Secondary Sanctions: a disguised restriction on Market Accessibility

The case of Iran

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MENA Planning Internationalisation Emerging markets Export Market Accessibility

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In the global framework of the international markets, there are many types of barriers. Some of them are clearly visible and only need a bit of experience (duties, safeguard measures, tariff quotas, registrations, etc.); the others are, instead, “hidden” and may be risky even for market leaders.

It is the case of sanctions, those obstacles to trade toward a given country which often, as for the US secondary sanctions, affect all the partners who want to have business with that country as well as the country itself.

There are two types of Sanctions: Primary and Secondary. Primary sanctions apply to the US persons, any individual located on US territory, any US citizen or permanent residents independently from where they are, any US entity, and products of US origin or products containing at least 10% US controlled product or based on certain US technology. Secondary sanctions, instead, apply to every person or entity carrying out a particular transaction, independently from its nationality or domicile, therefore they have extraterritorial effects. There are currently secondary sanctions against anyone engaging in certain transactions with Iran, North Korea, Cuba, Russia and Venezuela.

About Iran, currently the USA apply secondary sanctions even to non-US entities carrying out transactions with Iranian entities listed in the List of Specially Designated Nationals and Blocked Persons (SDN List), published by the Office of Foreign Assets Control (OFAC) of the United States Department of Treasury.

It is important to recall that the US rules and sanctions policy applied in breach of the commitments accepted in the JCPOA (Joint Comprehensive Plan of Action)1, are considered as unlawful and inapplicable within the EU and towards European entities, people and organizations, within the meaning of Regulation (EC) n.2271/962.

Furthermore, after the precautionary measure of the Court of Justice in the Hague on 3rd October 20183, trading with Iran of foodstuff, agricultural products, medicines and medical devices, as well as products for civil aviation safety, remains free from sanctions and, equally, the related banking transactions may not be subject to sanctions, even the secondary ones.

This approach, already supported by OFAC under what is known as the “Humanitarian Exception”, has also been implemented by some European banks that continue providing assistance for the recovery of claims from Iran through the correspondent banking relationships with those local banks which are not subject to secondary sanctions, although included in the SDN List since 5th November 2018.

Valeria Minasi

is an export and internationalization consultant. She collaborates with the ExportPlanning team within the project International Market Accessibility Help-Desk.

(1) JPCOA is an international agreement about nuclear energy in Iran, between Iran, the 5+1 permanent members of the Security Council (China, France, Russia, UK, USA,+Germany),and UE. It defines, for the next years, a set of measures to ensure the exclusively peaceful nature of the Iranian nuclear project. Under the terms of the agreement, Iran accepted to remove its medium enriched uranium reserves, to cut off 98% of its low enriched uranium reserves and to reduce by two thirds its gas centrifuges for 13 years. For the following 15 years, Iran may enrich uranium only at 3.67%. Moreover, Iran agrees to not build any new heavy water reactor for the same period. The agreement, in return, provides that Iran will obtain the lifting of economic sanctions applied by the United States, the EU and the Security Council of the United Nations due to its nuclear program (14th July 2015).

(2) This Regulation tends to cancel the effects of the American norm applying to the EU entities’ business with third countries, especially with Iran. The Regulation considers a number of requirements included in US laws and regulations against Iran, as harming for the economic and financial interests of the EU and, consequently, ineffective in Europe. The Regulation, with the aim of cancel the American secondary sanctions towards Iran, imposes to all people and organizations of the EU two bans and recognizes one right:

  • The prohibition on the acceptance or on the execution in the EU of any sentence or decision of a court of justice or administrative court outside the Union, that directly or indirectly, imposes the American secondary sanctions to a European entity;
  • The prohibition to comply, whether directly or through other intermediary person, actively or by deliberate omission, with any requirements or prohibition, including requests of foreign courts, based on or resulting, directly or indirectly, from the laws specified in the Annex related to secondary sanctions or from actions based thereon or resulting therefrom;
  • The right to recover any damage, including legal costs, caused by the application of the laws regarding secondary sanctions or by actions based thereon or resulting therefrom.
(3) Please see ALLEGED VIOLATIONS OF THE 1955 TREATY OF AMITY, ECONOMIC RELATIONS, AND CONSULAR RIGHTS.