As time passes without a concrete agreement de-escalating the long-running nuclear crisis between Iran and the international community, Iranian companies face continued uncertainty about lingering claims for damages due to contracts broken by Western firms.
The 2015 Joint Comprehensive Plan of Action (JCPOA) presented significant opportunities for economic growth and reconciliation by lifting UN Security Council sanctions, as well as multilateral and national sanctions pertaining to Iran’s nuclear program. International companies were quick to recognize Iran’s potential and signed a multitude of agreements with Iranian firms across an array of industries, from energy to automobile manufacturing.
In the wake of the U.S. unilateral withdrawal from JCPOA in May 2018, however, international companies were forced to wind down their activities in Iran, resulting in the termination or suspension of contracts. The repercussions were severe, as international partners did not fulfill their contractual obligations, causing substantial financial and operational damage to Iranian parties.
Seeking redress, many Iranian companies contemplated invoking arbitration clauses within their agreements to claim damages. However, the intricate legal landscape created by U.S. sanctions added further complications. Uncertainty looms over international arbitration tribunals and their arbitrators, which could potentially become vulnerable to U.S. secondary sanctions.
Arbitration is the prevalent mechanism to resolve contractual disputes. During arbitration proceedings, involved parties present their respective cases before one or more arbitrators. The arbitrators meticulously review the evidence and arguments and render a decision, known as an arbitral award, which is legally binding. However, the sanctions imposed by the United States over an extended period have curtailed the capacity of Iranian nationals and entities to pursue arbitration, despite the inclusion of arbitration mechanisms in mutually agreed contracts.
On June, 14, 2016, Iran initiated legal proceedings against the United States at the International Court of Justice (ICJ) over alleged violations of a 1955 Treaty of Amity, Economic Relations, and Consular Rights. In Iran’s memorial to the ICJ submitted on May 29, 2019, the primary focus was on financial transaction restrictions as the primary consequence of U.S. sanctions, limiting Iranian entities’ access to international dispute settlement mechanisms outside Iran. However, the ways in which U.S. sanctions hinder Iranian entities’ ability to access international arbitration are intricate and multifaceted.
Non-U.S. persons and entities that operate entirely outside U.S. jurisdiction may still find themselves subject to negative legal consequences if they engage in “significant” transactions or provide material support to individuals sanctioned by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) — so-called Designated Nationals and Blocked Persons or SDNs. This jeopardy exists if 50 percent of an entity is directly or indirectly owned by someone on the SDN list.
Furthermore, after the Trump Administration withdrew from the JCPOA, it issued a series of Executive Orders imposing secondary sanctions on Iran’s energy, shipping, banking, iron, steel, aluminum, and copper sector. Any individual or entity involved in construction, mining, automotive manufacturing, textiles, or the financial sector in Iran faces secondary U.S. sanctions.
The SDN designations and sector-specific mechanisms encompass almost all significant Iranian companies engaged in international trade and cooperation. As a result, it can be argued that administering a dispute involving individuals or entities on the SDN list or associated with the aforementioned Iranian economic sectors falls within the scope of sanctionable activities. This risk may extend to lawyers and law firms representing Iranian companies.
Secondary sanctions imposed by the United States penalize non-U.S. financial institutions that knowingly conduct or facilitate significant financial transactions on behalf of Iranian SDNs or different sectors of the Iranian economy. This means that non-U.S. banks and financial institutions that process registration fees or other costs in arbitration proceedings are vulnerable to being sanctioned.
Iran’s Memorial to the ICJ highlights the adverse impact of U.S. measures on Iranian nationals and companies seeking to utilize international dispute settlement mechanisms. The restrictions resulting from U.S. sanctions have prompted foreign banks and insurers to refrain from processing payment transactions with Iranian financial or banking institutions. Therefore “it has become extremely difficult for Iranian nationals and companies: to defend or enforce their rights through international dispute settlement mechanisms outside of Iran,” the memorial states.
