The easing of United Nations sanctions against Iran in 2016 has created export opportunities for New Zealand. There is significant scope for increased trade, but care is needed.

The Government puts its shoulder to the wheel

Since United Nations sanctions were eased in 2016, there has been an uptick in government-to-government contact between New Zealand and Iran. The latest visit was by Minister for Primary Industries Nathan Guy early this month.

While in Iran, Minister Guy witnessed the conclusion of a Meat Agreement between the Iranian Veterinary Organisation and the New Zealand Ministry of Primary Industries and the signing of a Statement of Intent between Zespri and Iran's Ministry of Agriculture.

These developments are commercially significant. Iran, with a population of over 80 million people, is the second largest economy in the Middle East-North Africa region. It was among New Zealand's top five export markets for lamb in the 1980s and remains a critical market for New Zealand butter.

Other recent political contacts include:

• Iran's Foreign Minister Dr Mohammed Javad Zarif coming to New Zealand in March 2016
• Minister of Foreign Affairs Murray McCully going to Iran in May 2016, and
• Minister of Trade Todd McClay leading a trade delegation to Iran in December 2016.

During Dr Zarif's visit in 2016, the New Zealand Export Credit Office (NZECO) signed an arrangement with the Export Guarantee Fund of Iran (EGFI) designed to help facilitate economic cooperation between the two countries.

Dealing with financial institutions in Iran

The lifting last year by the US Government of secondary sanctions which constrained the engagement of non-US banks in financial transactions with Iranian individuals and entities has removed an obvious impediment to trade – although problems remain.

On the plus side, there is now far greater scope for non-US banks to legally process Iranian payments. They may transact with Iranian financial institutions not on the US Treasury's List of Specially Designated Nationals and Blocked Persons (SDN List). According to the US Treasury, the institutions removed include most Iranian financial institutions.

However:

• US persons are still broadly prohibited from engaging in transactions or dealings with Iran, unless the activity is specifically exempt from regulation or authorised by US Treasury Office of Foreign Asset Controls (OFAC). This means that non-OFAC approved Iran-related transactions cannot be routed through US banks or involve US persons, and
• the US maintains rules with respect to US persons serving as directors or senior managers in non-US, non-Iranian entities, and concerning non-US entities that are owned or controlled by a US person.

It is also important for companies to be aware that in the event of significant non-performance by Iran of its commitments under the Joint Comprehensive Plan of Action (JCPOA) pursuant to which United Nations sanctions were lifted, those sanctions will “snapback" and be re-imposed. The US has committed not to retroactively impose sanctions for legitimate activity undertaken before the date of re-imposition of sanctions, and OFAC has indicated that if a snapback occurred, it would work with non-US companies to minimise any impact on that legitimate activity.

In addition, there are autonomous (i.e. non-United Nations) US sanctions related to terrorism and human rights violations, as well as questions about how aspects of the OFAC guidance relating to the lifting of the United Nations sanctions is to be interpreted.

In recent weeks, the Trump Administration has imposed new sanctions on persons or organisations which procure technology or materials to support Iran's ballistic missile programme or have links to Iran's Islamic Revolutionary Guard. While this is unlikely to have any real impact on New Zealand companies looking to export to Iran, it may have a cooling effect on banks already reluctant to update their risk profiles to reflect the new regulatory environment outlined above.

Chapman Tripp comment

Pursuing opportunities with Iran will not be straightforward – Minister McCully noted only last week that while the Government is seeking to deepen economic ties with Iran, remaining banking restrictions make this “a bit difficult".1

It has been reported that Western banks have been hesitant to deal with Iran, due in part to concerns about whether doing so might cause them to run into problems with the US Treasury. But OFAC released guidance in 2016 that should give banks some comfort that they can structure transactions so as not to fall foul of the sanctions that remain in place.

Those remaining sanctions must be carefully managed. But they should not stop businesses from working with their financial institutions to investigate ways of accessing the Iranian market or increase their exports to Iran.

Undertaking thorough due diligence both on the part of exporters and financial institutions will be critical. But the potential prize may be well worth the effort. If you need guidance understanding the risks, and how to mitigate them, please contact a member of our expert team.

1“Government hopeful of free-trade deal with Gulf states this year – McCully", www.stuff.co.nz, 7 March, 2017.

| A ChapmanTripp release  |  March 16, 2017  ||