Overview of Iranian Trade Sanctions

1. Overview of Iranian Trade Sanctions London - October 2010 - Presented by Kirk M. Lyons © 2010 | Lyons & Flood LLP, 65 West 36th Street, 7th Floor, New York, NY 10018

2. Purpose and history of Iranian sanctions • Global sources of sanctions • Focus on U.S. sanctions • Scope of the sanctions • Prohibited transactions and activities • Permitted transactions and activities • Potential penalties for violation • Waivers and other provisions • Responses to sanctions • A look forward • Useful resources • Q & A Agenda October 2010

3. 1970s: Islamic Revolution and hostage crisis Purpose and history of Iranian sanctions 3 October 2010

4. 1980s: Iran-Iraq War and reduction of oil production 2000s: Nuclear development Purpose and history of Iranian sanctions (cont.) 4 October 2010

5. Global sources of sanctions 5 October 2010

6. Focus on U.S. sanctions 6 October 2010

7. Focus on U.S. sanctions (cont.) 7 October 2010

8. Focus on U.S. sanctions (cont.) 8 October 2010

9. Focus on U.S. sanctions (cont.) 9 October 2010

10. Focus on U.S. sanctions (cont.) 10 October 2010

11. And many more… Focus on U.S. sanctions (cont.) 11 October 2010

12. Iran Sanctions Act of 1996 (as amended by CISADA): • Applies to “any person the President determines has carried out the [sanctionable] activities” • Not limited to just U.S. persons or companies – extraterritorial in reach • Extends to successors, parents, subsidiaries and affiliates – the key is common ownership and/or control All other sanctions including Executive Orders, Department of Treasury regulations, and other provisions of CISADA: • Apply to U.S. persons or companies wherever they are located or do business, including any foreign branches or subsidiaries • Apply to any persons or companies present in the U.S., including U.S.-based branches or subsidiaries of foreign companies • Apply to persons or companies whose property is present in the U.S. to the extent of such property, including electronic funds transfers and letters of credit Scope of the sanctions 12 October 2010

13. Under the Iran Sanctions Act of 1996 (as amended by CISADA), it is prohibited to “knowingly”: • Make an investment, in excess of $5 million per instance or $20 million annually, that “directly and significantly contributes to the enhancement of Iran's ability to develop petroleum resources” which includes exploration, extraction, refining, and transportation of petroleum, refined petroleum products, oil or LNG, natural gas resources, oil or LNG tankers, and products used to construct or maintain pipelines used to transport oil or LNG • Sell, lease, or provide to Iran “goods, services, technology, information or support,” with a fair market value in excess of $1 million per instance or $5 million annually, that could directly and significantly facilitate the maintenance or expansion of Iran's domestic production of refined petroleum products, including any direct and significant assistance with respect to the construction, modernization, or repair of petroleum refineries" Prohibited transactions and activities 13 October 2010

14. Under the Iran Sanctions Act of 1996 (as amended by CISADA), it is prohibited to "knowingly": • Sell or provide to Iran refined petroleum products (defined as diesel, gasoline, jet fuel, and aviation gasoline) with a fair market value of $1 million per instance or $5 million annually • Sell, lease, or provide to Iran “goods, services, technology, information or support,” with a fair market value in excess of $1 million per instance or $5 million annually, that could directly and significantly contribute to the enhancement of Iran’s ability to import refined petroleum products” including: • “underwriting or entering into a contract to provide insurance or reinsurance for the sale, lease, or provision of such goods, services, technology, information or support” • “financing or brokering such sale, lease, or provision” • “providing ships or shipping services to deliver refined petroleum products to Iran” Prohibited transactions and activities (cont.) 14 October 2010

