Sanctions in loan agreements

1. Sanctions in loan agreements Avv. Furio Samela Partner, Watson, Farley & Williams Shipping and the Law 2014

2. US approach • The United States has a long history of imposing sanctions through Presidential Orders, Department of Treasury regulations, statutes and, through the U.S. Department of Treasury, Office of Foreign Asset Control (OFAC), a continually changing list of “specially designated nationals”. Currently, the U.S. has sanctions in effect against the following countries: Belarus, Burma (Myanmar), Cuba, Democratic Republic of the Congo, Iran, Iraq, Ivory Coast, Lebanon, Liberia, Libya, North Korea, Somalia, Sudan, Syria, Yemen, Zimbabwe and, more recently, Russia. The sanctions vary in scope from a complete prohibition on all transactions by U.S. persons as well as a prohibition on certain transactions by non‑U.S. persons with certain sanctioned countries, to sanctions targeted at certain individuals in certain sanctioned countries on the “Special Designated National” (SDN) list maintained by OFAC.

3. EU and UN approach • EU sanctions and trade embargoes expanded significantly in the 1990s and in the first decade of this century. There are currently over 30 countries named in EU sanctions or trade embargoes of one kind or another. Significant publications on the background to, and implementation of EU sanctions are: “Basic Principles on the Use of Restrictive Measures (Sanctions)”, Council of the European Union Document 10198/04; and “Guidelines – Restrictive Measures”, Council of the European Union Document 11205/12, as updated. • An ever increasing international sanctions regime directed at Iran has developed since UN Security Council Resolution 1737 (2006) and now UN Security Council Resolution 1929 (2010).

4. Points of contrast between US and EU • A point of contrast between U.S. and EU sanctions is the increasing tendency of the former to have extra‑territorial effect, whereas the policy of the EU is expressly to reject extra‑territoriality – and to be hostile to the extra‑territorial effect of non‑EU sanctions. EU sanctions typically apply to activity within the EU by anyone, activities anywhere in the world by companies or nationals of a Member State and activity involving ships or aircraft under the jurisdiction of a Member State. • A further point of contrast between the EU and the U.S. is in the field of judicial review. EU sanctions have been the subject of (often successful) challenge in the EU and the UK courts. This has not happened in the U.S. to the same extent. Although there have been some challenges to designation of specific persons to the U.S. specially designated nationals list, the decisions of OFAC in administering U.S. sanctions are given a great amount of judicial deference. U.S. courts have been reluctant to overrule decisions of OFAC unless they have been shown to arbitrary and capricious, with no basis in law.

5. Sanctions and loan agreements

6. Sanctions and shipping - follows

7. Sanctions and shipping - follows • The Baltic and International Maritime Council (BIMCO) has developed a sanctions clause for charters which is favourable to shipowners and which gives them the right to refuse to comply with charterers’ instructions where this would put the shipowner in breach of sanctions and contains an indemnity by the charterer in favour of the shipowner in respect of claims by cargo interests or sub‑charterers by reason of the shipowner exercising its rights under the clause. • Financiers have a commercial interest in the employment of a vessel; standard undertakings in loan and security documents require information to be delivered by the customer, sometimes automatically and sometimes at the request of the financier. Bareboat chartering, and time chartering for longer than a specified period, invariably require financier consent.

8. Sanctions and shipping

9. Some conclusions and issues to address - follows

10. Some conclusions and issues to address

11. Otherwise… • BNP Paribas is paying $9 billion over breaches of American sanctions against Sudan and Iran. Credit Suisse, UBS, Barclays and others have settled for billions more, over various accusations. And that is just the financial institutions.