It has been a number of years that the United States has been chasing down the Iranian shipping industry. Some years ago, OFAC designated the Islamic Republic of Iran Shipping Lines (IRISL) and a number of Iranian vessels on the SDN list. Last week, the Iran Freedom and Counter-Proliferation Act of 2012 (the IFCA) went into effect. It is part of the 2013 National Defense Authorization Act (the “2013 NDAA”). This very well may be the most potent blow against Iran’s shipping (and in large part economy), by placing severe sanctions on third country entities engaging in certain significant dealings with Iran’s energy, shipping, and shipbuilding sectors. Notably, there are certain exceptions for food, medicine, and medical supplies, though it remains to be see if these humanitarian goods do not [again] become a victim of companies shunning even those transactions related to Iran that are legal out of a fear of violating the law.
There has been significant talk of Iran re-flagging vessels and playing a game of cat and mouse against the shipping world. Notably, this article in Forbes by Claudia Rosset, was very interesting. Titled Have Tehran’s Tankers Hijacked the Tanzanian Flag?, the piece is definitely informative, but I am not sure it is fully an article and not entirely an editorial. That said, it does illustrate the practices that the Iranian shipping industry has by engaged in by many accounts.
One key question is – do the parties mentioned in the article, e.g., the Tanzanian maritime authorities, the parties they have apparently outsourced their vessel registration to, etc. have the requisite sophistication to interpret such exceptionally esoteric laws as the IFCA? My thoughts in reading this law is that, as somebody with as many years of experience on sanctions law as I do, these regulations are exceptionally complicated. I can only imagine what they are like for lawyers outside the trade bar, much less non-lawyers, and non-lawyers who are not native English speakers, such as many of the folks in the international shipping industry.
Relatively very few practitioners likely have a detailed, thorough understanding of these laws. As such, I can see a situation where many are still violating these regulations, not intentionally necessarily. This begs the question – is the US State Department going to go after all these violators? Will and if so, how will these companies be brought into compliance?
Companies should educate themselves on this law. As I have often said, “we do not deal with Iran” is a very easy, but intellectually lazy answer. Given Iran’s reportedly wide use of front companies, it is critical that companies enact robust compliance programs that are more than just skin deep – screening and doing due diligence (and appropriately documenting it) on their potential counterparties, among other measures. Again, while exposure does naturally vary based on the type of business and other related facts, this matter does highlight the fact that compliance is not a luxury but a necessity for companies in the international trade realm.