15. Additionally, U.S. persons or companies cannot knowingly: • Import any goods from Iran • Export any goods, services, or technology of U.S. origin to Iran • Includes transshipments where undertaken with knowledge or reason to know that the re-exportation is intended for Iran • Purchase, sell, transport, swap, broker, approve, finance, facilitate, or guarantee such transactions – even between foreign parties • Invest in property owned or controlled by the Government of Iran • Contract to provide supervision and management responsibility for the development of petroleum resources located in Iran, or finance or guarantee such contracts Prohibited transactions and activities (cont.) 15 October 2010

16. U.S. financial institutions (including insurance companies and branches or agencies of foreign banks) may not: • Open or maintain correspondent accounts or payable-through accounts on behalf of foreign financial institutions which “knowingly”: • Facilitate the efforts of the Government of Iran “to acquire or develop weapons of mass destruction or delivery systems for weapons of mass destruction,” “to provide support for organizations designated as foreign terrorist organizations ... or support for acts of international terrorism” • “[F]acilitate the activities of a person subject to financial sanctions” pursuant to United Nations Security Council resolutions • Engage in money laundering to carry out the above • Facilitate efforts by Iranian financial institutions to carry out the above • Facilitate significant transactions or provide significant financial services for Iran’s Revolutionary Guard Corps or any of its agents or affiliates whose property is blocked, or financial institutions whose property is blocked in connection with Iran's support for international terrorism or proliferation of weapons of mass destruction or delivery systems for weapons of mass destruction Prohibited transactions and activities (cont.) 16 October 2010

17. There are limited exceptions to the ban on imports to the U.S. from Iran including: • Accompanied baggage for personal travel, and information and informational materials (defined as: publications, films, posters, phonographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and wire feeds) • Similarly, permitted exports to Iran from the U.S. include: • Agricultural products, medicine, medical devices, informational materials, humanitarian assistance, goods to support non-governmental organizations, hardware and software needed to access the internet, and parts and technologies necessary to assure the safety of civilian aviation • Foreign persons or companies may import goods from Iran to countries other than the U.S. • Foreign persons or companies may export goods, services, technology, information or support to Iran from other countries besides the U.S., so long as such exports do not involve refined petroleum products or enhance Iran's petroleum refining capacity or Iran's ability to import refined petroleum products in excess of the threshold amounts Permitted transactions and activities 17 October 2010

18. Violation of the Iran Sanctions Act of 1996 (as amended by CISADA) requires imposition of at least three of the below: • Denial of assistance or credit by the Export-Import Bank of the United States • Revocation of export licenses • Prohibitions on loans or credits from U.S. financial institutions • Prohibition for financial institution's designation as primary dealer in U.S. debt instruments • Prohibition for financial institution's service as agent of U.S. or as repository for U.S. funds • Denial of U.S. government procurement opportunities • Prohibitions on making foreign exchange transactions in the U.S. • Prohibitions on bank transfers in the U.S. • Prohibitions on property transactions in the U.S. • Restrictions on imports The sanctions will also be published which could lead to reputational damage. Potential penalties for violation 18 October 2010

19. Violation of Executive Orders: • Criminal fines of up to $1 million and a prison term of up to 20 years Violation of Iranian Transactions Regulations: • Civil fines of up to $11,000 per violation, criminal fines of up to $50,000, and a prison term of up to 10 years Violation of Iranian Financial Sanctions Regulations: • Civil fines of the greater of $250,000 or double the amount at issue (i.e., the amount of the offending transaction or the balance of the offending account), criminal fines of up to $1 million, and a prison term of up to 20 years Additional criminal fines and prison terms for making false statements or concealment of sanctions violations Potential penalties for violation (cont.) 19 October 2010

20. A determination to impose sanctions is not reviewable in any court and cannot be appealed • However, waivers can be obtained from the President where such activities which are found to be “necessary to the national interest” • Alternatively, the Secretary of State is permitted to issue advisory opinions as to whether a proposed activity would result in sanctions • After receiving credible information indicating that a person is engaged in sanctionable conduct, the President is required to initiate an investigation, which must be completed within 180 days Waivers and other provisions 20 October 2010