Numerous correspondences from the International Court of Arbitration of the ICC confirm the difficulties faced by Iranian entities as a result of the re-imposition of sanctions by the United States. One of these letters from the ICC Secretariat, identified as Annex No. 185 in the Annexes To The Memorial of the Islamic Republic of Iran, Volume IV dated May 24, 2019, explicitly recognizes the significant challenges encountered in processing payments on behalf of Iranian individuals and organizations within the banking sector. These banking obstacles prevented the ICC from receiving payments from the Iranian respondent. The letter also states that, as of the date of the letter, no alternative solution has been found at the ICC’s level. Consequently, the respondent is requested to provide an OFAC license that would authorize the ICC’s banks to process the payment in this matter.
Normally, sanction regimes include specific exemptions for the provision of legal services and the payment of legal fees. A general license permits U.S. entities to engage in arbitration against Iranian SDNs. However, this license does not authorize U.S. persons to make direct or indirect payments or provide services to SDNs in connection with arbitration, unless they have obtained a specific license from OFAC. Historically, OFAC has been reluctant to issue licenses for payment or provision of services to Iran. The general license does not extend to non-U.S. entities that provide services to Iranian SDNs or other sanctioned sectors of the Iranian economy.
According to news published on the website of the Iranian Committee of the International Chamber of Commerce, in December 2021, OFAC did issue a license specifically authorizing financial transactions concerning the costs of proceedings involving Iranian individuals before the ICC. This exception allows for financial facilitation in ICC cases involving Iranian entities. However, the scope of this OFAC license is limited. It applies only to proceedings before the ICC International Court of Arbitration and only for financial facilitation. It does not encompass other reputable international arbitral tribunals.
Ameneh Dehshiri is an international legal affairs lawyer based in London, holding a Bachelor’s and a Master’s degree in law, along with a PhD in international law. She has a 15-year track record working extensively with prestigious international and national law firms and companies.
Sanctions on Iran Also Limit its Access to International Dispute Resolution Mechanisms
By Ameneh Dehshiri
Middle East & North Africa
As time passes without a concrete agreement de-escalating the long-running nuclear crisis between Iran and the international community, Iranian companies face continued uncertainty about lingering claims for damages due to contracts broken by Western firms.
The 2015 Joint Comprehensive Plan of Action (JCPOA) presented significant opportunities for economic growth and reconciliation by lifting UN Security Council sanctions, as well as multilateral and national sanctions pertaining to Iran’s nuclear program. International companies were quick to recognize Iran’s potential and signed a multitude of agreements with Iranian firms across an array of industries, from energy to automobile manufacturing.
In the wake of the U.S. unilateral withdrawal from JCPOA in May 2018, however, international companies were forced to wind down their activities in Iran, resulting in the termination or suspension of contracts. The repercussions were severe, as international partners did not fulfill their contractual obligations, causing substantial financial and operational damage to Iranian parties.
Seeking redress, many Iranian companies contemplated invoking arbitration clauses within their agreements to claim damages. However, the intricate legal landscape created by U.S. sanctions added further complications. Uncertainty looms over international arbitration tribunals and their arbitrators, which could potentially become vulnerable to U.S. secondary sanctions.
Arbitration is the prevalent mechanism to resolve contractual disputes. During arbitration proceedings, involved parties present their respective cases before one or more arbitrators. The arbitrators meticulously review the evidence and arguments and render a decision, known as an arbitral award, which is legally binding. However, the sanctions imposed by the United States over an extended period have curtailed the capacity of Iranian nationals and entities to pursue arbitration, despite the inclusion of arbitration mechanisms in mutually agreed contracts.
On June, 14, 2016, Iran initiated legal proceedings against the United States at the International Court of Justice (ICJ) over alleged violations of a 1955 Treaty of Amity, Economic Relations, and Consular Rights. In Iran’s memorial to the ICJ submitted on May 29, 2019, the primary focus was on financial transaction restrictions as the primary consequence of U.S. sanctions, limiting Iranian entities’ access to international dispute settlement mechanisms outside Iran. However, the ways in which U.S. sanctions hinder Iranian entities’ ability to access international arbitration are intricate and multifaceted.
