ILMA Compoundings June 2019 - 15

that allow types of humanitarian aid. Any country, commercial entity or individual that commercially interacts with the
Iranian economy in a way that is prohibited by the sanction
could face enforcement by the U.S., if jurisdiction is established. A secondary sanction (if added) would prohibit the
violator from engaging with any aspect of the U.S. economy,
including the U.S. financial system, U.S. businesses and individuals, and any foreign entities or assets owned or controlled
by the U.S. businesses and individuals.
THE RISKS
The initial driving purpose of INSTEX is to enable participants to gain access to Iranian oil and petroleum products,
along with reciprocal access by European participants to
select Iranian markets, including aerospace. Many envision
expansion of the system to other key interests, beginning with
sanctioned Russian oil and gas industries, interests, entities
and products. All of these represent core interests of European
member states. Many other industries and market sectors are
anticipated to follow quickly on the heels of these.
The current U.S. sanctions against Iran not only prevent
U.S.-owned or -controlled entities around the world from
engaging with the Iranian economy directly, but they also
prohibit these U.S. entities from indirectly engaging

by obtaining Iranian product through others. When
INSTEX becomes operational, this risk to U.S. entities
will mushroom from current levels. Supply sources that are
tainted with Iranian product will no longer be the result of
black-market activity. Iranian product that is purchased by
European INSTEX participants will taint legitimate sources
of supply, and U.S. purchasers will find it difficult to detect.
Nevertheless, this inability to detect taint within legitimate
supply will not enjoy leniency for long. U.S. authorities
already expect significant diligence by U.S. entities to avoid
prohibited product. The diligent standard will be raised even
higher to support the expectation to avoid receipt of Iranian
product from these more abundant sources. Compliance is
now determined on whether the U.S. entity or person "knew
or should have known" about the prohibited source of the
commodity or services. The standard used by U.S. authorities
in measuring a party's actual or imputed knowledge ("should
have known") continues to increase, meaning that due
diligence expectations keep climbing.
Recent enforcement actions continue to demonstrate
that many companies are not adequately investigating
circumstances surrounding transactions and relationships.
That's not to suggest that these are businesses that have not
yet implemented measures to address the subject. It simply
means that a large number of compliance programs simply
do not go far enough to probe for noncompliant factors.
If INSTEX (or any similar measure by a different name)
proceeds as intended, enforcement expectations concerning
appropriate due diligence will grow substantially.
This could lead to further U.S. action in the form of
secondary sanctions against those non-U.S. entities that are
accepting prohibited supply. This step would help identify
specific bad actors for those who screen their transaction
and relationship parties, but the overall situation will remain
very precarious concerning tainted supply and suppliers
that remain unnamed. Plus, it will continue to shrink the
availability of legitimate supply and suppliers as more of the
market tries to sidestep the sanctions.
Eggenschwiler, an ILMA consultant, is an international
trade attorney and director of global trade for the
Redstone Group LLC. He can be reached at
614-923-7472 or jeggenschwiler@redstonegrp.com.

ILMA Compoundings June 2019

Table of Contents for the Digital Edition of ILMA Compoundings June 2019