ILMA Compoundings - April 2020 - 16

INDUSTRY RUNDOWN

International Insight
Iran Update: U.S.
Trade Compliance
Risks Rekindled
By James Eggenschwiler
In May 2018, the U.S. unilaterally withdrew from the
Joint Comprehensive Plan of Action (JCPOA), otherwise
known as "the Iran deal." For about a year since that
time, the European Commission persisted in its support
of the JCPOA, in stark contrast and conflict with the U.S.
position and regulatory activity. So great was the divide
between the U.S. and the European Union (EU) that
EU member states made multiple attempts to contrive
a barter system that would successfully sidestep U.S.
sanctions against trade with Iran.
However, on Jan. 14 of this year, three European signatories to the JCPOA (France, Britain and Germany) showed
signs of the Iran deal collapse by triggering the JCPOA's
dispute-resolution process. By so doing, they have placed
the JCPOA itself in limbo and have further complicated
commercial and regulatory risks for U.S., European and
other global businesses.
NEW E3 STRATEGY
You may recall that the EU member states, who became
dubbed as the "E3," were the original designers and promoters
of the proposed barter system named INSTEX. This system
became used for providing humanitarian goods to qualified
Iranian organizations and individuals, but it didn't cross the
line by selling commercial goods to Iran as it was originally
intended. The risks associated with violating U.S. sanctions
and secondary sanctions, even through the use of "trade barter,"
proved too severe. The growing momentum around Brexit in
the U.K. undoubtedly complicated resolve. After all, the U.S.
authorities maintained enforcement threats against INSTEX
and related participants if commercial transactions with Iran
occurred. In the face of a potential "hard" Brexit, the U.K.
might shoulder more risk standing alone.
This January, the "E3" initiated the dispute-resolution
process with the stated hope of bringing all the original
parties to the JCPOA to the negotiating table. By this

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APRIL 2020

| COMPOUNDINGS | ILMA.ORG

final effort, the E3 sought to entice the U.S. back into the
fold, and with it the sanctions environment that currently
prevents them from accessing Iranian oil and gas supplies,
as the chief objective. However, the Iranian response was
unsupportive. Instead of returning to the table with offers to
correct the prohibited behavior of which they were accused,
Iran mistakenly doubled down in what seems to be an effort
to further divide the U.S. and the EU.
ENHANCED SCRUTINY
The somewhat predictable response by the three EU member
states has been to further distance themselves from Iran and
from any overt eagerness to reconcile differences with Iran.
This state of affairs, however, heightens risk to U.S. and
European trading partners. On one hand, European businesses have fostered relationships with Iranian counterparts
in anticipation of a successful sidestep of U.S. sanctions
and secondary sanctions through INSTEX, or otherwise.
This investment in commercial relationships has reportedly
spawned actual trade between the counterparts. The volume
and value of this "illicit" trade activity is not well-reported,
much less measured. The present posture among the JCPOA
signatories promotes suppression of that information.
With that is the context that trade activity between U.S.
and EU businesses incurs more scrutiny by U.S. enforcement
authorities. This scrutiny employs multiple methods, including
monitoring of bank transactions and reports, transportation
documents and manifests, aircraft and ocean vessel arrival
notifications and cargo inventories (as well as related cargounloading records and ground-shipment dispatches), customs
authority entry and transfer documents, inland port-to-door
transit records, and other electronic and manual records. The


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ILMA Compoundings - April 2020

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