Non-U.S. persons and entities that operate entirely outside U.S. jurisdiction may still find themselves subject to negative legal consequences if they engage in “significant” transactions or provide material support to individuals sanctioned by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) — so-called Designated Nationals and Blocked Persons or SDNs. This jeopardy exists if 50 percent of an entity is directly or indirectly owned by someone on the SDN list.
Furthermore, after the Trump Administration withdrew from the JCPOA, it issued a series of Executive Orders imposing secondary sanctions on Iran’s energy, shipping, banking, iron, steel, aluminum, and copper sector. Any individual or entity involved in construction, mining, automotive manufacturing, textiles, or the financial sector in Iran faces secondary U.S. sanctions.
The SDN designations and sector-specific mechanisms encompass almost all significant Iranian companies engaged in international trade and cooperation. As a result, it can be argued that administering a dispute involving individuals or entities on the SDN list or associated with the aforementioned Iranian economic sectors falls within the scope of sanctionable activities. This risk may extend to lawyers and law firms representing Iranian companies.
Secondary sanctions imposed by the United States penalize non-U.S. financial institutions that knowingly conduct or facilitate significant financial transactions on behalf of Iranian SDNs or different sectors of the Iranian economy. This means that non-U.S. banks and financial institutions that process registration fees or other costs in arbitration proceedings are vulnerable to being sanctioned.
Iran’s Memorial to the ICJ highlights the adverse impact of U.S. measures on Iranian nationals and companies seeking to utilize international dispute settlement mechanisms. The restrictions resulting from U.S. sanctions have prompted foreign banks and insurers to refrain from processing payment transactions with Iranian financial or banking institutions. Therefore “it has become extremely difficult for Iranian nationals and companies: to defend or enforce their rights through international dispute settlement mechanisms outside of Iran,” the memorial states.
Numerous correspondences from the International Court of Arbitration of the ICC confirm the difficulties faced by Iranian entities as a result of the re-imposition of sanctions by the United States. One of these letters from the ICC Secretariat, identified as Annex No. 185 in the Annexes To The Memorial of the Islamic Republic of Iran, Volume IV dated May 24, 2019, explicitly recognizes the significant challenges encountered in processing payments on behalf of Iranian individuals and organizations within the banking sector. These banking obstacles prevented the ICC from receiving payments from the Iranian respondent. The letter also states that, as of the date of the letter, no alternative solution has been found at the ICC’s level. Consequently, the respondent is requested to provide an OFAC license that would authorize the ICC’s banks to process the payment in this matter.
Normally, sanction regimes include specific exemptions for the provision of legal services and the payment of legal fees. A general license permits U.S. entities to engage in arbitration against Iranian SDNs. However, this license does not authorize U.S. persons to make direct or indirect payments or provide services to SDNs in connection with arbitration, unless they have obtained a specific license from OFAC. Historically, OFAC has been reluctant to issue licenses for payment or provision of services to Iran. The general license does not extend to non-U.S. entities that provide services to Iranian SDNs or other sanctioned sectors of the Iranian economy.
According to news published on the website of the Iranian Committee of the International Chamber of Commerce, in December 2021, OFAC did issue a license specifically authorizing financial transactions concerning the costs of proceedings involving Iranian individuals before the ICC. This exception allows for financial facilitation in ICC cases involving Iranian entities. However, the scope of this OFAC license is limited. It applies only to proceedings before the ICC International Court of Arbitration and only for financial facilitation. It does not encompass other reputable international arbitral tribunals.
Ameneh Dehshiri is an international legal affairs lawyer based in London, holding a Bachelor’s and a Master’s degree in law, along with a PhD in international law. She has a 15-year track record working extensively with prestigious international and national law firms and companies.
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