want to dodge doing business with any entity listed in the restrictions.

Homework done, everything is cleared, let’s do business now?

Not quite.

Under the Export Control List (SOR/89-202)(ECL), the Canadian government maintains a list of goods that cannot be exported to any destination without a permit. This list includes a range of goods and technology which for obvious reasons are tightly controlled for export from Canada. To find out more about the ECL, you may want to consult the Guide to Canada’s Export Controls.

Global Affairs Canada announced on the same day the government put forward its easing of sanctions, that “applications for export permits to export to Iran any goods or technologies covered under any of the following items on the Export Control List, (i.e., those items which are considered the most sensitive from a national and international security perspective, including nuclear goods and technologies, as well as those goods and technologies which could assist the development of Iran’s ballistic missiles program), will normally be denied.” (Notice to Exporters no. 196)

It’s also important to note that under section 5400 of the ECL, all goods of U.S. origins require an export permit to be re-exported from Canada. Normally this wouldn’t be a problem as businesses can rely on a General Export Permit No. 12 – but the GEP-12 doesn’t apply to exports to four specific countries: Cuba, Syria, North Korea…and Iran. So, unless a transaction-specific export permit is obtained, U.S. origin goods cannot be re-exported from Canadian soil.

Loosen Canada Iran Sanctions

Financial Transactions Eased but not Easy

Setting up business with Iran has one last hurdle to jump over: getting paid for your goods or services. It’s important to note that many of the major Iranian financial institutions are actually listed in Schedule 1 of SEMA Regulations and that various international banks are still very wary about processing financial involving Iran. It may be all still too early in the game for them to jump onboard.

Worth the Hassle or Not

In the end of it all, having a solid determination, an all-inclusive plan and good counselling will help you navigate the many different layers of rules and regulations that frame the new opportunities ahead with Iran as a new potential trade and business partner.