21. INTERTANKO: Sanctions Clause Any trade in which the vessel is employed under this Charterparty which could expose the vessel, its Owners, Managers, crew or insurers to a risk of sanctions imposed by a supranational governmental organisation or the United States, { insert other countries } shall be deemed unlawful and Owners shall be entitled, at their absolute discretion, to refuse to carry out that trade. In the event that such risk arises in relation to a voyage the vessel is performing, the Owners shall be entitled to refuse further performance and the Charterers shall be obliged to provide alternative voyage orders. Source: INTERTANKO Published: March 2010 Responses to sanctions 21 October 2010

22. BIMCO: Sanctions Clause for Time Charter Parties (a) The Owners shall not be obliged to comply with any orders for the employment of the Vessel in any carriage, trade or on a voyage which, in the reasonable judgement of the Owners, will expose the Vessel, Owners, managers, crew, the Vessel's insurers, or their re-insurers, to any sanction or prohibition imposed by any State, Supranational or International Governmental Organisation. (b) If the Vessel is already performing an employment to which such sanction or prohibition is subsequently applied, the Owners shall have the right to refuse to proceed with the employment and the Charterers shall be obliged to issue alternative voyage orders within 48 hours of receipt of Owners' notification of their refusal to proceed. If the Charterers do not issue such alternative voyage orders the Owners may discharge any cargo already loaded at any safe port (including the port of loading). The Vessel to remain on hire pending completion of Charterers' alternative voyage orders or delivery of cargo by the Owners and Charterers to remain responsible for all additional costs and expenses incurred in connection with such orders/delivery of cargo. If in compliance with this Sub-clause (b) anything is done or not done, such shall not be deemed a deviation. (c) The Charterers shall indemnify the Owners against any and all claims whatsoever brought by the owners of the cargo and/or the holders of Bills of Lading and/or sub-charterers against the Owners by reason of the Owners' compliance with such alternative voyage orders or delivery of the cargo in accordance with Sub-clause (b). (d) The Charterers shall procure that this Clause shall be incorporated into all sub-charters and Bills of Lading issued pursuant to this Charter Party. Date: 09.07.10 Responses to sanctions (cont.) 22 October 2010

23. Lloyd’s: Sanction Limitation and Exclusion Clause No (re)insurer shall be deemed to provide cover and no (re)insurer shall be liable to pay any claim or provide any benefit hereunder to the extent that the provision of such cover, payment of such claim or provision of such benefit would expose that (re)insurer to any sanction, prohibition or restriction under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America. JC2010/014 11 August 2010 Responses to sanctions (cont.) 23 October 2010

24. The Iran Sanctions Act of 1996 (as amended by CISADA) will cease to be effective on December 31, 2016, but can be terminated earlier if the President certifies to Congress that the Government of Iran has ceased providing support for acts of international terrorism and has ceased the pursuit, acquisition, and development of nuclear, biological, and chemical weapons and ballistic missiles and ballistic missile launch technology • More specific regulation of financial institutions is expected to be issued by OFAC • OFAC will continue to add Iranian persons and entities to its list of Specially Designated Nationals and Blocked Persons • Further regulations issued by the EU Council and other national governments are expected • Next year the focus in the U.S. will shift to countries which permit evasion of sanctions and provide safe harbor for violators, such as Russia, China, the United Arab Emirates, Malaysia, and Singapore A look forward 24 October 2010

25. U.S. Treasury – Sanctions Program Summary for Iran http://www.ustreas.gov/offices/enforcement/ofac/programs/iran/iran.shtml OFAC - List of Specially Designated Nationals and Blocked Persons http://www.ustreas.gov/offices/enforcement/ofac/sdn/ Iran Watch – Sanctions Tally http://www.iranwatch.org/ourpubs/bulletin/unscmatrix.html Regulatory DataCorp Inc. http://www.rdc.com Useful resources 25 October 2010

26. Questions and Answers 26 October 2010